Cost Value Reconciliation (CVR): How to Run One and What It Actually Tells You

Cost value reconciliation, or CVR, is the monthly exercise of comparing what a job has earned against what it has cost — measured to the same cut-off date, so the two numbers can honestly sit side by side.

It is the most useful hour a commercial team spends each month. It is also the exercise most often done badly, because the two halves are produced by different people, on different clocks, for different purposes.

Why cost and value drift apart

Value is measured at intervals. You apply for payment once a month, the work gets valued, a certificate follows.

Cost is incurred continuously. Every hour worked, every delivery accepted, every plant hire day that ticks past whether or not the machine is being used.

Between those two rhythms sits a gap of six to ten weeks. Most of what goes wrong on a job goes wrong inside that gap, and by the time it surfaces in your accounts the work is built and the crew has moved on. A CVR exists to close that gap deliberately, once a month, before it closes itself.

The four numbers

A CVR needs four figures, and all four must be cut off on the same date.

• Value earned to date. The value of work genuinely executed — not what you optimistically applied for, and not what the client has so far been willing to certify. Both of those are negotiating positions. You need the truth for your own purposes; argue about the other two separately.
• Cost incurred to date. Everything consumed by the job, whether or not an invoice has arrived. Labour at your real all-in rate. Subcontractor work executed, which is their application, not their invoice. Materials delivered, including what is stacked and unfixed. Plant accrued, including standing time.
• Committed cost outstanding. Everything ordered but not yet incurred: the remaining value of subcontracts placed, materials ordered and undelivered, plant booked for future periods.
• Forecast cost to complete. What the rest of the job will cost, built package by package rather than by subtraction.

A worked example

Take a contract with a value of 1,500,000 and a tendered margin of 12 per cent, so a budget cost of 1,320,000. At the end of month six:

• Value earned to date: 740,000
• Cost incurred to date: 672,000
• Committed cost outstanding: 118,000

Margin to date is 740,000 minus 672,000, which is 68,000, or 9.2 per cent of value. Against a tendered 12 per cent, the job is 2.8 points down.

The committed position is 740,000 minus 790,000, which is a loss of 50,000 on work earned so far.

Those two numbers tell different stories and you need both. A margin to date that is holding while the committed position deteriorates is the classic early signal of a job about to turn: it means you are buying the remaining work above budget, and the effect has not yet reached your cost ledger.

The mistake that makes a CVR useless

Taking cost from the accounting system.

Your ledger records invoices received. It does not record work executed and not yet applied for, materials delivered and not yet invoiced, or plant standing on site waiting for a hire note. On a live job the gap between the two is routinely eight to fifteen per cent, and it always runs in the same direction: your accounts make the job look better than it is.

A CVR built on invoices received is not a reconciliation. It is a comfort blanket.

Be honest about the variations

If you have executed 40,000 of extra work and the client has accepted 25,000, the figure that belongs in your value is your realistic expectation of recovery — not the 40,000 you feel entitled to, and not the 25,000 you have been offered unless you have decided to accept it.

Carrying optimistic variation value is the most common way a CVR lies. It also tends to be the hardest number in the room to say out loud.

How often, and when

Monthly, within five working days of month end, while the month is still fresh in people ’s heads. A perfect CVR three weeks late is worth less than a rough one done on time.

Weekly sounds rigorous and is abandoned by week five. Quarterly is a post-mortem.

The point

A CVR does not improve a job. It makes the job visible while there is still scope left to do something about it.

The series matters more than any single reading. A job at 9 per cent against a 12 per cent budget but improving for three months is in better shape than one at 10 per cent and falling. Keep the monthly numbers and read the direction.