Last week I found that a search for “what are cost codes,” turns up descriptions from a dozen different types of companies. So I felt it was time for me to highlight the solar specific aspects of cost codes. Before we dive deeply into solar cost codes, however, let’s touch on the gotchas and gains they bring.
Possibly the biggest danger with cost codes is too much precision. Precision is attractive to some (including me!). The accounting team is inclined to get extremely detailed when putting together cost codes and for good reason. The more detailed the cost codes, the easier it is to determine what is amiss in the numbers. If a specific cost code for ⅝” lag bolts is defined, then obviously a quick survey of prices helps shine a light on whether those bolts have been included, misplaced, or forgotten. Think take-offs from this blog article. The accounting team is responsible for every penny.
Additionally, there are some real benefits when doing taxes. Precision becomes problematic in estimating and recording. Each person who has to report or log values must know the precise cost codes, leaving room for error. Your roof-bound team members will not appreciate categorizing their hours into tiny, 5 minute increment buckets either. So, especially on the labor side of things, broader buckets will get more reliable results. A little counterintuitive, I know. When bidding a project, sifting through many cost codes won’t help you go faster.
Another danger with cost codes is trusting them too much. As the US Army mathematicians used to say, “garbage in, garbage out”. Translation: if your team incorrectly records numbers then your projections are going to be wrong. One datapoint should be treated with a respectable wariness. Four hundred data points all agreeing is probably reliable, mostly. This pitfall also includes mis-categorization. In some cases folks might record the data to the wrong cost code. This is especially true for folks in adverse or time sensitive scenarios. Your interpretations of “AC conduit” and “Roof conduit” might differ from someone else. Take situations when the inverter is on the roof. What is the official category? And can you see how someone might miss that?
Enough of these downers! What about the gains?
Well, solar cost codes are great for pre-filtering tasks. They provide the granularity needed to observe project specifics. I’ve talked before about “system price per watt” as being a particularly useless number when reviewing a project in any detail. Well, cost codes allow you to talk in some detail about a project. And they are a way for the whole team to be on the same page about what the granularity that is important. They allow you to see how much “AC conduit” really cost the company on a specific project. More importantly, cost codes allow comparison between projects.
Dovetailing to the “pre-filtering” concept, cost codes help a company track behaviors. Without maintaining the granularity of projects, the company controller or estimator can’t see trends. Price per watt fluctuates too much. But reviewing the cost per watt or the modules on a cost code level will allow users to see things like an overall decent of pricing. Take the image above. Solar cost codes enable companies to see the falling trends of modules or labor.
Now that we have addressed some of the benefits and pitfalls of cost codes we can dive into applying them in effective ways. We will begin next week.