Is your current work in process more profitable than projects you have completed? Next, examine margins by the type of project you are doing. Did your margins on the custom homes you built on the buyer’s land come in according to plan? How about your remodeling work and custom homes on your lot? Were they completed within your budget?
After identifying the areas of major concern, start reviewing variances on the projects. For example, ABC Builders planned on a margin of 20%. Margins on completed jobs were reported at 19.5%, while jobs in progress were only showing an overall gross profit of 15%. In order to identify where this slippage was occurring, ABC reviewed its margins by project type and noticed that remodeling projects were on target but custom homes on the buyer’s lot showed a major variance from plan. Looking further, ABC identified the Smith house as one with a major variance. Now it is time to dig deeper by reviewing the detail job cost reports on the Smith project.
To see if your financial management reporting system is giving you the information to manage your costs, take this short test. For each of the items in this checklist, give your company a score of 0, 1, or 2 as follows:
0 = System not in existence
1 = System in existence but not consistently adhered to
2 = System consistently adhered to
0 1 2 Income statement is prepared and reviewed by management monthly.
0 1 2 Income statement is reviewed within 20 days after the end of the previous month.
0 1 2 Income statement includes actual results for the month and the year-to-date.
0 1 2 Income statement includes percentage of sales for all expenses.
