How to Track Committed Costs with Job Costing Software

Tracking Committed Costs: Construction Job Costing Software

"A stitch in time saves nine."

In construction, planning costs carefully up front prevents big headaches later. In fact, capturing committed costs early on is crucial for accurate job costing and project profitability.

This article explains what committed costs are, why they matter and how contractors can track them effectively using construction job costing software. We'll cover practical steps and best practices so you can leave every project in control of its budget.

What is a committed cost?

A committed cost is a project expense you have agreed to pay, even though you haven't paid it yet. In other words, it's a promise or obligation on paper, typically via contracts or purchase orders, that money will be spent.

Research from the Project Management Institute defines committed costs as "planned costs committed to contractors and vendors based on awarded contracts and purchase orders."

Committed costs are different from actual costs. Actual costs have been incurred and usually paid; committed costs are pending payments already pledged.

Tracking these commitments gives you an early, precise view of your project's financial health. By recording committed costs in your job costing software, you make your budget more accurate and precise.

What Are the Types of Committed Costs in Construction?

Committed costs in construction come from many sources. Some common ones are:

• Subcontractor agreements: Money due to trades that you've contracted, such as builders or electricians. Once signed, these contracts commit you to those costs.
• Purchase orders: Orders for materials, equipment or supplies. Even if the supplier hasn't invoiced you yet, the purchase order sets aside that cost.
• Approved change orders: Added work or upgraded materials requested mid-project. Each approved change order immediately raises your committed costs.
• Labour and payroll accruals: Labour hours already worked, including site crews, before payroll is paid. This unposted labour is effectively a committed cost until you pay it.
• Rentals and equipment charges: For example, if you schedule a crane rental, that obligation is committed once booked, even if you pay after use.

Each of these items locks in a future expense, so treat it like spending money in your budget. By listing all contracts, orders and changes against each job, you see exactly how much you've already promised to pay. You should be able to have a visibility over these in your job costing software. This list of commitments is key to accurate job costing and budget control.

Best practices for using committed costs in construction

To leverage committed costs effectively, follow these best practices:

• Formalise large commitments early. Put significant expenses into signed contracts or approved POs before work starts. For example, agree with major subcontracts and bulk material orders upfront. This locks in pricing and protects your margin.
• Set clear commit thresholds. Define rules for when to commit to writing. Many companies say any expense above a certain amount, say £5,000, must be formalised with a contract or PO. This ensures nothing important slips through unrecorded.
• Use consistent cost codes. Assign every commitment to a job and cost code such as Labour, Materials or Subcontract as soon as it's made. Consistent cost coding means your job costing software can group and report commitments alongside actuals.
• Review and update budgets regularly. After you enter committed costs, adjust your job budget and forecast. If a committed PO raises your material spend, update that line in your budget. Keep budgeting up to date so forecasts and WIP reports stay accurate.
• Keep good documentation. Store all agreements, change orders and invoices in one place, whether physical or digital. A clear audit trail helps verify each committed cost and speeds up approvals.

Follow these steps to ensure your committed costs work for you, not against you. Early contracting and timely updates mean your job budgets and accurate job costing are built on real data, not guesses.

Suggested Read: Digitising Construction Job Costing by Linking Field Data

How to track committed costs through job costing software?

Putting committed costs into practice means creating a system for tracking committed costs every day. Here's what you can do:

• Gather all contracts and POs. Start by listing every signed subcontract and purchase order for the project. Note the value and due dates of each. This "commitments register" is your baseline ledger of what's promised.
• Log change orders immediately. Each time the client approves a change, record its cost as a newly committed expense. Update your commitments to register or software at the moment it's approved.
• Link commitments to budgets. In your accounting or project system, link each committed cost to the correct job and cost code. This ensures that your budget-to-actual report shows the money as soon as it's committed, not just after payment. This linkage is what makes your job cost accurate and real-time.
• Monitor subcontractor agreements. For each subcontractor's contract, track how much is drawn down versus total. As you approve interim payments or invoices, deduct those from the committed total. This tells you how much remains committed but unpaid.
• Review and reconcile often. Schedule a weekly or biweekly review of committed costs. Check that every new invoice or bill is matched with the right committed cost and update your job costing records. Frequent checks keep the data fresh and avoid surprises.

These actions turn loose commitments into formal line items in your construction job costing software or ledger. If you use a good project system, much of this can be automated. The goal is: as soon as you say "yes" to spending, it hits your budget and cash forecasts.

Suggested Read: How Does Job Costing Help Prevent and Predict Cost Overruns?

Why is tracking committed costs important?

Always tracking your commitments pays off. Here's why it matters:

• Prevents overspending. If you only track costs when they're paid, you'll understate spending until it's too late. Committed costs fill that gap. In fact, industry specialists in construction accounting call ignoring commitments "a crucial error" that leads to mistakes and overspending. By accounting for every promise to pay, you know exactly how much the budget remains.
• Improves cash flow planning. Knowing your committed costs lets you predict future cash needs. If you've committed £200,000 this month, you'll know roughly when those payments hit and can arrange funding or delays accordingly. Without tracking committed costs, cash flow is guesswork.
• Boosts budget accuracy. Including committed costs in your job costing makes your actual-versus-budget reports true to life. You avoid ending a project thinking you have more money than you actually do.
• Increases stakeholder confidence. Clients, finance teams, or banks like evidence of control. When you present budgets that already include committed costs, stakeholders see the full picture. It proves you're managing the project proactively. They'll trust your forecasts more, reducing pressure from surprise overages.

In short, tracking committed costs keeps the job costing book balanced. It transforms your cost management from reactive to proactive.

Suggested Read: Why Your Construction Job Costing Reports Are Inaccurate

How Xpedeon ERP simplifies committed cost tracking

When a purchase order or subcontract is entered, Xpedeon ERP automatically links it to your budgets and forecasts. This means your committed costs flow straight into your project cost management software dashboards without double data entry.

In Xpedeon ERP, you can define unlimited cost codes and budgets by phase or block. As soon as you issue a PO, the committed value shows under that cost code.

The system then continuously recalculates cost-to-complete and flags any variances on the spot. Labour is tracked via timesheets that feed into job costing as well, giving you an accurate labour commitment. Dashboards update in real time so your finance team, project managers and site engineers all see the same committed versus actual picture.

Because Xpedeon ERP connects budgets, actuals and commitments, you always spot risk early. If committed costs near or exceed a phase budget, Xpedeon ERP can alert you before it becomes a loss. This kind of construction job costing software turns tracking committed costs into a live process, not a month-end chore.

In practice, the right ERP or costing platform takes away the paperwork hassle. It lets you pull reports with "Committed versus Actual" side by side, drill into any PO and even run WIP calculations without manual input. For contractors who adopt such tools, tracking committed costs becomes part of their daily workflow and projects stay on track as a result.

Frequently asked questions

1. What is the difference between committed cost and actual cost?

A committed cost is an agreed obligation you haven't paid yet, such as a signed contract or approved PO. An actual cost is the money that has actually been spent and posted, meaning payment or invoice completed. In short, committed costs are planned expenses; actual costs are finalised ones.

2. Are committed costs relevant?

Absolutely. They show what you're obliged to spend before the cash leaves the bank. Ignoring them gives a false budget picture and often leads to cost overruns. By tracking committed costs, you gain certainty over future expenses and can manage budgets with confidence.

3. What is the difference between a discretionary cost and a committed cost?

A discretionary cost is optional and can be changed, like office events or extra training. Committed costs are mandatory obligations such as contracts or POs that you cannot easily cancel. In other words, discretionary costs you can trim if needed; committed costs you must pay for.

4. What is the committed cost and incurred cost?

"Committed cost" is a future obligation under the contract. "Incurred cost" or an expense incurred is a cost that has already been incurred. It's recognised in accounting, often under accrual rules. So, committed comes before the cost is incurred. Once incurred, with goods delivered or work done, it moves to actual costs.

5. How often should I update my committed cost records?

Update them as often as commitments change, ideally immediately when a new PO, contract or change order is approved. At minimum, do a thorough review weekly or at each phase-end. Frequent updates keep budgets current and let you catch issues early.

Conclusion

Tracking committed costs transforms your job costing from guesswork to precision. By logging every contract, PO and change order against its job budget, you steer your projects clear of unexpected overruns. Remember, each committed cost is a promise of spending. Spot it early and you can plan for it rather than be surprised by it. Using the steps and tips above, you'll improve your accurate job costing and overall cost control.

To see how this works in action, book your demo with Xpedeon ERP today and discover how construction job costing software can keep your projects on budget every time.