Cost Control Reports

Cost reports should be completed each month. Any longer apart than this
and the reports lose their effectiveness. Reports carried out quarterly would
only be useful on a project going for more than one year. In this case there
would be time to take remedial action.
With computer reporting, the report could be updated daily as orders and
payments are made. If you were engaged in office fit-out, where any project
is not likely to exceed twelve weeks, weekly reports may be useful, since
work is taking place at a rapid pace. On the other hand, having the time to
analyse the report each week could be a problem, and fortnightly may be
more appropriate.

Cost to complete, cost to date and cost to record

To increase the effectiveness of the report and show the cost to complete the
project, more time in its preparation is needed. The basic information for the
cost to date may be drawn from the job cost record. In a large company, this
may come from your accounts office, or it may come from your job record
where you record the costs from invoices to that job. Those invoices would
be from suppliers and subcontractors, and include your own direct costs.
Your direct costs would be your own time and that of your employees, plus
any plant hire.
The cost to complete figure is your own assessment. The cost to date
information may have been compiled by a person delegated to record
invoices, whereas the cost to complete would need an experienced person.
Cost to complete takes into account how much has been spent to date, plus
an accurate assessment of the outstanding work and any problems it may
have.
Just because 50 per cent of a budget for an item has been spent does not
mean that 50 per cent of the work has been satisfactorily completed.
Assessment of the cost to complete a work item may need a mini-estimate
that should be recorded as a reference point, so that you can come back to it
to review your thinking on how you had intended to solve a situation.
The addition of the cost to date and the cost to complete will yield the total
cost to complete. This is the all-important figure that you or management
want to know. Knowing that the expected profit is safe and sound gives a
warmer feeling than scotch. The total cost to complete is then compared to
the original budget or to the budget adjusted by approved variations. This
may show a variance. If the variance to the budget is significant (say, over 5
per cent), it should be explained. A column is provided for this so that
management can quickly see what has gone on. If it is your own work, you
may find this column useful when talking to the bank manager.

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© State of New South Wales, Department of Education and Training 2012, Version 2, December 2014
 Preparing the report
Once we have the costs to date and the costs to complete, we are able to
proceed with preparation of the report.
Each column in the report should represent the following:
(a) A convenient code for costing or recording your work items. It could be
the code for various subcontractors or suppliers you have negotiated a
supply agreement with.

A simple cost coding system is the use of the Australian Standard

Method of Measurement numbering system. You may have dealt with
this in other segments of your studies (eg reinforcing fabric the cost
code may be 6.4.4, and brick sills may be 7.15).
(b) You are not likely to recall what each cost code stands for, so you
would write here the name of each budget item.
(c) This is your original budget for this work item taken from your estimate
for the job. This is your financial target for all the work in this work
item. As a target, of course, you are always out to beat it.
(d) As variations are accepted or approved by your client or the proprietor,
you should add the work-content value to your working budget. The
balance would be added to overhead and profit. If the estimated cost of
the variation work were not added in, you would make an artificial loss
on the project.
(e) The adjusted budget includes the original budget and the estimated cost
of approved variations. This should be the cost for which you will
complete the project. But unfortunately, the estimator is never
absolutely correct because prices change from the time of estimate to
the time the work is carried out.
(f) This is the record of all costs known to date. As a minimum, it will be
the value of all invoices paid. It should also include the value of
invoices you have but not yet paid and the value of orders placed but
not yet received. The reason for including order costs is that they are
known costs you have given a commitment to pay by placing a
purchase order. The issue of a purchase order is little different to
entering into a contract. If you have given commitments, you should
include them in your job costs.
(g) This figure may take a little work to produce. It could just be the
adjusted budget less the costs to date. On the other hand you may carry
out an assessment of the most probable cost. This would take into
account the now-known production and waste rates, plus any other
factors that have become evident as the job progressed. If a situation
has arisen since the estimate was completed or the last cost report, it
should be highlighted here. Not to do so is to conceal information that
may have an effect on the financial outcome of the project that others
may need to know.
(h) The total cost to complete is of great importance in determining the
variance to the budget. It will assist the estimator in his or her next

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© State of New South Wales, Department of Education and Training 2012, Version 2, December 2014
 estimate, because it may yield dollar-per-metre rates that are up-to-date
and show trends in prices.
(i) This column is of interest to all, concerned. This shows how the
expected profit is standing up. If its up, there are drinks all round. If it’s
down, we’ll let you know!
If profit is up to any degree, the amount should sensibly be added to the risk
contingency rather than declared as increased profit. Any sudden
upswing in profit could be short-lived and cut down by an unexpected
problem in the next report. Any loss should be closely investigated
before panic sets in. It may be different after a night’s sleep.
(j) If there is any significant movement (say, 5 per cent either way) and
this report is to be passed to management, reasons for the movements
should be spelt out here in the plainest terms.

Concluding comments on cost control

We have seen how to summarise payment records neatly. This could be
carried out on one A4 sheet inside the front cover of a file or on a computer
spreadsheet. It is simple to do and yields most of the base information for
the all-important cost control report.
Material purchase records are needed as further input to the cost control
report and to see exactly what the situation is regarding supply of materials
and wastage factors.
In material purchasing it is often a good idea to purchase 80 per cent of the
material, and then reassess your requirement as that dwindles. At that point
you should be able to accurately assess just how much you need to
complete. This will reduce waste on site and save a little on storage plus
pilferage.
Cost control reports are the culmination of the subcontract and material
payment records, and show clearly the job’s financial performance. Since
we are all in this industry to make money, this report is of the utmost
importance. It must be carried out with as much accuracy as the current
information will allow. There is no other reporting tool that shows quite as
well what the expected profit is likely to be.

Maintaining good cost-data files

During the execution of a project, procedures for project control and record
keeping become indispensable tools to managers and other participants in
the construction process. These tools serve the dual purpose of recording the
financial transactions that occur as well as giving managers an indication of
the progress and problems associated with a project. The problems of
project control are aptly summed up in an old definition of a project as "any
collection of vaguely related activities that are ninety percent complete, over
budget and late." The task of project control systems is to give a fair
indication of the existence and the extent of such problems.

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© State of New South Wales, Department of Education and Training 2012, Version 2, December 2014
 Recording cost data
Maintaining accurate and well organised files that show changes in costs
and plans and specs is one of the many ways that you can ensure that your
firm will perform efficiently.
Costs Data Files may be filed manually, but it makes much more sense these
days to have all your files electronically stored. They can then serve as
templates for new jobs and can be easily modified. Spreadsheets using
Microsoft Excel are one of the simplest ways of recording and storing this
type of information.

What should be recorded and filed?

For cost control on a project, the construction plan and the associated cash
flow estimates can provide the baseline reference for subsequent project
monitoring and control.
For schedules, progress on individual activities and the achievement of
milestone completions can be compared with the project schedule to
monitor the progress of activities. Contract and job specifications provide
the criteria by which to assess and assure the required quality of
construction. The final or detailed cost estimate provides a baseline for the
assessment of financial performance during the project.
To the extent that costs are within the detailed cost estimate, then the project
is thought to be under financial control. Overruns in particular cost
categories signal the possibility of problems and give an indication of
exactly what problems are being encountered. Expense oriented
construction planning and control focuses upon the categories included in
the final cost estimation.
For control and monitoring purposes, the original detailed cost estimate is
typically converted to a project budget, and the project budget is used
subsequently as a guide for management.
Specific items in the detailed cost estimate become job cost elements.
Expenses incurred during the course of a project are recorded in specific job
cost accounts to be compared with the original cost estimates in each
category. Thus, individual job cost accounts generally represent the basic
unit for cost control.
In addition to cost amounts, information on material quantities and labour
inputs within each job account is also typically retained in the project
budget. With this information, actual materials usage and labour employed
can be compared to the expected requirements. As a result, cost overruns or
savings on particular items can be identified as due to changes in unit prices,
labour productivity or in the amount of material consumed.

Recording costs for a project

The number of cost accounts associated with a particular project can vary
considerably. For very large firms in the order of four hundred separate cost
accounts might be used on a small project.
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© State of New South Wales, Department of Education and Training 2012, Version 2, December 2014
 These accounts record all the transactions associated with a project. Thus,
separate accounts might exist for different types of materials, equipment
use, payroll, project office, etc. Both physical and non-physical resources
are represented, including overhead items such as computer use or interest
charges.
Table 1 summarises a typical set of cost accounts that might be used in
building construction. Note that this set of accounts is organized
hierarchically, with seven major divisions (accounts 201 to 207) and
numerous sub-divisions under each division. This hierarchical structure
facilitates aggregation of costs into pre-defined categories; for example,
costs associated with the superstructure (account 204) would be the sum of
the underlying subdivisions (ie. 204.1, 204.2, etc.) or finer levels of detail
(204.61, 204.62, etc.). The sub-division accounts in Table 1 could be further
divided into personnel, material and other resource costs for the purpose of
financial accounting, as described in Section 12.4.

TABLE 1 Illustrative Set of Project Cost Accounts

201 Clearing and Preparing Site
202 Substructure

202.1 Excavation and Shoring

202.2 Piling
202.3 Concrete Masonry

202.31 Mixing and Placing

202.32 Formwork
202.33 Reinforcing
203 Outside Utilities (water, gas, sewer, etc.)
204 Superstructure

204.1 Masonry Construction

204.2 Structural Steel
204.3 Wood Framing, Partitions, etc.
204.4 Exterior Finishes (brickwork, terra cotta, cut stone, etc.)
204.5 Roofing, Drains, Gutters, Flashing, etc.
204.6 Interior Finish and Trim

204.61 Finish Flooring, Stairs, Doors, Trim

204.62 Glass, Windows, Glazing
204.63 Marble, Tile, Terrazzo
204.64 Lathing and Plastering
204.65 Soundproofing and Insulation
204.66 Finish Hardware
204.67 Painting and Decorating
204.68 Waterproofing
204.69 Sprinklers and Fire Protection

204.7 Service Work

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 204.71 Electrical Work
204.72 Heating and Ventilating
204.73 Plumbing and Sewage
204.74 Air Conditioning
204.72 Fire Alarm, Telephone, Security, Miscellaneous
205 Paving, Curbs, Walks
206 Installed Equipment (elevators, revolving doors, mailchutes, etc.)
207 Fencing

In developing or implementing a system of cost accounts, an appropriate

numbering or coding system is essential to facilitate communication of
information and proper aggregation of cost information. Particular cost
accounts are used to indicate the expenditures associated with specific
projects and to indicate the expenditures on particular items throughout an
organisation.
Converting a final cost estimate into a project budget compatible with an
organisation's cost accounts is not always a straightforward task. One
particular problem in forming a project budget in terms of cost accounts is
the treatment of contingency amounts. These allowances are included in
project cost estimates to accommodate unforeseen events and the resulting
costs. However, in advance of project completion, the source of contingency
expenses is not known. Realistically, a budget accounting item for
contingency allowance should be established whenever a contingency
amount was included in the final cost estimate.
A second problem in forming a project budget is the treatment of inflation.
Typically, final cost estimates are formed in terms of real dollars and an
item reflecting inflation costs is added on as a percentage or lump sum. This
inflation allowance would then be allocated to individual cost items in
relation to the actual expected inflation over the period for which costs will
be incurred.

CPCCBC4005A - Topic 4_Cost control reports

© State of New South Wales, Department of Education and Training 2012, Version 2, December 2014