Committed costs, cost to complete and the cost report

Actual cost to date is only part of the story. By the time a subcontractor bills its first month, the contractor has already committed to pay it the full subcontract value, and every purchase order issued is money that will be spent whatever happens next. The monthly cost report brings these pieces together: the budget, what has been spent, what has been committed, what is still needed to finish, and the projected final cost of each line. This lesson explains commitments and cost to complete, walks through the columns of a standard cost report, shows how to forecast each line, and covers the review that turns the report into decisions.

Commitments

A commitment is a contractual obligation to spend money in the future. Subcontracts and purchase orders are the main commitments on a building project; equipment rental agreements, consultant agreements and service contracts are others. The committed cost of a line is the total value of its commitments, including approved change orders to them. The open commitment is the part not yet billed or invoiced: committed cost minus cost to date on those commitments.

Tracking commitments gives early warning. If a subcontract is awarded above its budget line, the overrun is known on the day of award, not months later when the final billing arrives. If purchase orders for lumber already exceed the material budget for framing, the overrun is visible before the lumber arrives. A cost report that shows only actual cost would reveal neither until much later.

Cost to complete

Cost to complete, often called estimate to complete (ETC), is the cost still needed to finish the work on a line. It is a forecast, and the quality of the whole cost report depends on how it is made. There are three basic approaches, and a good forecast uses the one that fits each line.

For a self-performed labour line, a performance-based forecast divides the remaining budget hours by the expected productivity factor for the rest of the work. The question is which productivity factor to use: the cumulative one to date, a recent one, or the budget rate. The answer depends on whether the causes of past performance will continue. If the crew struggled with a difficult foundation but the remaining work is repetitive slabs, the cumulative factor is too pessimistic. If a design problem has slowed every floor so far, assuming a return to budget is wishful.

Projected final cost

For each line, the projected final cost, also called the forecast or estimate at completion (EAC), is cost to date plus cost to complete. The projected over or under is the current budget minus the projected final cost. These two columns are what management reads first.

Sign conventions vary between companies: some show a projected overrun as positive, others as negative, and some use the label 'gain (loss)'. The important thing is that the report states its convention clearly and every reader knows it. This course shows projected over (under) budget, so a positive number is an overrun.

The cost report columns

Most construction cost reports, whatever software produces them, share a common set of columns. Reading across a line tells the story of that piece of work.

# A simplified cost report for Riverbend Commons, end of month 8 (amounts $)
rows = [  # code, current budget, cost to date, cost to complete, previous projected over(under)
    ("03 11 Formwork (self-performed)",   392_800, 251_900, 166_400,  19_500),
    ("03 31 Concrete supply and place",   931_000, 640_200, 301_300,   6_000),
    ("06 10 Rough carpentry",             196_800,  41_300, 158_900,       0),
    ("07 50 Roofing (subcontract)",       633_400,       0, 633_400,       0),
    ("09 21 Drywall (subcontract)",     1_371_500,  88_000, 1_299_900, 12_400),
    ("23 00 Mechanical (subcontract)",  2_212_000, 690_000, 1_548_000,       0),
    ("01 50 General conditions",        1_904_000, 978_000, 958_000,  21_000),
    ("Contingency",                       271_100,       0, 205_000, -66_100),
]
tot = [0, 0, 0, 0, 0]
print(f"{'Line':<34}{'Budget':>11}{'To date':>11}{'To go':>11}{'Final':>11}{'Over':>9}{'Change':>8}")
for code, bud, ctd, ctc, prev in rows:
    final = ctd + ctc; over = final - bud
    print(f"{code:<34}{bud:>11,}{ctd:>11,}{ctc:>11,}{final:>11,}{over:>9,}{over - prev:>8,}")
    for i, v in enumerate((bud, ctd, ctc, final, over)): tot[i] += v
print(f"{'Total':<34}{tot[0]:>11,}{tot[1]:>11,}{tot[2]:>11,}{tot[3]:>11,}{tot[4]:>9,}")

Line                                   Budget    To date      To go      Final     Over  Change
03 11 Formwork (self-performed)       392,800    251,900    166,400    418,300   25,500   6,000
03 31 Concrete supply and place       931,000    640,200    301,300    941,500   10,500   4,500
06 10 Rough carpentry                 196,800     41,300    158,900    200,200    3,400   3,400
07 50 Roofing (subcontract)           633,400          0    633,400    633,400        0       0
09 21 Drywall (subcontract)         1,371,500     88,000  1,299,900  1,387,900   16,400   4,000
23 00 Mechanical (subcontract)      2,212,000    690,000  1,548,000  2,238,000   26,000  26,000
01 50 General conditions            1,904,000    978,000    958,000  1,936,000   32,000  11,000
Contingency                           271,100          0    205,000    205,000  -66,100       0
Total                               7,912,600  2,689,400  5,270,900  7,960,300   47,700

Several things stand out. Formwork is projected $25,500 over, up $6,000 from last month, so the trend is worsening. Drywall shows a $16,400 overrun before the subcontractor has done much work, which points to a pending change or a scope gap found at buyout. General conditions are $32,000 over and growing, which usually means the schedule is slipping. Against these, the contingency line forecasts using only $205,000 of its $271,100, so it offsets part of the overruns elsewhere: in effect, the report says that $66,100 of contingency is no longer needed for the risks that remain and is available to absorb the overruns that have already occurred.

How contingency appears in the report is a matter of company policy. Some contractors show contingency's cost to complete as the amount expected to be needed for remaining risks, so that the total projected over (under) is the net expected result. Others leave contingency at its full value until it is formally transferred. Either is acceptable if it is consistent and explained.

Lines with no commitments yet

Lines that have not been bought out, such as a landscaping package to be let in month 12, are forecast at their current budget unless there is better information: a budget price, market feedback or a re-estimate. Leaving them at budget is not neutral; it is an assumption that the package will be bought for exactly what was carried. If the market has moved since the bid, the forecast should say so. Unbought packages are a common source of late surprises, so a report that lists them separately, with the basis of each forecast, is easier to trust.

General conditions and time

General conditions are forecast mainly by time. If the forecast completion date moves, so does the cost to complete. A simple and robust method is to list each general conditions item with its monthly rate and the months remaining at the current forecast completion date. Lesson 8 shows how earned schedule can give an independent check on the completion date the team is using.

The monthly cost review

The cost report becomes useful only when people review it. A good monthly cost review is short, structured and focused on change. The project manager presents the report, explains every line whose projected over (under) changed by more than a set threshold since last month, and describes what is being done about each. The operations manager or a peer project manager challenges the forecasts. The review closes with a list of actions, owners and dates.

Forecast quality

A forecast is good if it turns out to be close to the final result early in the job, and if it moves steadily rather than in sudden jumps. Contractors that track how their forecasts change month by month learn which project managers forecast realistically and which forecast optimistically and then take large write-downs near the end. A pattern of small monthly increases in projected cost on most lines is the classic sign of optimism; a well-run job shows forecasts that settle early and stay close.

# Forecast drift: projected final cost of formwork by month (amounts $)
budget = 392_800
forecast = [392_800, 395_000, 398_400, 402_500, 405_900, 410_400, 412_300, 418_300]
for m, f in enumerate(forecast, start=1):
    print(f"Month {m}: projected final {f:,}  over {f - budget:>7,}")
steps = [b - a for a, b in zip(forecast, forecast[1:])]
print("Monthly increases:", steps)
print("Every month worse:", all(s > 0 for s in steps))

Month 1: projected final 392,800  over       0
Month 2: projected final 395,000  over   2,200
Month 3: projected final 398,400  over   5,600
Month 4: projected final 402,500  over   9,700
Month 5: projected final 405,900  over  13,100
Month 6: projected final 410,400  over  17,600
Month 7: projected final 412,300  over  19,500
Month 8: projected final 418,300  over  25,500
Monthly increases: [2200, 3400, 4100, 3400, 4500, 1900, 6000]
Every month worse: True

A forecast that worsens every month, as here, means the team is forecasting from hope and adjusting only when costs arrive. A better forecast in month 3 would have projected the full overrun from the productivity trend.