Why track extra costs… and how?

Executive Summary: Whether you use a functional cost coding system to track the cost of your original scope or not, it is imperative that you accurately account for costs outside of your base scope. Learn why, and how, to account for these extra costs outside of your original scope.

Why you need them. The biggest reason as to why you need to separately account for extra work is so that when your project is done, and you spent more money than you collected, you know where you lost money. If you were not tracking extra costs along the way you don’t know if you bid the job incorrectly, or if you encountered a change in the work and spent money you didn’t have in your budget. If after you realized you lost money due to scope outside of your contract, the problem becomes bittersweet: it’s great that you realized you lost money on a changed condition, but now it’s too late to ask for a change order because you are way beyond the contract- dictated notification time period. This is the problem I recently ran into with a client; they lost money on performing extra work but could not prove it to their client because their cost controls were nonexistent.

A suggested workflow. First, let us use the term Potential Change Orders (PCOs) to represent discrete issues of extra work outside of the original contract. The suggested work flow follows:

PCO numbering and cost code selection. I suggest that you maintain a PCO log in whatever manner you are most comfortable (construction management software, computer spreadsheet, or spiral notebook). For each project, maintain this log using a sequential number system. Cost codes then follow this same numbering scheme. I came from an eight-digit cost code system, and here is how we did it:

Using a discrete PCO numbering system as laid out above gives you the ability to:

  • Quickly know where you’re at cost wise
  • Quickly bill your client with confidence
  • Be prepared in case you have a claim situation

My story. I have used this system for years. It helps in gathering costs from subcontractors and suppliers in an RFP (request for proposal) scenario. It also prepares you well for a claim situation where matters can be discretely referenced.