How to Build a Cost-to-Complete Forecast That You Can Trust

Most contractors know what a job has cost so far. Far fewer know what it will cost by the time it is done. That second number is the cost-to-complete forecast, and it is the earliest warning you get that a job is slipping, while there is still time to do something about it.

The method is simple. The discipline is doing it every month, and doing it by cost code instead of one number for the whole job. This example uses made-up figures for a $480,000 job.

The three numbers

For every cost code on the job you need:

1. Budget: what you planned to spend.
2. Cost to date: what you have actually spent, from your books.
3. Estimated cost to complete: what you honestly expect to still spend to finish that code.

Then the forecast is one line of arithmetic:

Forecast final cost = cost to date + estimated cost to complete.

Compare the forecast with the budget and you have the projected over or under for that code. Add the codes together and you have it for the job.

The most important rule: estimate the remaining cost, not the remaining budget

The tempting shortcut is to say "we have $190,000 of labor budget and have spent $118,000, so $72,000 is left." That assumes the budget was right and the rest of the work will cost exactly what was planned. It is the one assumption you are trying to test. Ask the foreman or superintendent what is actually left to do, what it will take, and what the crew costs per week, then price that.

A worked example, by cost code

The contract is $480,000, and the original budget is $408,000.

• Labor: budget $190,000, spent $118,000, estimated to complete $92,000. Forecast $210,000, which is $20,000 over.
• Material: budget $150,000, spent $88,000, estimated to complete $55,000. Forecast $143,000, which is $7,000 under.
• Subcontractors: budget $68,000, spent $30,000, estimated to complete $38,000. Forecast $68,000, on budget.

Add them up:

• Budget: $408,000
• Cost to date: $236,000
• Estimated cost to complete: $185,000
• Forecast final cost: $421,000, which is $13,000 over budget

What the forecast tells you

• Projected profit. Contract $480,000 less forecast cost $421,000 is $59,000, about 12.3 percent. The original plan was $72,000, or 15 percent. The job is on track to give up about $13,000 of profit, and the cause is labor.
• Where to act. The number points at one cost code. Material is saving money and is not the problem. Crew hours are, and crew hours are something a superintendent can change.
• Whether you are billing enough. One common method measures progress by cost: $236,000 spent of a $421,000 forecast is about 56.1 percent complete. At that rate you have earned about $269,074 of the contract. If you have billed only $260,000, you are under-billed by about $9,074, work you have done and not yet charged for. Contractors who do not look for this carry the difference without noticing.

Percent complete by cost is one of several methods, and your accountant or surety may prefer another. The point is to have a number at all.

Habits that keep the forecast honest

• Do it monthly, on the same day, before the pay application, so billing and forecast agree.
• Use real field input. Ask the person in the field, not the office.
• Put approved change orders in the budget and the contract, and leave pending ones out of both. A change order that is not in the budget makes a healthy job look like a bad one, or the reverse.
• Keep a short note beside each change in the forecast. In three months nobody remembers why labor went up $20,000.
• Look at the trend. One month's forecast is a number. Four months in a row shows whether the job is stabilizing or sliding.

Why it is hard in a spreadsheet

Every month someone copies actual costs out of the books, retypes the budget, and builds the forecast by hand. By the time it is done the data is two weeks old. In PoPs Project Tracker, budget, monthly actuals and forecast live on the same job record by cost code. The forecast is worked out from the figures you enter, and a job won in your bid tool can arrive as a starting budget instead of being typed in again.

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