Job Costing in Construction: Common Mistakes and How to Fix Them

Construction is the cleanest example of how revenue can grow while a business slowly fails. The mechanism is always the same — projects bid on assumptions that do not match field reality, with cost reporting that arrives too late to course-correct.

Below are five mistakes we see on almost every job-costing audit, and what to do about each.

1. Labor is bucketed at one blended rate

When you cost labor at $48 fully loaded across the whole company, every job looks roughly the same. In reality, your senior crew costs $72 fully loaded and your apprentices cost $34. The mix matters — and it matters more on tight-margin work.

Fix: assign role-level burdened rates and apply them by who actually worked the hours, not who you bid. Yes, this requires the time-tracking discipline. No, it is not optional if you want job-level truth.

2. Equipment time is undercosted

Most contractors charge equipment to the job at depreciation cost only. Reality: equipment also costs maintenance, fuel, idle time when you bid for it but couldn't use it, and operator time. Internal rate sheets that capture all of that are what separate disciplined contractors from the rest.

3. Change orders aren't reconciled to original scope

If a $2.4M project has $380K of change orders by month four, your original estimate is now functionally meaningless. But the 'percent complete' metric still ticks toward 100% based on the original number. Result: you think the job is healthier than it is until the final WIP recon.

Fix: track original contract value separately from the running revised value, and compute completion percentage off the revised number. Always.

4. Indirect costs aren't allocated until year-end

Project managers, estimators, the office, the trucks they drive — all overhead that should burden every job. If you only allocate at year-end, every monthly job report shows artificially fat margins all year. Then December lands and the books look unrecognizable.

Fix: run a monthly indirect-cost allocation. Pick a defensible driver (revenue, direct labor hours, direct cost) and apply it consistently.

5. WIP isn't reconciled to GL

WIP schedules and the general ledger drift apart in 4 out of 5 construction businesses we audit. The schedule shows one revenue recognition pattern; the GL shows another. Often nobody noticed for two years.

Fix: tie out WIP to GL every month. Discrepancies are early indicators of either a project booking issue or an estimating issue.

What good looks like

Good means: every job has a current-week labor + materials + equipment + overhead burdened cost vs estimate, with a percent-complete tied to revised contract value, reconciled monthly to the GL. Pulling that report should take 15 minutes, not three days.