Wednesday, December 29, 2010

A Counting

When I was a wee lad my father would set me on his knee and tell me "Son, always make sure you calculate in your profit before bidding on a job."

I see what he's saying, but I'd take that one further. "Dad, always calculate what you get paid, as a worker, in addition to your profit before bidding on a job."

My dad, being an engineer who convinced the Dean of his school that he wouldn't be able to pass to get his engineering degree unless they accepted his course in accounting as his math course (I'm not kidding about that) actually uses one of the most brilliant accounting systems I've ever seen.

He uses an accounting system which sacrifices precision for accuracy. Boy, that's an engineer way to do things, isn't it? Here's how it works: his company does all custom fabrication (wow, just like a film studio or a theater) and each job is given a job number (which is why our movies have job numbers).
So each employee counts how much time they've been working on each job during the week. And each employee is assigned an hourly expense. Say you're a welder and you make (I'm just making up numbers here) $20/hour. Well you also use a welding machine which effectively costs $x/hour. And there's the heat and the rent on the space you use, there's your safety gear, the truck you ride around in, etc.
So rather than try to calculate all those thing separately, my dad in his internal accounting creates an arbitrary number like (and again, I'm making up these numbers as I don't even know what he uses nowadays) $50/hour of cost of that employee.
So all he has to do is look at the number of hours each employee has worked, multiply by the somewhat arbitrarily come-up-with number of $50, add the cost of materials and viola! He know how much that job is really costing right now.

Honestly, it's a pretty brilliant system. It doesn't pass muster with the government in no way no how, but if you want to know internally how you're making a profit or taking a loss it's an off-the-charts brilliant method.

No comments: