Isolate the margin effect of underestimated labour hours
Use the same project price, period, currency and indirect-tax basis. Change labour hours at the same loaded hourly cost before adding rework, delay, material or capacity effects.
| Case | Loaded labour | Project contribution | Project margin |
|---|---|---|---|
| Estimate: 120 hours | 120 × 80 = 9,600 CU | 20,000 − 9,600 − 6,000 = 4,400 CU | 4,400 ÷ 20,000 = 22% |
| Downside: 140 hours | 140 × 80 = 11,200 CU | 20,000 − 11,200 − 6,000 = 2,800 CU | 2,800 ÷ 20,000 = 14% |
Use one cost map from quote to close-out
| Stage | Record | Checkpoint |
|---|---|---|
| Estimate | Quantity, unit cost and allocation basis by category | Every included cost appears once |
| Quote | Price, included scope, exclusions and approved assumptions | Price basis matches the estimate basis |
| Delivery | Actual hours, quantities, supplier costs and approved changes | Actuals use the same categories |
| Review | Variance, cause, owner and follow-up action | Totals reconcile before interpretation |
Define the cost buckets before calculating margin
- Direct labour: delivery time assigned to the job at a stated internal cost basis.
- Materials and consumables: quantities used by the job at a stated source and unit basis.
- Subcontractors and equipment: external or job-specific resources assigned once.
- Allocated overhead: a disclosed share of common cost using a consistent driver.
- Revenue: the amount earned for the job on the same comparison basis as cost.
Cost variance = actual cost − estimated cost
- Estimated cost
- Approved planning cost for the selected category or job (currency) — quote and estimate records
- Actual cost
- Recorded delivery cost on the same category and basis (currency) — time, supplier and accounting records
- Cost variance
- Amount actual cost is above or below estimate (currency) — calculated result
A positive cost variance identifies an overrun under this sign convention; it does not identify the cause.
Worked scenario: reconcile before explaining
All figures are user-labelled assumptions in generic currency units, used only to demonstrate the workflow.
| Category | Estimate | Actual | Actual − estimate | Question to investigate |
|---|---|---|---|---|
| Labour | 4,000 | 4,800 | 800 | More hours, higher cost per hour, or both? |
| Materials | 1,500 | 1,300 | −200 | Quantity, price or substitution? |
| Subcontractors | 1,000 | 1,000 | 0 | Was scope unchanged? |
| Allocated overhead | 500 | 500 | 0 | Was the allocation method applied once? |
| Total cost | 7,000 | 7,600 | 600 | Do category totals reconcile? |
Route each variance to an owned next action
| Signal | Check first | Possible next decision |
|---|---|---|
| Repeated labour-hour overrun | Estimate, scope and rework | Rescope or revise task estimates |
| Input cost change | Supplier record and quantity | Update cost assumption or purchasing plan |
| Unapproved added work | Scope and change record | Strengthen change control |
| Low recovered margin across jobs | Rate, utilisation and overhead basis | Review service rate and capacity |
Related tools
- Job Costing & Margin Planner
Compare quoted and actual job economics and identify overruns
- Project Quote Builder
Turn scoped task rows and project costs into a transparent fixed quote
- Construction Change Order Pricing Planner
Price construction scope changes with sequencing, delay, subcontractor and retention effects
Keep allocation and project thresholds as separate decisions
An equipment allocation and a project threshold can both use job records, but they answer different questions. Keep their drivers, units and exclusions visible, and send the arithmetic to the exact registered methodology.
| Decision | Required records or boundary | How to interpret | Calculation owner |
|---|---|---|---|
| Allocate equipment cost to jobs | Ownership, maintenance and operating costs; one supportable use or capacity driver; expected utilisation; double-count check | A management allocation for this decision, not an accounting classification or proof that equipment should be owned | Equipment Cost Allocation |
| Find a project threshold | Declared project cost and contribution boundary; completion or billing unit; price or contribution per unit or event | A threshold under entered assumptions, not demand, completion probability, invoicing, cash receipt or contract entitlement | Project Break-even |
Run each bounded calculation
- Equipment Cost Allocation Planner
Allocate ownership, maintenance and utilisation cost to jobs
- Project Break-even Planner
Find completion, billing or contribution threshold for a project
Frequently asked questions
- Should every overhead be assigned directly to a job?
- Not necessarily. Use a consistent, disclosed allocation that suits the decision and avoid implying precision the records do not support. Keep unallocated period costs visible elsewhere.
- Is a favourable total variance enough to close the review?
- No. One favourable category can hide an overrun in another. Reconcile and investigate the meaningful category variances before carrying assumptions forward.
- Does a job-costing result replace the accounts?
- No. It is a decision-support view built from selected records and classifications. Reconcile it with the accounting records appropriate to the business.
Calculation methods used in this guide
- Job Costing & Margin Planner methodology — Margin101: Estimate, actual, variance and margin calculation contract.
- Project Quote Builder methodology — Margin101: Estimate and project-quote scenario boundaries.