Your ledger is wrong on the 28th of every month.

It is the twenty-eighth. The report is due on the second. You need the actual cost of the reinforcement package.

Here is what the steel has been doing.

Five states. Five dates. Five different people who will each tell you, correctly, what the steel has cost.

The buyer committed $197,400 in month three, the day he signed the order. That money was gone from that moment — you could cancel the project and still be arguing about it.

The storeman has 210 tonnes on his delivery notes. All of it arrived.

Accounts payable has invoices for 126 tonnes: $118,440. The second lot arrived, but the supplier has not sent the paperwork, because suppliers never do.

The bank has paid nothing at all. Sixty-day terms. That money leaves in month eight.

And 132 tonnes of steel are actually inside the concrete — 120 tonnes of work at ten percent waste. $124,080.

Nobody in the building holds that last number. It does not exist in any system. It requires knowing what is physically in the ground, which is not a question accountants ask.

Four numbers, four verdicts

So take each of them, divide the same earned value into it, and see what the project looks like.

On the cash basis your CPI is 1.94. The steel has not been paid for. On paper you are running the most profitable reinforcement package in the history of the industry. Report that number and you will be promoted, briefly.

On the commitment basis your CPI is 0.49. The whole order is against you, including 78 tonnes of steel that has not been touched. Report that and the job goes into recovery for a problem that is partly a pile of bars in a yard.

On the invoiced basis — the number the ledger will hand you if you ask for it — your CPI is 0.69.

And the truth is 0.67.

Look carefully at what just happened there, because it is the most dangerous line in this article. The ledger number was nearly right. Two points out. If you had reported 0.69 this month, nobody would ever have known, and you would have concluded that asking accounts works fine.

It worked this month because two errors happened to cancel: some steel was consumed and not invoiced, some was invoiced and not consumed. Next month they will not cancel. They will compound, and your CPI will jump twenty points for no reason connected to anything happening on site.

A number that is accidentally right is more dangerous than one that is obviously wrong. The obviously wrong one gets investigated.

The accrual is your job

The bridge between the ledger and the truth has a name, and the name is the accrual: cost that has been incurred but not yet invoiced.

Six tonnes of steel went into the works that nobody has billed you for yet. Five thousand six hundred and forty dollars. Add it to the ledger's $184,296 and you get $189,936, which is the number every CPI in this track has been built on.

That is the whole of accrual accounting, on one line, and here is why it matters to you rather than to the finance department.

Accounts cannot calculate it. They have no idea how many tonnes are in the ground. They have invoices and delivery notes, and neither of those is a measurement of work.

The accrual can only be produced by the person who measures physical progress. On a well-run construction project, that is you. Which means the most important number in the company's month-end close — the one that determines whether this project is reporting a profit or a loss — is produced by a planner with a tape measure and a tonnage sheet.

Most planners have no idea this is their job. So nobody does it, the ledger goes out on the invoiced basis, and the cost report lurches around every month like a drunk.

The two things the ledger cannot see

There are 78 tonnes of steel in the laydown yard. $73,320. You own it, you have been invoiced for some of it, and none of it is a cost, because it is not in anything. It is an asset. Book it as cost and you have just invented a variance out of a stack of bars.

And then the number that should end the meeting.

The job needs 200 tonnes of steel in the ground, plus the six tonnes that were cut wrong and re-fixed. At ten percent waste, that is 226.6 tonnes of steel.

You ordered 210.

Somebody is going to have to buy another 16.6 tonnes, at whatever the market is charging on the day, on a job where the last order came in $140 a tonne above the estimate.

The commitment register knows this today, in month six, because it is the only system that looks forward. The ledger will find out in month nine, when the invoice lands.

Commitment is the only leading indicator in cost control. Everything else — every actual, every variance, every CPI in this entire track — is history. Well-organised, carefully reconciled history.

Practical insight

Ask your commercial team for the commitment register, and ask for it against budget, control account by control account.

Any account where committed cost already exceeds the budget is a loss that has happened. Not a risk. Not a forecast. It happened, on the day somebody signed something, and the only thing still in question is which month it becomes visible.

Then ask one more question at month end: what accrual did we post?

If the answer is zero, or “we don't really do that”, then your actual cost is whatever your suppliers' admin departments happened to get round to this month, and every performance conversation on your project has been a conversation about somebody else's filing.

Key takeaways

✔ A cost passes through five states: committed, delivered, consumed, invoiced, paid. Each has a different owner and a different date.
✔ Only incurred cost — what has been consumed into the works — can be divided into earned value.
✔ Same month, same steel: CPI 1.94 (cash), 0.49 (committed), 0.69 (invoiced), 0.67 (incurred).
✔ The invoiced basis was nearly right this month, by luck. That is more dangerous than being obviously wrong.
✔ The accrual is the bridge: $184,296 + $5,640 = $189,936. Six tonnes consumed, not yet billed.
✔ Accounts cannot produce the accrual. It needs physical measurement, so it is the planner's number.
✔ 78 tonnes in the yard is $73,320 of asset, not cost. Book it as cost and you invent a variance.
✔ The job needs 226.6 t and ordered 210. The commitment register knows in month 6; the ledger finds out in month 9.
✔ Commitment is the only leading indicator. Everything else is history.

What is coming next

Every number this week rested on one thing: that 114 tonnes of steel are in the ground and six were cut wrong.

How do you know?

Somebody walked out onto a deck and made a judgement, and then somebody else wrote a percentage on a form. There are six ways to do that, and they are not equally honest. Two of them are facts. One of them is a lie that every project in the world tells itself.

Next week: measuring physical progress, and the ninety percent that lasts for four months.