Cost-to-cost on site: a practical project example
Physical progress tells you how much work you've done. Cost-to-cost tells you what it cost you — and, above all, what it will cost to finish. It's the method that turns today's actuals into a forecast of the final margin.
What cost-to-cost is
Cost-to-cost is a cost-based method for valuing projects: progress is measured as the ratio between costs incurred and total expected costs. In accounting it's one of the accepted criteria for valuing work in progress; in management control it's the tool for answering a simple question: "if I carry on like this, how much will this project cost me and how much will I make?"
Its strength is that it starts from real numbers (invoices, hours, vehicles), not from progress estimates. Its limit is that, on its own, it can't tell "I've spent a lot because I've done a lot" from "I've just spent a lot". That's why it must be read together with physical progress.
The four numbers you need
| Item | Example | Where it comes from |
|---|---|---|
| Project total (price) | €100,000 | Contract |
| Cost budget | €40,000 | Internal budget by category |
| Actual costs to date | €40,000 | Materials, labour, vehicles, expense claims |
| Physical progress | 20% | Physical progress updated from site |
The calculation, step by step
1. Budget consumption
Actual costs ÷ cost budget = 40,000 ÷ 40,000 = 100%. You've already spent the entire cost budget planned for the whole project.
2. Costs attributable to progress
For 20% of the work done you should have spent 20% of the budget: 40,000 × 20% = €8,000. You've spent 40,000: the variance is €32,000. In V-Site this appears as "margin absorbed" (in the example, €48,000 once the expected margin share is included).
3. Estimate at completion (EAC)
If efficiency stays as it is now — each euro of work costs you 5 times the plan — the cost to complete the project is proportional:
EAC = cost budget × (costs incurred ÷ attributable costs) = 40,000 × (40,000 ÷ 8,000) = €200,000
An equivalent, more intuitive formula: EAC = costs incurred ÷ physical progress = 40,000 ÷ 20% = €200,000.
4. Estimated final margin
Project total − EAC = 100,000 − 200,000 = −€100,000. If nothing changes, the project will close at a loss.
Why comparing with physical progress is decisive
Looking only at costs (€40,000 spent out of a €40,000 budget) you might think: "I've used up the budget, so the work must be nearly finished". Physical progress at 20% says otherwise. Looking only at physical progress ("I'm at 20%, all normal") you wouldn't see the cost haemorrhage. It's the gap between the two that triggers the alarm — and the sooner you see it, the more options you have: renegotiate variations, change supplier, rethink the crew, stop the losses.
Three common mistakes
- Late actuals. If labour hours and materials reach the accounts at month-end, cost-to-cost is weeks out of date. You need costs that update as you go: clock-ins that become hours, material requests that become costs.
- Materials on site counted as consumed. They inflate phase costs and make the project look worse than it is. Keep them separate.
- A single number for the whole project. Overruns are almost always concentrated in one category (in the example: materials, €34,935 against €5,000 budgeted). Control must be done by category, otherwise you don't know where to act.
Frequently asked questions
What is the cost-to-cost method?
A method that measures project progress from the ratio between costs incurred and expected costs, and from there estimates final cost and margin.
How is EAC calculated?
EAC = costs incurred ÷ physical progress, or cost budget × (costs incurred ÷ attributable costs). In the example: €200,000.
Why read cost-to-cost and physical progress together?
Because one measures work done and the other cost incurred: only the comparison shows whether costs are running ahead of progress.
Cost-to-cost, EAC and final margin calculated automatically
V-Site collects costs from attendance, materials and vehicles, compares them with the budget by category and shows you estimated final cost and margin for every site.