Cost control
The estimate is a plan; cost control tells you whether the job is following it. This lesson covers job costing, budget vs. actual reports, change-order tracking, labor productivity, purchasing, materials and equipment, work-in-progress (WIP) schedules, earned value, and closeout records.
Most contractors who fail do not fail because they lack skill in the trade. They fail because costs run over and nobody notices until the job is finished. Exam questions in this area usually ask you to calculate a variance, a percentage complete, or an over-billing, or to pick the best control practice.
1. Job costing
Job costing means recording every cost against the job and the cost code where it was spent. Use the same cost codes in the estimate and in the accounting system (for example, 03-100 Concrete Forms, 03-200 Rebar). Then each week you can compare the budget for a code with the actual cost to date. Time cards must show the job and the cost code, and every invoice must be coded before it is paid.
Know this
Variance = Budget − Actual. A negative variance means the item is over budget. Find overruns early, while there is still time to fix them.
| Cost code | Budget | Actual to date | % complete | Warning sign? |
|---|---|---|---|---|
| Framing labor | $40,000 | $30,000 | 60% | Yes: 75% of budget spent for 60% of the work |
| Drywall material | $12,000 | $6,000 | 50% | No: on budget |
Budgets change during a job. Keep the original budget from the estimate, then a revised budget that adds approved change orders. Each month, ask the project manager for an estimated cost to complete for every cost code. Cost to date plus cost to complete equals the forecast final cost. Comparing the forecast with the revised budget shows the expected profit or loss on the job long before the last invoice arrives.
Worked example
Forecasting final cost
- Revised budget for plumbing: $60,000 (original $55,000 + approved change order $5,000).
- Cost to date: $41,000. Project manager’s estimated cost to complete: $23,000.
- Forecast final cost: $41,000 + $23,000 = $64,000.
- Forecast variance: $60,000 − $64,000 = −$4,000.
Plumbing is forecast to finish $4,000 over its revised budget.
2. Change orders
Unpriced and unsigned extra work is the most common leak in a job budget. Keep a change-order log with a number, description, date requested, price, schedule effect, and status (pending, approved, or rejected). Add approved change orders to the budget for the right cost codes so your cost reports stay accurate.
Know this
On a home improvement job, a change order must be in writing and signed by the parties before the changed work starts. It must state the scope, the amount added or subtracted, and the effect on progress payments or the completion date (B&P §7159 and §7159.6).
Exam trap
Doing extra work on a verbal “go ahead” is risky, but it does not always mean you get nothing. B&P §7159.6(c) still lets a contractor try to recover for work performed through remedies that prevent unjust enrichment. The better answer on the exam is always to get the change order signed first.
When the owner asks for extra work before a price is agreed, track it on signed daily time-and-material tickets that list workers, hours, equipment, and materials used. Price the change using the same labor burden and overhead rates as the original bid, and bill it on the next payment request once it is approved.
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