Project Costing
Bringing every cost that belongs to a project onto it — contractor, labour, materials and plant — and forecasting what it will finish at.
Workflow
- 01Budget Allocation
- 02Commitment Capture
- 03Actual Cost Capture
- 04Accrual
- 05Forecast to Complete
- 06Capitalisation or Closure
If you change this
It implies 4 topics across 2 modules, including Financial Accounting which you might not expect.
See the path ahead →Why it matters
Project cost arrives from several directions and joins in only one place. If it does not join in the system, somebody joins it in a spreadsheet, and that spreadsheet becomes the organisation's capital reporting.
- Commitment matters more than spend: A contract awarded is money committed, and the gap to invoice is months. A programme reported on invoiced spend is reported on the wrong number.
- Internal labour is real cost: It is the component most often omitted, which understates the asset and overstates the operating result.
- It feeds capitalisation: Project cost is what becomes an asset, so its accuracy is the asset register's accuracy.
The workflow
- 01
Budget allocation
Funding assigned to the breakdown at the level it will be controlled.
- 02
Commitment capture
Contracts and purchase orders recorded at award, against the project.
- 03
Actual cost capture
Contractor invoices, timesheet labour, materials and plant, all landing on the project.
- 04
Accrual
Work performed but not yet invoiced recognised in the period it happened.
- 05
Forecast to complete
Produced from commitment, actuals and a method — not from asking delivery managers.
- 06
Capitalisation or closure
Costs capitalised at the in-service event, or expensed, and the project financially closed.
Financial closure is a different event from practical completion, and the gap between them is where work in progress ages. Give closure a rule, a threshold and an owner, or projects stay open for years and depreciation starts late.
What you need in place
- Commitment recorded at award: Not at invoice, which is the lagging indicator.
- A capitalisation policy in writing: Including overheads, internal labour and the renewal-versus-maintenance boundary.
- Timesheet discipline: Labour cannot be costed to projects nobody books time against.
- Accrual process: For work delivered and not yet billed, so the period is right.
- Work in progress ageing: Reported every period, with an owner and a threshold.
- A forecast method: Documented, so the number is defensible rather than optimistic.
Questions to ask
01Commitment
Do we know committed cost before the invoice arrives?
If not, overruns surface after they are locked in.
02Completeness
Which cost types do not reach the project?
Internal labour, plant and materials are the usual absentees.
03Forecast
Where does forecast to complete come from?
A method, or a conversation. Only one is auditable.
04WIP ageing
How old is the oldest item in work in progress?
The answer is usually uncomfortable and always informative.
05Closure
What closes a project financially, and who does it?
Without a rule, nothing does.
06Capitalisation
When does cost become an asset?
The in-service event, ideally — not the month somebody notices.
Metrics and KPIs to track
Committed against budget
The leading indicator, by project and portfolio.
Cost variance
Actual and committed against baseline.
Forecast accuracy
Forecast to complete against final cost, trended.
Work in progress ageing
Value by age band, and the share practically complete.
Capitalisation lag
In-service date to asset recognised in the register.
Cost completeness
Share of projects carrying internal labour and plant.
Alongside this