Construction estimate to actual, read the right way

This guide covers how to line the actual cost up against the estimate. It covers reading the variance by category, and finding the cause fast enough to change the outcome.

What estimate to actual means

The estimate is the budget you built from the scope. The actual is what labor, materials, subs, and equipment have cost so far. Estimate to actual is the comparison of the two, on the same cost codes, while the job is still running.

A variance is one number: actual minus budget. A negative variance is favorable, you are under budget. A positive variance is unfavorable, you are over. But the total variance hides the truth. A job can be under on labor and over on materials, and the total can look fine while one category is in trouble. Read it by category.

Why the total hides the problem

A job that is on budget overall can still be losing money. The reason is timing and offset:

• Labor is under because the crew was faster this week. That cash will come back next week.
• Materials are over because of a price rise. That will not fix itself.
• A sub came in under bid, but a rework added hours that were never coded.

If you read only the total, the under on labor masks the over on materials. You will finish over budget and not know why until the job is closed. Read each code against the estimate.

The estimate to actual loop

1. Line up the estimate and the actual on the same codes

The estimate and the actual must use the same cost codes. If the estimate is coded 100 to 600, the actual must post to 100 to 600. If they do not match, the comparison is noise.

2. Read the variance by category, weekly

For each code, read the variance and the percent of the job complete. A code that is over budget at 30% complete is a different warning than the same over at 90% complete.

3. Project the finish

Take the current actual and the percent complete, and estimate the full cost. If the projected finish is above the budget, the job will lose money unless something changes.

4. Name the cause and the fix

Every unfavorable variance has a cause: a price rise, extra work, rework, or a bad estimate. Name it. A price rise needs a change order or a supplier talk. Rework needs a fix in the process. A bad estimate needs a note for next time.

Reading a variance the right way

Do not read a variance on its own. Read it against the percent complete. A twenty percent over on materials at fifty percent complete means materials will finish twenty percent over. That is a real problem. The same twenty percent over at ninety percent complete is mostly done and manageable.

Use this test for each code:

• Is the current actual over or under the budget?
• At what percent of the job are you?
• If this rate continues, will the code finish over or under?
• What is the cause, and what changes it?

Common estimate to actual mistakes

• Reading the total, not the categories. The total hides an over in one code behind an under in another.
• Comparing mismatched codes. If the estimate and the actual use different codes, the variance is wrong.
• Waiting until month end. A job can run over mid-week. Read it weekly, not monthly.
• Ignoring a favorable variance. A job under budget can be under because work was skipped. Check that the scope is done, not just cheap.
• Confusing a change order with a variance. Approved extra work is not a variance. It is a new budget line.

How Lode fits estimate to actual

Lode keeps your existing estimating and accounting tools. It would read the estimate and the actual from the records you already keep. It would prepare the variance by category, with the source attached. That source is the bill that pushed a code over, the rework that was never coded, or the price rise from the supplier.

Where this guide asks you to project the finish, Lode would prepare that projection from the current actual and the percent complete. Where it asks you to name the cause, Lode would attach the evidence and leave the decision to a person. See what Lode runs for the intended workflow.

Template

Copy this into a spreadsheet. Run it weekly for each job, by cost code.

Mark the projected finish as over or under. For every "over" line, write the cause and the fix in the last column.

Related guides

The construction job costing guide covers the full loop, from budget to weekly check. The job costing guide for service businesses covers the same idea for a service firm. The margin vs markup calculator shows what the finished price earns.

Book a walkthrough

Book a walkthrough to explore one task around your existing tools. We start with sample records and agree the next step with you.

Sources

1. Job costing software built for construction, Xero: https://www.xero.com/us/small-businesses/construction/job-costing-software/
2. Job costing software for small contractors, Trimble Financials: https://www.trimble.com/en/products/trimble-financials
3. How construction change order software reduces disputes, Fieldwire: https://www.fieldwire.com/blog/construction-change-order-management-software/