Committed Cost: The Earliest Warning That a Package Will Overrun

There is one signal in construction cost control that fires earlier and more reliably than anything else, and most contractors do not track it because it does not appear in the accounts.

It is the gap between what you have committed and what you have built.

The rule

If committed plus incurred cost on a package exceeds 85 per cent of its budget while the package is less than 70 per cent complete, that package will overrun.

Not might. Will. The money is already promised and the work is not there to show for it.

Why it fires so early

Because both halves are known accurately, long before any invoice arrives.

You know what you ordered — the subcontract is signed, the materials are on order, the plant is booked. You can see how much is built by walking the site. Neither number waits for an invoice, a valuation, or a month-end close.

Commitment happens at order. Progress happens later. Cost in your ledger happens later still. That ordering is why the signal fires months before the overrun appears anywhere in your accounting.

What committed cost actually includes

This is where it usually goes wrong. Committed cost is everything you have promised to pay but not yet consumed:

• The remaining value of subcontracts placed, whether or not any work has started
• Materials ordered and not delivered
• Plant booked for future periods
• Any instruction you have issued that someone will invoice you for

If it is not written down somewhere when the order is placed, it is invisible until the invoice lands — and by then it has stopped being an early warning.

A worked example

A groundworks package is budgeted at 180,000.

• Incurred to date: 96,000
• Committed and outstanding: 78,000
• Total committed plus incurred: 174,000, which is 97 per cent of budget
• Work complete on site: 62 per cent

Ninety-seven per cent of the money is gone and 38 per cent of the work is still to do. Nothing in the accounts shows a problem yet: the invoices received total 96,000, which is 53 per cent of budget against 62 per cent complete. On paper the package looks ahead.

It is not ahead. It is finished financially and unfinished physically.

What to do when it fires

The question is not whether it will overrun. It is by how much, and what can still be changed.

Remaining scope is the only lever you have. Money already committed is committed. So look there, and look quickly:

• What is still to buy on this package, and can any of it be bought differently?
• Is any of the committed value recoverable — an order not yet called off, a subcontract with a scope that can be reduced?
• Is the remaining work priced on the same assumptions that have already proved wrong?
• Is there a legitimate variation hiding inside the overrun that has not been claimed?

And re-forecast the package properly. The budget is no longer a useful number for it.

Why thresholds this early are correct

Set at 85 and 70, this signal will fire on some packages that turn out fine. That is the right trade.

The cost of investigating a healthy package is an hour. The cost of missing a sick one is the job’s margin. Signals set late enough to never produce a false alarm are also set late enough to be useless.

The point

Most cost control looks at money spent. Money spent is history.

Money committed is the future arriving early, and it is sitting in your order book right now, free to read, months before your accounts will tell you anything.