A cost report should explain the cost to finish

The owner's challenge

A project can appear comfortably within budget while significant obligations remain outside the accounting record. Purchase commitments, work awaiting an invoice and incomplete scope can all affect the eventual cost. Payment timing and the timing of cost recognition can differ from physical progress. Low expenditure may reflect delayed execution rather than favorable performance.

The difficulty increases when different teams maintain separate views of purchasing, construction progress and expected changes. Each report may be accurate within its own purpose while the owner lacks a coherent view of the remaining financial commitment. A total that cannot be explained provides limited support for a consequential decision.

Sand Hill perspective

Sand Hill connects financial reporting to the condition of the project. The estimate and budget establish a reference, while commitments, recorded costs and accomplished work provide evidence about execution. The forecast must also account for the remaining scope and the conditions under which that work can be completed.

Changes in execution sequence, technical requirements, contractor performance or approved owner scope can alter expected final cost. Sand Hill investigates significant forecast changes to understand their causes and implications for the remaining work. The explanation must distinguish owner scope changes, cost trends and contractor changes, while making their relationships, supporting evidence, assumptions and unresolved uncertainty clear.

Implications for owners

• Keep the budget and forecast distinct. The approved investment provides a reference for control. The forecast should express the current expectation, including developments that make the original expectation less achievable.
• Account for the full expected project cost. Reconcile commitments, costs incurred, recorded expenditure and verified progress so the forecast accounts for incurred costs and remaining work without omissions or double counting.
• Require evidence behind significant forecast changes. Ask what caused the change, what the evidence establishes, what remains uncertain and whether similar exposure exists elsewhere in the remaining work.