Topic Thread

Getting estimated cost to complete information from the project managers

  • 1.  Getting estimated cost to complete information from the project managers

    Posted 8 days ago
    I'm curious... 

    Who prepares your cost to complete, the project managers or the estimators (if they're not both an estimator and project manager)?

    How do you get it? Is it...

    Entered into the accounting system by the PMs or estimators or accounting?
    Written reports given to accounting?
    Interviews of the PMs/Estimators by accounting?
    Some other way?

    How often is it updated during the year?

    Thanks for your reply.






  • 2.  RE: Getting estimated cost to complete information from the project managers

    Posted 8 days ago
    ​Hi Joseph
    What a great discussion topic.
    I have decided to meet with the PMs and superintendents and collect this information. I go to the job site with my reports and we can also view all the costs on-line with our software which is Spectrum. I prepare for these meetings in advance so that I can get to the hot button items quickly. I do a phase code by phase code analysis but only cover the higher value phase codes.
    I didn't know how this process would work but I find that our project managers like looking through this info with me and talking about their job. As you probably know these construction PMs and superintendents have a high level our ownership and pride in their projects !

    ------------------------------
    Stephen Hadley
    Controller
    Quigg Brothers, Inc.
    Aberdeen WA
    (360) 533-1530
    ------------------------------



  • 3.  RE: Getting estimated cost to complete information from the project managers

    Posted 3 days ago
    That's excellent to hear, Stephen!

    I wonder whether you might share with the group what you've found may have helped get your PMs so on board with reviewing their projects. I understand that's the exact area where a lot of companies struggle. What do you attribute to your PMs not only having buy-in but actually looking forward to your WIP meetings?

    ------------------------------
    Brian Hohmeier
    Senior Writer & Editor
    Foundation Software
    Strongsville OH
    (330) 220-8383
    ------------------------------



  • 4.  RE: Getting estimated cost to complete information from the project managers

    Posted 3 days ago
    Dear Brian:

    We have worked with construction companies throughout the USA, and this is a continuous problem, whether heavy construction or high end custom builders or smaller remodeling companies...the problem is everywhere if one or all of the following exist:
    1. Ownership complacency with overall results.
    2. An inability to "mirror" the estimate in the format required of job costing.  No understood comparative.
    3. Under performance of jobs overall that aren't recognized until the end...and typically blamed on estimating or "just a bad job"
    4. No defined accountability for the performance of an estimator, PM, or Field Super.

    In two words...Bad Culture...of the organization, which means likely that clear accountability as defined by the job (at a minimum) does not exist.  What often occurs regardless of size is the statement that "accounting messed around with the books"...and what they do is not what the PM does...which means that ownership or executive management is weak or clueless as to the financial controls of a job...good construction value engineering is masking job problems in labor, materials, subcontractor controls, equipment rentals and time overruns...or they simply don't know what the correct estimated costs of construction should be in the same measured terms of job costing...what should gross profit be and how is it to be measured as a comparative to the estimated gross profit.

    If ownership and senior management are not behind the discipline of estimated cost to complete as an accountable process to closed loop standards (definition to job process execution to response to "good" (understanding what "good is") and "problems" (responding to the job process that may not be working...or to an estimate (definition) that was wrong rapidly), nothing will ever change.

    Simply put, this process when done well and consistently (hopefully monthly, at least quarterly for large jobs) makes the company money.  Construction is a risk management industry with some of the best risk managers in any industry.  If they are flying blind (or by "gut"), they can't win and likely will stay mediocre, or go out of business with one or two horrible jobs.

    ------------------------------
    Tony Burruano
    President
    Burruano Group
    Cherry Hill, NJ/Naples, FL
    236.595.2149
    www.burruanogroup.com
    tonyb@burruanogroup.com
    ------------------------------



  • 5.  RE: Getting estimated cost to complete information from the project managers

    Posted 3 days ago
    ​Hey Brian... I like your pic. I had to go get myself a cup of coffee before I responded
    My answer is not too technical. We have good knowledgeable PMs and Superintendents. Most of them have been running projects for 10 + years and they know their craft. I am not the owner or their boss so I come in with a co-worker mentality.... I am just someone else in this company trying to do my job well... just like them. I make sure that I send them talking points a few days in advance of our meeting and even highlight on reports some hot button items. We need to prepare and do our homework. By doing this they are well prepared and versed to talk through my agenda. I continue to try to gain trust so that they can be as open and honest about what is going on and what are the challenges going forward. This is a tricky piece because I have to sift through information gathered and present it objectively to upper management. I will say this out loud that you do not want to be that guy/gal that puts the PMs IN BAD LIGHT to your superiors. That will close the information pipeline.
    One other point and then I will exit and listen. For the most part PMs take ownership in their projects. They are proud of their good work and given the chance will talk openly and often about their job given the chance. Give your PMs permission and the chance and all boats will rise.

    ------------------------------
    Stephen Hadley
    Controller
    Quigg Brothers, Inc.
    Aberdeen WA
    (360) 533-1530
    ------------------------------



  • 6.  RE: Getting estimated cost to complete information from the project managers

    Posted 3 days ago
    Thanks, Stephen!

    That's fantastic. A few things I'm hearing there especially: building trust, treating PMs like respected peers and making sure they never feel like they'll be blindsided in WIP meetings. No doubt those are all interrelated! That's really helpful.

    I hope you enjoyed your coffee!

    ------------------------------
    Brian Hohmeier
    Senior Writer & Editor
    Foundation Software
    Strongsville OH
    (330) 220-8383
    ------------------------------



  • 7.  RE: Getting estimated cost to complete information from the project managers

    Posted 7 days ago
    Dear Joseph:
    In our practice we recommend that the PM or PM/Estimator enter in the data for Estimated Cost to Complete .
    We further recommend that the Controller review the data when entered with the PM or PM/Estimator.  Any corrections needed are done at that time.  The purpose is to not have significant errors (it is an estimate, thus not perfect process); to expose the Controller to field issues to increase her/his knowledge; and to assist the PM or PM/Estimator is understanding the importance of the process and its use to mitigate problems and understand why something works well...such as scheduling; organizing the day with the Super to have the equipment/tools/materials on site when needed and manage change orders

    We recommend that this process take place monthly.  If it is not done fully monthly, problems persist...money is lost and unrecoverable for the problem's existence timeline.  Although "stuff/problems" happen daily in even not more often, the trick is to rapidly identify them (tell the truth); rapidly respond to them to the timeline and result required of the problem or potential problem.

    This is the tail end of a Closed Loop Process.  The Estimator creates the standards; the PM and Team in pre-construction and in the early stages of the job identify if the job financial standards are Valid (keeps the company in business with profit) and achievable (error in scope or estimating-can job be done to standards set).  Issues in Pre-Construction are corrected immediately with a revision of the job standards and feedback to estimating so such issues don't continue.  Again, mitigate the problem.  In the same way, when a job is identified to be substantially better than projected financially, generally through value engineering or by identification of incorrect standards from an estimating model, then that is immediately feed back to estimating so that future estimates don't leave jobs lost due to errors in understanding them.  Every construction company has a "sweet spot" in jobs somewhere where they are more efficient than competitors consistently.  This helps identify "why" so that proper business understanding and action steps can take place.
    STEPS:
    • Estimate to implementation of pre-construction

    • Feedback to estimating, construction field team and controller

    • Operationally do the job

    • Monthly "sanity check" in estimated cost to complete to recognize a job going well and feed back to estimating and controller as to why; a problem or potential problem and response to mitigate and feedback to PM, Estimator, Super, Controller to identify an operational problem (subs, material, equipment, labor, schedule, etc.) or a problem in the initial estimate.  Corrective or mitigating actions taken.


    Long answer, but without the details, so short.  This is the general process; the reason it is done, besides accurate financials monthly,is fewer surprises, and jobs remaining out of control and dollars lost.  It is also a teaching tool in individual and team accountability which differentiates a really great construction team from the general OK ones...they know what "good" is objectively, financially, and based upon the Company's standards of good.

    With best wishes for success to you,
    Tony

    ------------------------------
    Tony Burruano
    President
    Burruano Group
    Cherry Hill, NJ/Naples, FL
    236.595.2149
    www.burruanogroup.com
    tonyb@burruanogroup.com
    ------------------------------



  • 8.  RE: Getting estimated cost to complete information from the project managers

    Posted 5 days ago
    Joseph,
    Our company is a specialty subcontractor working directly with owners and general contractors.
    I meet quarterly with PM's.  These meetings often include the owner and/or the department manager (we have Roofing and Sheet Metal departments)  The field foreman is consulted ahead of time and contacted while we are meeting if necessary.  Our PM's communicate daily with field foremen so having them in the meeting is usually not cost-effective.

    I collect information and compile costs to complete.  To review each project, I have the original estimate by cost code and any revisions to the original (extras) to date.

    In reading the couple of replies to this thread, I saw Stephen mentioned that his PM's look forward to this review.  I am jealous!  Most of our PM's dread this process.  Agreed that they take pride in their projects, and rightfully so, but I think they feel like they are having an employment performance review.  Do others have this struggle?  If so, what have you done to mitigate this perception?  What is your secret Stephen?

    ------------------------------
    Lucrezia Esteban
    Controller
    East Muskegon Roofing and Sheet Metal Co., Inc.
    Muskegon MI
    (231) 744-2461
    ------------------------------



  • 9.  RE: Getting estimated cost to complete information from the project managers

    Posted 4 days ago
    ​I have the same issue. They definitely do NOT look forward to the review and always give me a hard time.  I think its because they really don't have a great handle on it and are afraid to get found out.   The struggle is real..

    ------------------------------
    Shawn Erickson CCIFP, CPA, MBA
    Chief Financial Officer
    C.J. Erickson Plumbing Co.
    Alsip, IL
    708-224-4421
    shawn.erickson@cjerickson.com
    ------------------------------



  • 10.  RE: Getting estimated cost to complete information from the project managers

    Posted 4 days ago
    Love your response !!! The struggle is real real !!​

    ------------------------------
    Stephen Hadley
    Controller
    Quigg Brothers, Inc.
    Aberdeen WA
    (360) 533-1530
    ------------------------------



  • 11.  RE: Getting estimated cost to complete information from the project managers

    Posted 5 days ago
    Edited by Dan Conway 5 days ago
    Agree with others, this is a great topic for discussion! Successful Contractors who in the long term grow and thrive get really good at doing this.  They can pinpoint potential problems early while there is still time to take corrective action, consistently bring jobs in at or under budget and schedule, have significantly reduced risk and healthier margins than most.

    Over a 20 year career in consultative selling of construction specific ERP / financial systems, I've literally talked to thousands of contractors about how they do this.   The best practices that I've seen involve a two tiered projection process (note - the following method is aimed at labor intensive contractors, not non-self performing GC's):

    Tier 1 - Weekly cycle - Site leader to PM:   Every week the Site based Super / Foreman / Crew Lead does a job walk with the PM and is accountable to provide the PM a weekly hours-to-go by projection by cost code.   Dollars are not discussed, only hours.  This is typically done in the ERP system or in a spreadsheet, depending on capabilities of the ERP system

    Tier 2 - Monthly cycle - PM to Finance:  Monthly, the heads of finance and operations meet with each PM, and PM is accountable to bring to this meeting a dollars-to-go projection.   Assumptions are challenged, issues that came up and their remediation plans discussed.   This is typically done in the ERP system or in a spreadsheet, depending on capabilities of the ERP system

    Finally, whatever financial manager is in charge of the final WIP, decides whether or not to accept as is or uses a "financial manager's override" of the final number that goes on the WIP report shown to the bank and bonding companies. This is to account for PM's that may tend toward sandbagging, or being overly optimistic.   This is typically done in the ERP system or in a spreadsheet, depending on capabilities of the ERP system

    In terms of the specific mechanics of the how it gets in and who does it, this is highly dependent on the capabilities of your ERP system.     If functionality or usability roadblocks exist to the point where it can't be done entirely in your core ERP system, and instead must be a spreadsheet driven process, it's time to question whether you have the right system to support your needs.  I believe that for contractors, spreadsheets and offline systems proliferate like bunnies in a room:  You start off with a few, and pretty soon you have hundreds, and an uncontrollable mess.   Multiple manual spreadsheets and offline systems are the death of productivity and profitability for a contractor.

    Contractors who do have robust, construction specific ERP systems, manage the whole process I describe entirely in their ERP systems, and are not reliant on manual spreadsheets for this or the resulting WIP statements.    The final WIP is literally a push button by-product of the process.

    One final thought is consider implementing Unit Productivity.   All of us at minimum track dollars and hours.    Adding units and unit ratios to your work breakdown structure gives you a more objective baseline and better early warning systems as part of the projection process.    This enables near real time identification of jobs out of balance, and you can very quickly take corrective action on a daily basis.

    Think about this,  and no disrespect to financial managers, but we are not in control of the 100's of decisions daily that determine whether we make or lose money on the job.  The field supervision staff is, so we need to do everything to enable them to see how they did not just job to date, but every single day.   They need to know how did they today, to make the best possible decisions on how to deploy resources tomorrow.   Units are key to this process.

    Good luck, and I'm happy to talk about this further at information below.


    ------------------------------
    Dan Conway
    Enterprise Sales
    Viewpoint Construction Software
    Rye NH
    603-502-6657
    ------------------------------



  • 12.  RE: Getting estimated cost to complete information from the project managers

    Posted 4 days ago
    All:

    This is the key to accurately understanding revenue and forecasting.  We basically follow the program outlined by Dan above, except that our "weekly cycle" is different.  Our weekly cycle focuses on three tasks each week: (1) invoice approval; (2) proper time allocation; and (3) self-perform productivity tracking / review.  At the end of each month our PM's prepare a budget adjustment that guides our monthly meeting.  During the meeting, the CFO/Controller review each phase code on each project with a PM, discuss busts and savings, and forecast the estimated cost at completion.  The projection that results feeds our WIP with minor tweaking.

    As for culture, most of our PMs enjoy sitting down with me and our controller and showing off his/her project.  I educate them on what we are doing and why we are doing it.  I instruct them on revenue recognition, BIEC/CIEB and how it relates to cash flow.  A couple of PMs hate it.  They are generally the ones that struggle in other areas of the organization as well.  This process works well for WIP confidence.  It also fleshes out  PM/Accounting issues that occurred over the month and permits those to be corrected without festering.  The biggest problem with this process is time.  I burn an entire week once per month reviewing projects.  And, it is only worthwhile if the action items that come out of the monthly meeting get executed.  Otherwise the list grows and issues persist.

    I have yet to see an ERP that can manage this process without an external supplement.  We had this process mostly in place prior to our conversion to Vista.  Part of the sales process was a promise that this would be managed within Vista.  We have yet to see that work in practice, primarily because Vista does a poor job of tracking the month over month projections.  It is immature compared to the external excel reports we run with.

    Also, the weekly self-perform tracking sounds good in theory but is frustrating in practice.  We use Field Time - another Viewpoint product as well as one of the programs in JC.  We have tried several different workflows-none of which have worked well.  As a result, it is tough to have any confidence in the reporting.

    ------------------------------
    Joshua Brotemarkle
    CFO | General Counsel
    LS Black Constructors, Inc.
    St. Paul MN
    (651) 789-2902
    ------------------------------



  • 13.  RE: Getting estimated cost to complete information from the project managers

    Posted 3 days ago
    I have struggled for years getting estimated costs to complete from PM's and accurate ones at that mostly because they do not understand what they are and how to go about determining their CTC.

    Recently I switched from a subcontractor to a general contractor, so I'm curious how this process would change for PM's working for a GC that does not self-perform, if any.  My initial thought is as long as committed costs are reviewed and change orders are current then we should be confident our total job costs are accurate.

    Within our budget, we may have had savings when negotiating subcontracts, would you leave these dollars in the budget in case they are needed elsewhere, which in the end if the extra funds are not used, they would be part of the shared savings with the owner?

    In cases where we have shared savings and contingencies, I assume the budget should not be adjusted until the end of the long-term contract when we have a better idea if the contingency will be used and how much the shared savings will be.  So, basically as long as change orders are up to date, then the job costs should accurately reflect the current state of the project.

    Any insight on this monthly process from a GC perspective would be much appreciated.

    Thank you!

    ------------------------------
    Krystal Sund, CCIFP
    Controller
    Perry Reid Construction
    Lincoln, NE
    (402) 488-1666 ext 142
    ------------------------------



  • 14.  RE: Getting estimated cost to complete information from the project managers

    Posted 2 days ago
    Hi Krystal,

    Great questions, and you're absolutely right, projections are easier for a non-selfperforming GC than a labor intensive sub. Once you've bought the job out, the numbers really don't move unless something drastic happens like a sub going of business before they complete the work.  So as long as the buyout is done as early as possible, drawing the committed costs line in the sand, and change orders are up to date, you can be confident in the numbers.

    As to your question regarding what to do with savings in the buyout there are a number of ways this could be handled depending on the specific situation.  But in my opinion, with whatever you do don't change the original budget so that you still have that forensic identity of original budget versus the current budget including the impact of change orders.

    I do know some who will use an internal change order (no customer impact, just moving money around on the budget) to take savings out of a budget item and move it to a contingency line item.    So for example assume you have an original budget line item for 500K for the HVAC subcontract and as a result of negotiation the PM was able to buyout the subcon for 480K.    In this method you would do an internal change order to move 20K from HVAC to contingency, and this still preserves the integrity of the original estimate.

    The shared savings is an interesting wrinkle...good luck!

    ------------------------------
    Dan Conway
    Enterprise Sales
    Viewpoint Construction Software
    Rye NH
    603-502-6657
    ------------------------------



  • 15.  RE: Getting estimated cost to complete information from the project managers

    Posted 4 days ago
    Over the years I have found that whoever does the Cost to Complete it is imperative that you have a Road Map to real time actual, committed and projected cost. In our organization our PMs are responsible to do their CTC and review the results with our Cost Manager and Controller. If PMs and others responsible for the project make sure that their Subcontracts/SCOs, Pending Change Orders, Purchase Orders/Receivers, etc. are up to date and real time then a PM can do an accurate CTC at any given time without much ado. Some systems (Viewpoint) even allow for Receivers applied to POs to post cost instantly resulting in up to date costs. Having a process of timely posting or accruing progress billings and subcontract related costs is ​also imperative. Once everyone is on board with the closing cycle it is possible to have a real time system that allows for accurate CTCs.

    ------------------------------
    Paul West
    Director of Enterprise Applications
    The Middlesex Companies
    Orlando FL
    (407) 206-0077
    ------------------------------



  • 16.  RE: Getting estimated cost to complete information from the project managers

    Posted 4 days ago
    Good controls surrounding estimated cost to complete are essential to avoid any significant profit fades/gains on projects.  Either PMs can enter data in the system for estimated cost to complete or they can send it to CFO/controller.  CFO/controller then reviews that information when incorporating it into WIP schedule at month-end. Management team (including CFO/controller) can then meet with project managers on monthly basis for major projects to see if any changes need to be made to those estimates.  PMs can also give update regarding progress on their respective projects and if there is a likelihood of running into issues, which may have an impact on estimates.  Some CFOs may even visit job sites if necessary. These controls ensure that there is a check on estimated cost to complete and there are no major surprises at the conclusion of project.

    ------------------------------
    Zee Malik CCIFP, CPA
    Audit Director
    Katz, Sapper & Miller, LLP
    Indianapolis IN
    (317) 452-1040
    ------------------------------



  • 17.  RE: Getting estimated cost to complete information from the project managers

    Posted 2 days ago
    To everyone on this thread...

    I really appreciate the time you took to answer my inquiry and for sharing your great insights.

    Best wishes to all,

    Joe Gravenstine.

    ------------------------------
    Joseph Gravenstine CPA
    Controller
    National Glass and Metal Co., Inc.
    Philadelphia PA
    (215) 938-8880
    ------------------------------



  • 18.  RE: Getting estimated cost to complete information from the project managers

    Posted 21 hours ago
    Joseph,
    We are a GC and all out projects go through a monthly projection cycle where accounting sends updated projection files to the PMs with the latest cost figures and a carryover of last month's projection data.  The PM has to project GC spend by line and month, and then give us a total percent complete for each month so we can do revenue forecasting.  The subs are projected in total and any cost hits are shown by the PM.  We track the history of the summarized results so we can discuss trending.

    We do this in Excel because the ERP system is built around a total cost to complete model, which doesn't give me all the other data that I get out of the projection file.

    ------------------------------
    Brad Dalbec BS Accounting
    Cfo
    Builtech Services, LLC
    Schaumburg IL
    (630) 523-0174
    ------------------------------