An order worth 100,000 euros looks good. Until 110,000 has been spent.

Do the arithmetic, then commit

At the start there is the costing. Which services are you selling, which material do you need, how many staff hours do you expect, what has to be bought in, which equipment and vehicles are in use.

A calculation over the margin shows which sales price yields which gross profit. Whether the order adds up is therefore decided before you commit and not afterwards.

A project then bundles any number of jobs and brings costs, revenue and dates together across them. The project manager is assigned to it, and it runs over weeks and across several trades.

Larger undertakings are broken into subgroups. Every section carries its own budget and its own hours, so that a weak section does not disappear into the total.

And then reality arrives

Reality takes no interest in the original costing. Material gets more expensive, staff need more hours, an extra journey is added, a subcontractor sends a higher invoice. At the same time another part runs better than expected.

That is why it is not enough to work out revenue minus costs after the project. Staff time is recorded or taken over from the planned jobs and flows in continuously.

Whatever you buy in for the project hangs on the same job. The purchase order goes to the supplier, the incoming invoice is created from it, and the unit price from the order sits next to the one from the incoming invoice. The difference is therefore not a guess.

Revenue arises through invoices and partial invoices, and open items stay visible. What has already been invoiced and what can still be invoiced sits on the job.

Expected and actual

On the job the figures sit side by side: expected costs and actual, revenue, budget and contribution margin, each of them cumulative as well. Step by step the costing therefore becomes a reckoning.

The project manager reads from it whether the project works operationally. Management reads the same figures and asks whether it works commercially. Both look at the same state.

A look at the detail explains why a project runs the way it runs. Perhaps the material was badly costed while the labour came in better than planned. What matters is not that every section is right but that the deviation becomes visible early.

Because after the closing invoice a poor margin can only be explained. While the project runs, something can be done about it.