FAQs for Cost Reporting & Forecasting

Question 1

What is a CVR, and does a small contractor need one?

Accepted Answer

A cost value reconciliation sets the value the job has earned against the cost it has incurred to the same date, so you see the real margin each month rather than discovering it at the end. A cost value reconciliation, universally shortened to CVR, is the monthly comparison of two numbers a busy job keeps in separate heads: the value the works have earned to date, and the cost incurred to earn it, measured to the same cut-off date. Value is not what you have invoiced or been certified; it is what the account is genuinely worth, your measured entitlement plus variations at your honest assessment plus any claim exposure, marked for what it is. Cost is not just what the purchase ledger has paid; it is everything consumed in the period, including plant on hire, labour worked and materials delivered that the invoices have not caught up with yet, which is why accruals are the difference between a CVR that flatters and one that tells the truth. Put the two together and it shows the margin the job is actually running at, and how that has moved since last month and why. A CVR is not a big-company luxury: the smaller the business, the less room it has to absorb a job that has quietly gone backwards, and the more it needs to know early. It need not be elaborate to be honest, only the value taken from the account, the cost accrued to the same day, and the margin movement explained. A director who reads one page a month like that is never ambushed by the final account.

Question 2

Why can a profitable job still run out of cash?

Accepted Answer

Profit is earned when you do the work, but cash arrives a month or two later after you have applied, been certified and waited out the payment period, so a profitable job funds that gap out of your pocket. Profit and cash are different things that arrive at different times, and confusing them is how solvent-looking firms fail. Profit is the margin between what the works are worth and what they cost, earned the moment the work is done. Cash is the money in your account, and on a construction contract it lags the work by a long way: you do the work this month, apply for it, wait for the certificate, then wait out the payment period, so the money for March might land in May, less a retention deduction you will not see for a year. In the gap you are still paying for labour, plant and materials as they are consumed, often weekly. So a perfectly profitable job borrows working capital from you to exist, and the faster it grows or the more front-loaded its spend, the more it borrows. Slow payment terms, a fat retention percentage, a certifier who undervalues, a variation you fund while it is argued over: each widens the gap between value earned and cash received. This is why a job can show a healthy margin on a CVR and still not make payroll, and why cashflow has to be forecast as its own thing rather than assumed to follow the profit. The cure is not more profit but seeing the tight month coming: a forecast that models cost going out against cash genuinely coming in, so the working-capital gap is funded deliberately, in advance, rather than discovered at the bank.

Question 3

What is the difference between value and cost in a monthly report?

Accepted Answer

Cost is what the job has consumed to earn its position; value is what that position is worth under the contract, and the report only means anything when both are measured to the same date. These are the two halves of any honest cost report, measured in different ways from different places. Value is what the works are worth to you under the contract at the reporting date: not what you have invoiced or been certified, but your true entitlement, the measured work against the pricing document, variations at your honest current assessment, and any claim carried as the exposure it is. It is deliberately independent of the payment cycle, because a certificate that undervalues you does not make the job worth less, it just means you have not been paid for it yet. Cost is the mirror: everything the job has consumed to reach that position, labour, plant, materials, subcontractors, preliminaries and overhead recovery, including costs incurred but not yet invoiced, which have to be accrued or the cost line lies in your favour. What makes the comparison mean anything is a shared cut-off date: value to month end and cost to whenever the ledger last ran are two different jobs, and subtracting one from the other produces a margin that is pure fiction. Get both to the same day and the difference is the margin the job is truly earning; its movement month on month, explained, is the earliest warning you will get. Confusing value with what you have been paid, or cost with what you have been invoiced, is the commonest reason a report reassures a director right up until the job has already gone backwards.

Question 4

How is a cashflow forecast built from a programme?

Accepted Answer

You spread the cost across the programme to see money going out, then layer the payment terms over the value earned to see money coming in, and the gap between the two curves is the cash the job needs. A cashflow forecast is the programme translated into money and time. Start with the programme, because it tells you when each activity happens, and spread the cost of the works across it: labour, plant, materials and subcontract cost falling in the weeks the activities run, which produces the S-curve of cumulative cost rising slowly at first, steeply through the middle and levelling at the end. That curve is money going out. Then build the money coming in, where the payment terms do the work: value earned each period becomes an application on its date, the certificate follows, the payment period runs, and only then does cash arrive, less the retention the contract deducts. So the receipts curve is the value curve shifted right by the whole length of the payment machinery and shaved by retention. The forecast is the two curves together, and the distance between them at any point is the working capital the job requires you to find. Done properly it is built before works start, off the tender programme and the contract's payment clauses, so the tight periods are visible before a spade is in the ground, then maintained monthly against actual progress and certification, because programmes slip and certifiers cut and both move the curves. The output is not a number but a shape: where the job is most exposed, how deep the dip goes and when it recovers, exactly what you need to arrange funding calmly rather than in a crisis.

Question 5

How often should a forecast final account change?

Accepted Answer

It should be reviewed every month and move only when something real has changed, with a named reason attached to each movement, so the forecast is a record of the account rather than a number that drifts. The right rhythm is a monthly review, and the right amount of movement is exactly as much as the account genuinely justifies. A forecast final account is your running estimate of where the account will finally land: the contract sum, plus variations both agreed and pending priced at what you honestly expect to recover, plus claim exposure carried openly, less contra risk, with retention timed to when it truly releases. Each month you review it against what actually happened, and move a number only when a reason moves with it: a variation agreed at a figure, a contra accepted, a claim conceded or firmed up, a provisional sum expended, a rate proven on site. That reason keeps the forecast trustworthy, because a figure that changes without an explanation is one nobody believes and everybody quietly reworks in their own head. Two failure modes give it away. If it never moves, it is being copied forward rather than reviewed, and will lurch violently the month reality can no longer be ignored. If it drifts every month with no reason attached, it has become guesswork dressed as a report. And if it keeps landing lower than forecast, the cause almost always lives upstream: variations going unpriced, applications going in thin, changes not captured as they happen. A good forecast says so and points at the leak, rather than absorbing the error silently and looking accurate while the real account bleeds elsewhere.

Question 6

What should a monthly cost report actually tell a director?

Accepted Answer

Where the margin is, how and why it moved this month, where the cash stands, and where the whole account is forecast to land, on one page a busy director can read and act on. A monthly cost report exists to support decisions, not to fill a folder, so the test of a good one is whether a director can read it in a few minutes and know what to do. That means four things, briefly and honestly. First, the margin: what the job is truly earning, value from the account against cost accrued to the same date, not a payment-cycle artefact. Second, the movement: how that margin has changed since last month and why, each shift tied to a real cause, because the direction of travel matters more than any single month's snapshot. Third, the cash: where the working-capital position stands, value earned against cash received, the retention held, and any tight month the forecast can see coming, because a profitable job that cannot pay its people is still a crisis. Fourth, the destination: where the whole account is forecast to land, contract sum plus agreed and pending variations, less contra risk, with retention timed properly, so decisions are made against where the job is going rather than where it is today. A report that runs to twenty pages nobody reads, or reassures the director every month right up to a final-account shock, has failed however professional it looks. And when it keeps explaining the same problem, a forecast landing low, variations arriving unpriced, it should name the upstream cause plainly, because the honest note is what lets a director fix the leak instead of watching the water rise.

FAQs for Cost Reporting, Quantity Surveying

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Reading your own numbers