What is Cost Value Reconciliation?
Cost Value Reconciliation is a tool specific to the construction industry, and it measures costs against budgets on construction projects.
It gives you an ongoing account of a contract’s profitability by measuring cost against value at different points in a contract’s lifecycle, right through to completion.
Cost Value Reconciliation (CVR) is an often underused project management tool, but it is a vital component in ensuring construction projects are completed within budget.
Very similar to a company’s balance sheet, the actual costs of a job are compared against the total value of the works carried out (including the profit) to give a bottom line figure.
Why are Cost Value Reconciliations important?
Cost Value Reconciliations allow you to report on the profitability of a contract throughout its lifecycle.
Without a CVR process in place, unnecessary losses on construction projects of all sizes can often go unnoticed, hurting your construction business’ bottom line.
That could mean that your construction projects are going grossly over budget before you can do anything about it. That hurts not only the profitability of that particular contract, but your construction business as a whole, and in lots of cases even your entire reputation within the industry.
Your clients want a profitable contractor who can deliver projects on time and within budget, and without a CVR process in place it’s very difficult for you to fulfil those requirements.
Who carries out Cost Value Reconciliations?
Cost Value Reconciliations are often completed by contractors and then reported to the management team on the profitability of a job in progress.
When should Cost Value Reconciliations be done?
CVRs tend to be calculated with your monthly interim valuations throughout the project, as well as upon final completion.
The management team may also use the bottom line figure when negotiating final accounts upon completion of the project.
Who should use Cost Value Reconciliations?
Quite simply – all construction companies!
Whether you’re a main contractor or subcontractor CVR reports can be extremely useful to your business.
Create more accurate forecasts using CVR reports
Analysing historical CVR reports can help construction businesses to forecast the profitability of future work, which can be an extremely useful tool when it comes to identifying issues and dealing with them quickly.
AS CVRs track earned value against budgeted value they are key for spotting problems and potential issues early – meaning you can avoid making the same mistakes on future contracts.
Benefits of Cost Value Reconciliations
Unfortunately, cost value reconciliation is still underused in the UK construction industry, despite boasting several business benefits, these include:
Control ongoing costs
Increased accuracy of future project pricing
Better cash management
Greater peace of mind of project profitability
How to record & store Cost Value Reconciliations
Most construction companies tend to rely on different Excel spreadsheets on different people’s laptops to track CVRs, but this presents a number of different problems, including:
Difficult for multiple people to access the CVR reports
Risk of duplications & errors leading to inaccurate data
Outside of your construction accounting software
These issues greatly limit the effectiveness of carrying out CVRs, and in many cases can even cause more problems!
The best way to manage CVRs in your construction business is through your construction accounting software. This means that CVR reports can be attributed to specific contracts within the system, rather than trying to match up the file name of a separate spreadsheet with the contract name/code.
Cost Value Reconciliation template
The easier you make it for your team to carry out Cost Value Reconciliations, the more likely they are to be completed on-time.
Our construction-specific accounting software Evolution Mx has a specific Cost Value Reconciliation module to help your team produce accurate CVR reports quickly and easily. You can discover Evolution Mx here.
We even include CVR templates to get you started, whether you’re new to CVR reporting or it’s already part of your routine.
You can find further information on Cost Value Reconciliations in our ‘How CVR software can help construction companies and contractors’ resource here.
If you would like to find out more or book a demonstration please contact us today.