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For construction companies, one of the most dangerous misunderstandings in project control is assuming that actual cost tells you whether a project is financially under control.
In fact, it does not.
Actual cost tells you what finance has already recognized as incurred.
Project control, however, needs to answer a much more important question:
What are we already exposed to before the cost becomes an invoice?
That is where committed cost becomes critical.
Actual Cost Looks Back. Committed Cost Looks Forward.
For example, imagine a contractor has an approved budget of AED 10 million for a work package.
So far, the contractor has recorded only AED 2 million as actual cost.
At first glance, the project may appear comfortable.
But what if the contractor has already awarded another AED 5 million through purchase orders and subcontracts?
And what if another AED 4 million is still required to complete the remaining work?
Then the real exposure is no longer AED 2 million.
In fact, the project may already be heading toward an overrun.
This is why construction cost control cannot rely only on posted accounting transactions.
Instead, proper project control needs to connect:
Actual Cost + Remaining Commitments + Remaining Uncommitted Cost = Forecast Final Cost
This is closely aligned with the concept of Estimate at Completion used in project control:
What Is Committed Cost?
Committed cost represents expenditure the contractor has already authorized through mechanisms such as:
- Purchase Orders
- Subcontracts
- Approved contract amendments
- Equipment hire agreements
- Other formally awarded obligations
But there is an important distinction.
For instance, the total committed value of a purchase order is not necessarily the remaining commitment.
For example, the project may already have received, consumed or recognized part of that purchase order as actual cost.
If management adds the full purchase order value on top of actual costs, double-counting can overstate the project forecast.
This is why a proper construction ERP must distinguish between:
- Total Awarded Value
- Cost Already Incurred
- Remaining Committed Cost
- Uncommitted Cost to Complete
Oracle itself distinguishes between different commitment categories and transaction statuses in its project-costing documentation:
In short, the lesson is simple:
The label “Committed Cost” is not enough. You need to understand exactly what sits behind the number.
Why Accounting Data Can Arrive Too Late for Project Control
However, this does not mean accounting systems are incapable of recognizing costs before an invoice arrives.
In fact, they can.
Through accrual accounting, companies can recognize obligations for goods or services already received but not yet invoiced.
See the IFRS treatment of accruals and payables:
Oracle also documents uninvoiced receipt accruals:
The real problem begins when project management relies only on posted accounting data for operational decisions.
By the time a supplier invoice reaches finance, several things may already have happened:
First, someone requested the material.
Then, a manager approved the purchase order.
The team selected the supplier.
Next, the delivery occurred.
The site may already have consumed the material.
Meanwhile, the work may already have progressed.
In other words, the commercial exposure existed long before the invoice appeared.
That is why project control must start earlier in the process.
Construction Cost Control Starts Before the Invoice
A contractor should follow the financial impact of a transaction from the moment someone creates the requirement.
A typical sequence is:
Requirement → Requisition → Approval → Purchase Order → Delivery → Consumption → Cost Recognition → Invoice → Payment
Each stage also answers a different question.
For example, a requisition shows demand.
A purchase order shows commercial commitment.
Similarly, a delivery shows receipt.
Material consumption shows use.
An invoice creates a financial liability.
Finally, payment shows cash movement.
Therefore, teams should not treat these events as interchangeable.
This is one of the central ideas behind project-based procurement in ProjectVIEW ERP
However, the purpose is not simply to digitize procurement.
Instead, it is to connect purchasing decisions back to the project budget and operational requirement that created them.
The Biggest Mistake: Double-Counting
For example, consider a subcontract with a total awarded value of AED 6 million.
The subcontractor has already performed AED 2 million of work, and the contractor has recorded it as actual cost.
The remaining commitment is therefore approximately AED 4 million, assuming no other adjustments.
If management calculates:
AED 2 million actual cost + AED 6 million committed cost
then the forecast becomes AED 8 million.
But the AED 2 million actual cost already includes part of that AED 6 million commitment.
As a result, the forecast effectively counts the same work twice.
The correct logic is therefore:
Actual Cost + Remaining Commitment
This becomes even more important when accruals apply.
If finance has already accrued the work and the supplier invoice later arrives, finance should clear or replace the accrual—not count it again.
In fact, Oracle explicitly documents this type of accrual reversal logic
Why Committed Cost Still Does Not Tell the Full Story
Even committed cost is not enough.
A contractor may still have significant work that it has not yet purchased or subcontracted.
For instance, consider:
- Future labour requirements
- Machinery usage
- Fuel
- Temporary works
- Site supervision
- Additional material quantities
- Extended project duration
- Unawarded subcontract packages
These costs may not exist yet as purchase orders.
But they are still part of the future cost of completing the project.
That is why the true project-control question is not:
What have we spent?
Nor is it:
What have we committed?
It is:
What is the project now expected to cost at completion?
Why Scope, Schedule and Cost Must Be Connected
To answer that question properly, however, costs cannot exist in isolation.
Instead, they need context.
At DANAOS Projects, we structure this through the relationship between:
BoQ ↔ WBS ↔ Cost Codes
First, the Bill of Quantities defines the commercial and measurable scope.
Then, the Work Breakdown Structure connects that scope to execution and time.
Finally, the Cost Codes allow teams to classify costs and resources consistently.
We explore this in detail here:
BoQ, WBS and Cost Codes: Connecting Scope, Schedule and Cost
As a result, this relationship allows management to ask more meaningful questions.
What scope does this commitment belong to?
Which activity is affected?
What quantity remains?
Which resources does the work still require?
How much budget remains?
What is the expected final cost?
Without this structure, the company may know how much it spent without understanding why it spent it.
Site Data Is Equally Important
Project cost control also depends on what actually happens on site.
For example, a purchase order may say what the company bought.
However, it does not tell you whether the site used the resource efficiently.
Similarly, material delivered is not necessarily material consumed.
Labour present on site is not necessarily productive labour.
Likewise, equipment available is not necessarily productive equipment.
Progress recorded in accounting does not automatically reflect physical progress.
This is why site-data capture is fundamental to construction cost control
In short, the objective is to connect financial exposure with operational reality.
How ProjectVIEW ERP Approaches the Problem
ProjectVIEW ERP connects procurement, site operations, subcontracting, budgeting and cost control within one project-specific operating environment.
We explain the broader integrated architecture here: How ProjectVIEW ERP Achieves True Cost Control
However, the purpose is not simply to create another cost report.
Instead, it is to allow project teams to understand cost exposure while there is still time to act.
Final Thought
Of course, accounting is essential.
But accounting and project control serve different purposes.
Accounting tells the organization what it has financially recognized.
By contrast, project control must also understand what the project has committed and consumed, what remains to be delivered and what it is now expected to cost.
For contractors, the most important question is therefore not:
“How much have we spent?”
It is:
“How much are we already exposed to, and what will this project realistically cost when completed?”
In short, that is the difference between reporting cost and controlling cost.
