Source: CUSTOM HOME Magazine
Publication date: September 1, 2003

By Steve Maltzman, CPA

Do you want to prevent unauthorized purchases of materials? Would you like your variance between estimate and actual costs to be less than 1 percent? Are you willing to invest time up front, before you start construction, to commit costs to your trade partners and suppliers? Do you want to get away from approving every invoice for job costs that comes into your office? Do you want to streamline your job cost reporting? If you answered yes to any of these questions, a purchase order system may be right for your company.

The best method for controlling material and trade contractor costs is committing costs up front and using a purchase order system for cost control. The key to a successful purchase order system is to commit as many costs as possible prior to starting the job. Committed costs can take the form of a written purchase order or a subcontract agreement. Many of the commitments can be established during the estimating process by obtaining trade contractor and supplier bids. A committed cost system is valuable for builders of any size, but to implement one takes discipline and does not happen overnight. However, if you are willing to invest the time and resources to implementing a committed costs system, there should be a significant effect on your bottom line.

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