Cost-to-Complete & Forecasting

Looking Windshield vs. Rearview Mirror

Most accounting reports (P&L) are "rearview"—they tell you what happened last month. In construction, by the time a loss shows up in the P&L, it's too late to fix it.

The Cost-to-Complete (CTC) Report

A CTC report asks one question for every cost code: "How much money do we need to spend to finish this specific item?"

The Core Formula:
Forecast at Completion = Actual Cost (incurred to date) + Cost to Complete (remaining to finish)

This formula ensures you're always looking forward: what you've already spent plus what you still need to spend equals your total forecast.

The Three States of Cost

Effective forecasting adapts as a project evolves from estimation to delivery:

• State 1: Budget Only (Pre-Construction)
  Cost to Complete = Budget amount
  Example: Budget $1,500 → Cost to Complete $1,500
• State 2: In Progress (No fixed contracts yet)
  Cost to Complete = Budget - Actual Cost
  Example: Budget $1,500, Actual $500 → Cost to Complete $1,000
• State 3: Committed (Subcontracts/Orders Placed)
  Cost to Complete = Committed Cost - Actual Cost
  Example: Committed $1,000, Actual $500 → Cost to Complete $500
  Note: Once a commitment is made (e.g. a signed subcontract), it replaces the budget as the baseline for forecasting, as it reflects the real market reality.

Key Insight: Commitments must override budgets. A budget is a guess; a commitment is a contract. Forecasting based on the contract value rather than the original budget provides the earliest warning of profit gain or erosion.

Variance Analysis:
Projected Profit = Budget - Forecast at Completion

If you re-forecast monthly, you can spot a "cost blowout" (e.g., concrete usage trending high) in the first 20% of the job and adjust your strategy elsewhere to recover the margin.

Understanding the Three Cost Types

Forecasting becomes reliable when you separate three realities:

• Budget: The original estimate for the item.
• Committed Cost: The value of orders placed or contracts signed. This is the new "truth" for the item's cost.
• Actual Cost: Money that has left the bank or been invoiced. This is historical data.
• Cost to Complete: The estimated remaining spend to finish the work.

How to Forecast Like a Builder

• Start from scope: what is genuinely left to do, not what the budget “hopes” is left.
• Use productivity signals: if early trades ran slow, don’t assume later trades will magically recover.
• Price likely changes early: forecast pending variations (and chase the paperwork) rather than hiding them.
• Be conservative at the end: defects, commissioning, and finishing trades often cost more than expected.

A Simple Monthly Cadence

1. Update commitments (new POs, subcontract awards, approved variations).
2. Update cost-to-complete by cost code (with reasons for material changes).
3. Review the top 5 variances and agree actions (scope, procurement, programme, quality).
4. Communicate early to stakeholders (no surprises at 90%).