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Cost Value Reconciliation Explained

Cost value reconciliation (CVR) is a tool used monthly on construction projects to determine profitability by measuring costs against revenue at different stages. CVRs ensure projects are completed within budget by comparing expenses incurred to the revenue earned, identifying if the project is profitable or at a loss. Determining accurate costs and revenues considers amounts to date as well as forecasts, using contingencies for unknowns and excluding disputed revenues to avoid overestimation. CVRs highlight potential issues to stakeholders for early resolution, making them vital for transparently assessing a project's financial position and progress.

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325 views1 page

Cost Value Reconciliation Explained

Cost value reconciliation (CVR) is a tool used monthly on construction projects to determine profitability by measuring costs against revenue at different stages. CVRs ensure projects are completed within budget by comparing expenses incurred to the revenue earned, identifying if the project is profitable or at a loss. Determining accurate costs and revenues considers amounts to date as well as forecasts, using contingencies for unknowns and excluding disputed revenues to avoid overestimation. CVRs highlight potential issues to stakeholders for early resolution, making them vital for transparently assessing a project's financial position and progress.

Uploaded by

Semaj Eel
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Cost Value Reconciliation

Cost Value Reconciliation or CVR for short, is a tool used during a construction project.
Typically carried out once a month, this task fulfils the purpose of determining the profitability
of a project throughout its lifecycle. In this video we will explore CVRs in more detail.

The CVR measures cost against value at different stages of the project. They are a vital tool to
ensure projects are completed within budget, ensuring unnecessary loses aren’t overlooked.
To understand CVRs, we need to understand the difference between cost and value. Cost is
the expenses incurred on a construction project. And value is the revenue incurred for work
on a project. The CVR acts a balance sheet. If the value is higher than the cost then the project
is in profit. If the cost is higher than the value then the project is at a loss.

Determining the cost of a project will require not only an understanding of the cost to date.
But also what the final cost position for the project will be. This will need to take into
consideration any known issues or scope changes. It’s also likely that a contingency will be
included within the cost to allow for any unexpected problems which may arise. As the project
progresses you’ll have more known cost and less forecasted cost. This means the predicted
final cost position becomes more accurate as the project progresses. It’s vital that the cost is
not underestimated.

Similarly to the cost, the value will include both the value of work done to date and the final
value position. There are 2 types of valuations. External valuation and internal valuation. The
external valuation is the application for payment to the client and an internal valuation used
for the CVRs. It’s likely that within the external valuation there will be some value which the
contractor is aware may be disputed by the client. This uncertain value is therefore, not
included within the internal valuation. This ensures the internal valuation, which feeds into
the CVR is not oversestimated.

As you’ll have noticed from the previous statements. It’s important cost is not
underestimated and value is not overestimated. This means a prudent approach has been
applied to the CVR. The reason this approach is used, is because it’s better to have unexpected
financial gain then it is to have unexpected financial loss. The prudence concept ensures the
likelihood of the latter is decreased.

The CVR does more than just highlight, the profitability of a project, it also acts as a tool to
assess any known issues within a project which may need highlighting to other project
stakeholders. Addressing these issues early can change the financial direction of a project.
This is why is it is absolutely vital that the CVR is transparent and authentic. Any attempts to
cover up issues, in order to make the project seem to be in a better position than it is can
have devastating consequences. It’s through highlighting issues within the CVR process that
issues are resolved and lessons are learnt.

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