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February 7, 2024
The Crucial Routine: Reviewing Budgeted Hourly Rates for Job Costing by Jane Mugford |
In the fast-paced and ever-changing realm of the print business, maintaining accurate budgeted hourly rates (BHRs) is essential to ensuring profitability and competitiveness. Despite many organizations implementing a Print Management Information System (MIS), a common pitfall is neglecting to carry out regular reviews of their BHRs. In this article, we will explore how often and why businesses need to carefully examine their budgeted hourly rates for job costing.
How Often?
The frequency of reviewing budgeted hourly rates is a critical factor in maintaining accuracy and adaptability in your cost structures. While BHRs can be considered a complex beast, a general guideline is to conduct a comprehensive review at least once a year. This annual benchmark provides an opportunity to account for changes like annual raises for production staff or increases in overhead costs such as rent.
Real-time adjustments are vital for implementing distinct changes. For instance, when acquiring new equipment, it's imperative to calculate and update BHRs promptly. These timely adjustments ensure that your cost estimations stay in sync with the evolving dynamics of your business.
Scheduling of these annual reviews is as important as the frequency itself. Avoid the common mistake of planning your review during peak seasons, as this could lead to indefinite delays. Instead opt to schedule BHR reviews several months in advance during slower periods, ensuring the availability of all stakeholders for a thorough examination.
Why is it Necessary?
Preventing Erosion of Cost-Plus Estimating Systems:
Maintaining Accuracy for Profitability:
Connection to Profitability:
Avoiding "Death by Job Costing":
Remember budgeted hourly rates (BHRs) are a critical component of any organization's costing infrastructure. Neglecting their regular review can lead to inaccuracies in your system’s estimates, potentially impacting your ability to secure business and generate profits. Aim for an annual review, and consider semi-annual reviews for an extra layer of diligence. By keeping BHRs accurate and up-to-date, businesses can navigate the complexities of job costing with confidence, ensuring a solid foundation for sustained profitability.
How Often?
The frequency of reviewing budgeted hourly rates is a critical factor in maintaining accuracy and adaptability in your cost structures. While BHRs can be considered a complex beast, a general guideline is to conduct a comprehensive review at least once a year. This annual benchmark provides an opportunity to account for changes like annual raises for production staff or increases in overhead costs such as rent.
Real-time adjustments are vital for implementing distinct changes. For instance, when acquiring new equipment, it's imperative to calculate and update BHRs promptly. These timely adjustments ensure that your cost estimations stay in sync with the evolving dynamics of your business.
Scheduling of these annual reviews is as important as the frequency itself. Avoid the common mistake of planning your review during peak seasons, as this could lead to indefinite delays. Instead opt to schedule BHR reviews several months in advance during slower periods, ensuring the availability of all stakeholders for a thorough examination.
Why is it Necessary?
Preventing Erosion of Cost-Plus Estimating Systems:
- Neglecting regular reviews often leads to the gradual introduction of “band-aid” solutions and the use of manual adjustments in an attempt to compensate for the perceived deviation in costs. This erosion undermines the integrity of cost-plus estimating systems.
Maintaining Accuracy for Profitability:
- The primary rule of thumb is to have tight and accurate cost structures, allowing you to focus on adjusting markups confidently. Inaccuracy in cost calculations can impact the competitiveness of your bids and, ultimately, your profitability.
Connection to Profitability:
- Budgeted hourly rates are not just numbers; they serve as a direct link to the profitability of your projects. Regular reviews establish a direct connection to the financial well-being of your business, providing insights into areas that may require adjustments or improvements.
Avoiding "Death by Job Costing":
- Reviewing every job in detail, which is commonly known as "death by job costing," is impractical and overwhelming. Regular BHR reviews allow for a more strategic approach by analyzing trends over time, providing a comprehensive overview without drowning in details.
Remember budgeted hourly rates (BHRs) are a critical component of any organization's costing infrastructure. Neglecting their regular review can lead to inaccuracies in your system’s estimates, potentially impacting your ability to secure business and generate profits. Aim for an annual review, and consider semi-annual reviews for an extra layer of diligence. By keeping BHRs accurate and up-to-date, businesses can navigate the complexities of job costing with confidence, ensuring a solid foundation for sustained profitability.