How to catch job cost overruns before you invoice
Most shops find out what a job really cost after it ships, when the only thing left to do is learn from it. The hours that ate the margin were booked one operation at a time, weeks earlier, and every one of them was in the ERP the day it was booked.
Example
A hydraulic manifold is quoted at $32,000 with a 24% margin, and is now heading for 9% because its hours are running over. That is about $4,800 of margin gone. Seen at step 4 of 6, there are still two steps to re-plan, a change order to raise, or a faster machine to move it to. Seen at invoicing, it is just gone.
Example figures, not a measured result.
Three early signs
1. One operation is over its hours
The earliest signal. When a single step takes 20% more hours than estimated, something is different from the quote: the setup, the material, the machine or the method. Find out while the step is still running.
2. Spending is ahead of progress
A job that has spent 60% of its budget with 40% of its work done is on track to overrun, even though it is still under budget today. Compare the share of the estimate spent with the share of the work finished.
3. It is over budget
Actual cost more than 10% over the estimate. By now the overrun has happened, but the remaining steps can still be managed.
Project the cost to finish
Cost so far is only half the picture. What matters is what the job will cost when it is done. The simplest honest projection assumes the remaining work runs the way the finished work actually ran:
Projected cost = cost so far + remaining estimate × (actual ÷ estimate on the work finished)
Example
A job is estimated at 200 hours. The operations finished so far were estimated at 120 hours and took 150, a ratio of 1.25. The remaining 80 estimated hours will probably take about 100. The job is heading for 250 hours, not 200, and you know it with a third of the work still to do.
Made-up figures, to show the method.
Do the same with the price and you have the projected margin, to set beside the margin you quoted.
What you can still do at step 4 of 6
- Re-plan the remaining steps, or move one to a faster machine.
- Raise a change order if the customer changed something.
- Tell the customer early if the price or date has to move.
- Fix the estimate for the next quote of the same part, while the reason is still fresh.
What it takes from your ERP
Estimated and actual hours per operation, and costs booked to the job. Most job shop ERPs record both. If yours records labor only per job, not per step, you can still compare spending with progress, but not find the step that's over.
How Shop Traveler does it
Shop Traveler reads your jobs every 15 minutes, read-only, and projects each job's cost to finish and its margin from the rate its finished work actually ran. It flags a job when an operation runs more than 20% over its hours (and names the step), when spending runs ahead of progress, and when it goes more than 10% over budget. Those thresholds are settings for your shop. The Overview shows the margin at risk across all open jobs, and which customers it belongs to.