Cost value reconciliation,
job by job, every month.
A CVR sets the value of the work against the cost of doing it, job by job, at one month end. What goes on each side, why value is not what you applied for, how to run one, and where it usually goes wrong.
Published ·5 min read·Written by Darshan Parmar, Founder
Cost value reconciliation, or CVR, compares the value of the work done on a job with the cost of doing it. Both are taken to the same date, usually a month end. RICS describes it as the project’s profit and loss statement. The cost side includes everything incurred, not just what has been paid. Run every month on every live job, it shows the margin to date and the margin the job is heading for, while there is still time to act.
What is cost value reconciliation?
RICS defines CVR as a comparison of the internal valuation with the costs incurred. Those costs include liabilities and accruals for goods and services used in the works but not yet paid for. It is also called cost value comparison. The result is a margin for each job, and the reasons behind it.
Three terms carry the whole process:
- External valuation: the value in the application for payment to the client.
- Internal valuation: the firm’s own honest view of what the work done is worth.
- Cost to complete: the forecast cost of finishing the job from today. Added to the cost to date and set against the forecast final value, it gives the forecast margin.
Why value is not what you applied for
An application for payment can run ahead of the work, or behind it. Materials applied for may not be fixed, a variation may be claimed at more than it will settle for, and some work done may not be claimed yet. A CVR uses the internal valuation for that reason.
The difference between the two is called over or under measure. Accountants call it positive or negative work in progress. Over measure is, at best, cash early. It is not profit, and treating it as profit is how a job looks healthy until the final account.
| Line | Amount | What it is |
|---|---|---|
| Applied for to date (external valuation) | £420,000 | What went to the client |
| Value of the work done (internal valuation) | £396,000 | The firm's own view of what it is worth |
| Over measure | £24,000 | Applied for but not yet earned |
| Paid to date | £331,000 | Invoices and wages already paid |
| Accruals and liabilities | £37,000 | Incurred but not yet paid, invoiced or not |
| Cost to date | £368,000 | Paid, plus accruals and liabilities |
| Margin to date | £28,000 | 7.1% of the internal valuation |
Compared the easy way, applied for against paid, the same job shows £89,000, or 21% of the application. The reconciliation shows £28,000, about 7%. Both figures come from the same job in the same month. Only one of them is a margin.
Applied against paid tells you about cash. Value against cost tells you about the job.
How to run a CVR
The stages below follow RICS practice information, with a forecast added at the end.
- One cut-off date for everything. Value and every cost line taken to the same day, or they cannot be compared. RICS recommends a monthly commercial calendar so everybody works to the same dates.
- Compare the cumulative figures. Total value to date against total cost to date.
- Check the movement in the month. This month’s cumulative less last month’s, for value and for cost. A sudden swing in either is the first thing to explain.
- Cross-check both sides. All value accounted for, including work in progress, and in line with what subcontractors are owed. All cost included, with accruals and provisions for known liabilities.
- Break it down the way the job was priced. By element, activity or work package, so a loss is found where it is happening.
- Forecast the end. Cost to date plus cost to complete, set against the forecast final value, gives the forecast margin. It matters more than the margin to date.
What goes on the cost side
Every cost the job has incurred by the cut-off date, whether or not it has been invoiced or paid. RICS groups costs as labour, plant, materials, subcontract and other; in practice the list looks like this:
- Labour: hours worked on the job, at the full cost of employing the people who worked them.
- Materials: everything delivered to the job. A delivery with no invoice yet is an accrual, not nothing.
- Plant: owned and hired, up to the cut-off, including hire still running after the work finished.
- Subcontractors: the value of their work to date, not just what they have been paid.
- Preliminaries: site set-up, welfare, supervision and the rest of the cost of running the site.
- Provisions: known liabilities not yet costed, such as remedial work or a claim against the job.
Where a CVR usually goes wrong
- Different cut-off dates. Value to the 25th and cost to the 31st makes the margin look better or worse than it is.
- Missing accruals. Materials delivered last week, a subcontractor’s application not yet in, plant still on hire. Leave them out and the job looks more profitable than it is, for one more month.
- Cost booked to the wrong job. Hours or deliveries charged to whichever job was handy. One job looks better, another worse, and neither figure is true.
- Over measure taken as margin. Value taken from the application rather than from an honest internal valuation.
All four are record problems before they are accounting problems. Labour and deliveries recorded against the right job on the day make most of the cost side assemble itself. Where spreadsheet job costing breaks covers the same failure from the other end, and what a quantity surveyor needs from site covers the records behind the value side.
CVR in a firm without a commercial team
A trade firm with a handful of live jobs does not need a workbook per job. It needs the same three questions answered monthly, the same way each time. What is the work done worth? What has it cost, including what has not been invoiced? Where will it finish? Three numbers per job, at one month end, are enough to see which jobs are making money.
In Unibuild the cost side of a CVR accrues from what happens on the job. Operatives clock in by QR code, so hours land against the job they worked on. Committed cost lands on the job the moment a purchase order is approved, and deliveries are receipted with a goods received note and matched to the invoice. Job profitability shows real-time margins on every job, split by manager and department, with retention and VAT handled. Its breakdown shows why a job is losing money, while it can still be put right.
This article follows RICS practice information on commercial management of construction. Firms lay their CVRs out in different ways and give the process different names; the principles are the same.
Sources
Checked against the source rather than against commentary. Where a schedule, a rate or a threshold is definitive on a government site, read it there.
The follow-up questions.
The people who run CVRs, and the records they depend on, are in what a quantity surveyor does.
What is a cost value reconciliation?
What does CVR stand for in construction?
How often should a CVR be done?
What is over and under measure?
What are accruals in a CVR?
What is cost to complete?
Does Unibuild show margin by job?
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