Understanding Estimated Costs vs. True Costs in Sage 300 & Beyond

In his article at the 415 Group, CPA Lee Kammerer says that the process of estimating and presenting costs to complete on contracts in progress is as much an art as it is a science. The integrity of a contractor’s financial statements is supported by an accurate work-in-progress (WIP) schedule, which in turn relies on accurate estimates for costs to complete. Keeping current on true costs requires timely and accurate information from everyone responsible for providing cost inputs for labor and materials.

Change Happens

Experienced contractors anticipate change, knowing that as jobs progress, anything can happen. Change orders, material delays, scheduling conflicts with subcontractors, or unexpected rush orders can affect the costs to complete and billing status of the job, based on the percentage of completion.

Failure to account for these changes with an updated WIP schedule can leave you with understated costs to complete if you simply rely on the accuracy of your now-obsolete original estimate, no matter how accurate it was at the start of the job.

A contractor who consistently shows profit fade at the end of the job due to a lack of understanding true costs as the job proceeds may find himself cut off from the surety providers who conclude that the company doesn’t know how to run a job profitably.

If your jobs consistently end up under billed due to increases in true costs because of changes, your company will struggle in today’s conservative risk-and-credit markets. The same is true for inadvertently overstating gross profits because you’ve been caught off guard with inaccurate costs to date.

Profitable contractors know their true costs as well as their gross profits from all jobs, whether they’re completed, contracts in progress, or time and material jobs. Their surety underwriters are confident in their abilities to run a job profitably. They know the best companies rely on cutting-edge construction software and accurate WIP schedules as the best construction management tools to complete jobs profitably and on or under budget.

When It’s Easy, Changes Get Made

Cabbage enhances your Sage 300 construction software and can be used as either a single or multiple user system to allow for the most accurate and updated cost information input from your construction team – we call it “consolidated contract information.”

Streamlined job tracking with Cabbage makes it easy to make changes, and we’ve discovered that when the process is easy, the changes get made. Contact us for more information about improving your knowledge of estimated costs versus true costs.