The hidden risk of untapped committed costs in construction project management

Construction firms risk significant profit and liquidity issues due to delays in tracking committed costs. Industry experts recommend real-time systems to improve project visibility, prevent overruns, and bolster financial resilience amid volatile material prices.

Right now your superintendent may have hundreds of thousands of dollars tied up in purchase orders and subcontracts that have not yet hit the general ledger. That delay is not a bookkeeping nicety; it is a fun...

damental risk to project profit and corporate liquidity. The practical difference between “actual costs” and “committed costs” is the difference between seeing a problem in time to fix it and only learning about it after the damage is done.

Committed costs are the legal obligations you have already accepted, purchase orders and signed subcontracts, even when no invoice has been processed. Most accounting systems record only actual costs as invoices are posted, leaving a blind spot that can hide overruns for weeks. According to Procore, committed costs represent obligations agreed but not yet invoiced and must be tracked alongside actuals to produce a true picture of job cost exposure. When material prices swing 8–12% in a single quarter, or when a contract change is signed on site, that blind spot quickly becomes an earnings hole.

The mechanics are simple and stark. A superintendent issues a PO for steel; the material is delivered; the invoice lags by 60 days. By the time accounting posts the cost, the project team has lost 6–10 weeks to change direction, absorb substitution costs, or negotiate corrective scope changes. On projects with thin margins, that lag can convert a profitable job into a loss. Industry analysis shows cost overruns are pervasive, Contimod reports nine out of 10 projects exceed budget with average overruns of 28%, so relying on lagged invoice data is a systemic vulnerability, not an occasional error.

Three common committed-cost failure modes repeatedly surface.

1. Uncommitted-scope exposure. Projects that are partly complete but largely uncommitted risk bearing future price increases across the unfinished scope. The lead example, where a $2.5m job had $750k uncommitted and then suffered a 15% price rise, turns paper profit into real loss. K38 Consulting highlights regulatory changes, permit delays and scope creep as additional, correlated drivers that magnify uncommitted exposure on multi-year schedules.

2. Duplicate ordering and waste. When field teams and project managers do not share a single, real-time commitment register, duplicate POs for the same materials are common. The result is repeated deliveries and duplicate payments. General contractors routinely report annual leakage in the low six figures from this failure; the root cause is lack of field-to-office integration, not careless purchasing alone.

3. Misleading WIP and fragile bonding. Work-in-progress reports that exclude committed but uninvoiced liabilities present an optimistic profit picture. Lenders and sureties, when furnished with full committed-cost detail, often reduce bonding capacity or tighten covenants. Bryt Software recommends lenders demand stronger contingencies and completion guarantees to mitigate this exact risk, underscoring how missing committed-costs data can have company-level consequences beyond the job ledger.

Real-time committed-cost tracking changes the equation. Rather than waiting for invoices, a system that records commitments the moment a PO or subcontract is issued will surface budget variances immediately. The practical benefits are tangible: more reliable WIP schedules for banks and sureties, predictable short-term cash-flow planning and automated red-flag alerts when commitments breach coded budgets or risk thresholds. Proactive controls, automated alerts when a PO exceeds a cost-code budget or when committed-plus-actuals exceed the project budget by a set percentage, turn accounting from a rear-view mirror into an early-warning system.

Technology and process choices matter. For teams on Sage 100 Contractor, job-cost modules can be extended with mobile PO entry, subcontract management and committed-cost dashboards to close the visibility gap. QuickBooks Online users require construction-specific integrations because QBO lacks robust native job costing. Mobile field tools that allow a superintendent to raise a PO in 30 seconds, attach photos, and GPS-tag delivery sites eliminate the clipboard lag that creates the “field-to-office information black hole.” The proposed four-week implementation, process audit, data centralisation, team training and a pilot, is an operational route map to get those controls live quickly.

Risk-management best practice should also be revisited. Bryt Software counsels that lenders and owners should require contingency reserves, typically 10–15%, and prefer fixed-price or GMP arrangements where appropriate to shift price-variation risk. Those structural protections, combined with committed-cost visibility, reduce the frequency and impact of overruns. K38 Consulting adds that anticipating regulatory or permit-driven delays and building scope-change processes into budgets are essential when projects run across multiple years.

A quick exposure calculation demonstrates the scale of the blind spot. Multiply total active project budgets by the percentage of scope not yet on PO and by an expected material inflation rate to estimate your hidden risk. For example, $8m of active budgets with 45% uncommitted scope and a 10% inflation assumption yields $360k of potential exposure, an amount that, for many firms, exceeds typical project profit and warrants immediate corrective action.

Excel-based or manual approaches habitually fail because they cannot provide a single source of truth. Spreadsheets fragment, versions proliferate, and institutional knowledge walks out the door with departing staff. That fragility is precisely what real-time systems are designed to eliminate: centralised committed-cost ledgers, automated workflows, audit trails and field-adopted mobile tools.

Construction firms that adopt committed-cost discipline gain more than accounting accuracy; they gain leverage with lenders, clearer cash-flow planning, and the option to act on budget signals while there is still time. Given the prevalence of cost overruns reported in industry studies, and the recent volatility in material pricing, treating committed costs as first-class financial data is no longer optional. Firms that continue to “drive blind” risk turning common market swings into existential threats.

The company claims on vendors’ websites that integrated committed-cost solutions can be implemented quickly and adopted by field teams; editorially, those claims should be tested in pilots and measured against improvements in WIP accuracy, reduced duplicate orders and realised savings. For firms seeking immediate relief, combining committed-cost tracking with stronger contractual protections and realistic contingency planning offers the fastest route to shrink the gap between reported profit and cash reality.

Source: Noah Wire Services