Forecast to Completion: A Worked Example of Reading a Cost Report

The number that matters in a monthly cost report is not what has been spent. It is what the project will cost by the end, and most reports bury it.

A cost report tells you where the project will land, not where it has been. The forecast to completion adds what has been certified, what remains to be certified, the variations agreed and expected, and the risks not yet priced. Owners who read only the spent to date column are always surprised in the last quarter.

The situation

A villa compound is eight months into a fourteen month programme. The owner receives a monthly cost report showing spending well within budget and wants to know whether the project is genuinely on track.

Assumptions (illustrative)

• Original contract sum: SAR 14,000,000.
• Owner contingency held outside the contract: SAR 1,000,000.
• Certified to date: SAR 7,000,000, which the report presents as 50 per cent of the contract.
• Physical progress assessed by the supervising engineer: 44 per cent.
• Variations agreed to date: SAR 620,000.
• Variations submitted but not agreed: SAR 340,000.
• Every figure here is an illustrative assumption used to show how the calculation works.

Step 1: Compare money certified with work completed

Certified 50 per cent against physical progress of 44 per cent gives a gap of 6 per cent of SAR 14,000,000, which is SAR 840,000.

You have paid roughly SAR 840,000 ahead of the work in place. That is not fraud, but it removes leverage and matters greatly if the contractor stops.

Step 2: Add agreed variations to the contract sum

SAR 14,000,000 plus SAR 620,000 equals a revised contract sum of SAR 14,620,000.

The contract sum is no longer the budget figure. Reporting against the original number hides the change until the end.

Step 3: Estimate the outcome of pending variations

If roughly 70 per cent of the submitted SAR 340,000 is likely to be allowed, add SAR 238,000, giving SAR 14,858,000.

A forecast that ignores pending claims is not a forecast. State the assumption openly so it can be challenged.

Step 4: Project variations still to come

Variations have arrived at about SAR 107,500 per month over eight months. Six months remain, so a similar rate suggests a further SAR 645,000.

Past variation behaviour is the best available predictor of future variation behaviour on the same project.

Step 5: Build the forecast to completion

SAR 14,858,000 plus SAR 645,000 equals SAR 15,503,000 against a budget of SAR 15,000,000 including contingency, an overrun of SAR 503,000.

The report said the project was comfortable. The forecast says it is roughly SAR 500,000 short with six months left to act.

Step 6: Identify what can still be changed

Work not yet started, typically later finishes and external works, represents the portion of the remaining SAR 8,503,000 where specification decisions are still open.

A forecast is only useful if it arrives while some of the spend is still uncommitted. Six months of unstarted work is a real opportunity.

What changes the answer

• If pending variations were allowed in full rather than at 70 per cent, the overrun would rise by about SAR 102,000.
• If variations stopped completely from today, the project would land close to budget, which shows where the control effort belongs.
• If physical progress were assessed by a different method, the overpayment figure would move, so the assessment basis should be stated.
• If the contractor were to fail, the money certified ahead of the work becomes an immediate loss rather than a timing issue.

What the numbers tell you

• Ask for a forecast to completion, not a statement of spending to date.
• Require the report to show the revised contract sum including agreed variations.
• Compare certified value against assessed physical progress every month, and act when the gap grows.
• Project future variations from the rate you have actually experienced on this project.

Limits of this example

Every figure above is an illustrative assumption used to show the method, not a quote, valuation or market rate. Costs, rates, fees and regulations change and must be confirmed with the relevant authority, lender or supplier before you commit.

Domira designs, builds and manages projects across Saudi Arabia for owners who are based abroad: land appraisal, feasibility, design, construction, handover and asset management under one accountable contract. Send us the plot or the brief and Domira will put the numbers in front of you before you commit.