Job Costing - Productivity Forecasting Overview

The calculation of job percent complete becomes far more complex when dealing with productivity as a forecast method to calculating the projected at completion costs on a job. In the case of productivity forecasting (“P” line budgets) the percent complete is calculated based on the budgeting of units at the cost code level and the subsequent posting of quantities complete for these cost codes. Projected cost at completion is updated through the entry of go-forward overrides, which change the estimate to complete and subsequently change the projected cost at completion.

Initial Calculations:

Percent Complete = Output Units Complete ÷ Output Units Projected
Output Units to Complete = Output Units Projected – Output Units Complete
Cost to Complete = Current Output Unit Rate Amt × Output Units to Complete
Projected Cost At Completion = Cost to Complete + Input Cost Spent

Example 1: Prior to Posting of Costs & Units Complete

Prior to the posting of units complete, the system will assume that the final cost at completion is equal to the input cost budgeted. This means that the cost to complete this cost code/category ($125,000) will be equal to the budget to complete this cost code/category. In the case of a “P” line forecast, the posting of input quantities and costs to the cost code/category will not have an effect on the final cost at completion.

Example 2: After posting of Units Complete

Once the units have been posted as complete against the “P” line cost codes, the system updates the percent complete by dividing the units complete by the budgeted output units. Projected final quantities and costs (against the input units) are then revised to account for the percent complete based on the output units. In the example below, the percent complete is 25% based on output units. Applying the output percent complete (25%) against the input units spent to date ($30,000) has the effect of changing the projected final cost.

Productivity Analysis

The analysis of conceptual unit price estimates is based on the relationship between input units and output units. The productivity forecast allows analysis of this relationship in terms of the dollars and quantities needed to complete an output unit. Based on the information provided, productivity can be analyzed to see where the actual progress may be out of line with the estimates.

Due to the nature of productivity forecasts is should be noted that forecast amounts as a lump sum figure on the first screen cannot be changed. In order to change the final cost at completion enter go forward override amounts against the productivity forecast figures.

Below is an example of a productivity forecast based on the information presented in Example 2. In this example, budget is a labor cost of $125.00 per hour to complete the work on this particular cost code. Under this scenario labor would cost $25.00 per cubic yard to complete the work on this cost code. Budgeted productivity would then be five cubic yards per hour with a yield of one cubic yard every 0.2 hours where yield is the inverse of productivity.

Budgeted

Analyzing the current forecast rates shows that the job costs are doing better than projected. In the current scenario labor is only costing $120 per hour. Given the decrease in the labor cost per hour actual spending is only $24.00 a cubic yard on labor. Since consumption of 25% of the budgeted quantity (250 ÷ 1000) as the units complete (1250 ÷ 1000) productivity and yield remain the same. In this case, the job is working on schedule but it has cost less to do so. For this reason, the projected cost at completion has been modified down to reflect the decrease in labor cost.

Current

Example 3: Changes to Go-Forward Override Amounts

Continuing with the scenario in Example 2, it may be decided that for whatever reason the rates or productivity numbers are misleading and are over or under estimating the projected cost at completion. In this case, override the calculated amounts through the go forward overrides. The system allows direct modification of any of the forecast amounts except for the project cost amount. As modification of one of the forecast amounts occurs, the remaining amounts will automatically update with the override.

Take, for example, the situation from Example 2. Assume that if labor is kept down to $120 per hour it is known five cubic yards per hour will not be accomplished. The project manager estimates that as the job continues productivity will actually reduce to 4.75 CY / HR. In this case, enter 4.75 in the productivity field for the go forward amounts. Using this new productivity, the system will calculate the yield will increase to 0.21 hours to complete one cubic yard causing the output unit cost rate to increase to $25.26 per cubic yard. Given that there are 3,750 remaining output units to complete the job, the estimate to complete would be $94,725 (Remaining Units × Output Rate).

When working with the go forward override amounts the system ignores the posted input and output amounts for the calculation of the remaining units. The go forward amounts are calculated under the following formula:

When Productivity or Yield change:

Productivity, Yield, Output Rate, and Projected Cost Change

Productivity = 1 ÷ Yield
Yield = 1 ÷ Productivity
Output Rate = Input Rate × 1 ÷ Productivity = Input Rate ÷ Productivity
Projected Cost = Remaining Output Units × Output Rate
Estimate to Complete = Projected Cost + Spent

When Output Rate changes:

Input Rate and Projected Cost change – Productivity and Yield are constant

When Input Rate changes:

Output Rate and Projected Cost Change – Productivity and Yield are constant

Overrides: