Create a Cost-Value Reconciliation

Overview

Prompt

You are a Commercial Manager on a UK construction project preparing the monthly Cost-Value Reconciliation (CVR). Using the data below, generate a comprehensive CVR report:

Project Details:
- Project: [PROJECT NAME]
- Client: [CLIENT NAME]
- Contract Form: [CONTRACT, e.g., NEC4 Option C / JCT D&B 2016]
- Original Contract Value: [VALUE, e.g., £9,500,000]
- Approved Variations to Date: [VALUE, e.g., £620,000]
- Anticipated Variations (pipeline): [VALUE, e.g., £180,000]
- Reporting Period: [MONTH/YEAR, e.g., March 2025]
- Programme Completion: [DATE, e.g., November 2025]
- Percentage Complete: [%, e.g., 55%]

Cost Data by Category:
- Subcontract Packages: [COMMITTED VALUE, e.g., £5,200,000] / [COST TO DATE, e.g., £2,750,000] / [FORECAST FINAL, e.g., £5,350,000]
- Materials (direct): [COMMITTED, e.g., £850,000] / [TO DATE, e.g., £480,000] / [FORECAST, e.g., £870,000]
- Labour (direct): [COMMITTED, e.g., £1,100,000] / [TO DATE, e.g., £620,000] / [FORECAST, e.g., £1,150,000]
- Plant: [COMMITTED, e.g., £380,000] / [TO DATE, e.g., £195,000] / [FORECAST, e.g., £400,000]
- Preliminaries: [BUDGET, e.g., £1,200,000] / [TO DATE, e.g., £710,000] / [FORECAST, e.g., £1,250,000]
- Design Fees: [BUDGET, e.g., £220,000] / [TO DATE, e.g., £185,000] / [FORECAST, e.g., £225,000]
- Overheads: [BUDGET, e.g., £280,000] / [TO DATE, e.g., £155,000] / [FORECAST, e.g., £290,000]

Generate the CVR with:
1. Value Summary — showing original contract value, approved variations, anticipated variations, and total anticipated final value
2. Cost Summary Table — by category showing budget, committed, cost to date, forecast final cost
3. Margin Analysis — original margin, current forecast margin, variance, margin percentage
4. Risk & Opportunity Schedule — list the top 5 commercial risks and top 5 opportunities with estimated values
5. Movement Since Last Report — what has changed and why
6. Actions & Recommendations — specific actions to protect or improve margin

Present financial figures in a clear tabular format. Highlight any cost overruns in the commentary.

Example Output

WORKED EXAMPLE: MONTH 8, £9.5M NEC4 OPTION C

The interesting CVR is not the healthy one. This is a job where the margin has moved the wrong way and the report has to say so.

── WHAT GOES IN ──

Project: Weston Gateway, Phase 2 Commercial Unit
Client: Sedgemoor Developments Ltd
Contract Form: NEC4 ECC Option C (target cost with activity schedule)
Original Contract Value: £9,500,000
Approved Variations to Date: £620,000
Anticipated Variations (pipeline): £180,000
Reporting Period: March 2027
Programme Completion: November 2027
Percentage Complete: 55%

Cost data by category (committed / to date / forecast final):
Subcontract packages: £5,200,000 / £2,750,000 / £5,350,000
Materials (direct): £850,000 / £480,000 / £870,000
Labour (direct): £1,100,000 / £620,000 / £1,150,000
Plant: £380,000 / £195,000 / £400,000
Preliminaries: £1,200,000 / £710,000 / £1,250,000
Design fees: £220,000 / £185,000 / £225,000
Overheads: £280,000 / £155,000 / £290,000

── WHAT COMES OUT ──

COST-VALUE RECONCILIATION
Project: Weston Gateway, Phase 2
Period: March 2027
Percentage complete: 55%
Prepared by: Commercial Manager

1. VALUE SUMMARY

| Item | Value |
|------|-------|
| Original Contract Value | £9,500,000 |
| Approved Variations to Date | £620,000 |
| CURRENT CONTRACT VALUE | £10,120,000 |
| Anticipated Variations (pipeline, not approved) | £180,000 |
| TOTAL ANTICIPATED FINAL VALUE | £10,300,000 |

The £180,000 pipeline is shown for information and is excluded from the margin position below. It is not earned value.

2. COST SUMMARY

| Category | Budget | Committed | Cost to Date | Forecast Final | Variance to Budget |
|----------|--------|-----------|--------------|----------------|--------------------|
| Subcontract packages | £5,200,000 | £5,200,000 | £2,750,000 | £5,350,000 | (£150,000) |
| Materials (direct) | £850,000 | £850,000 | £480,000 | £870,000 | (£20,000) |
| Labour (direct) | £1,100,000 | £1,100,000 | £620,000 | £1,150,000 | (£50,000) |
| Plant | £380,000 | £380,000 | £195,000 | £400,000 | (£20,000) |
| Preliminaries | £1,200,000 | £1,200,000 | £710,000 | £1,250,000 | (£50,000) |
| Design fees | £220,000 | £220,000 | £185,000 | £225,000 | (£5,000) |
| Overheads | £280,000 | £280,000 | £155,000 | £290,000 | (£10,000) |
| TOTAL | £9,230,000 | £9,230,000 | £5,095,000 | £9,535,000 | (£305,000) |

Every category is forecast above budget, totalling £305,000. Read at face value that says the whole job is drifting. It does not, and the reason is important: these budgets are the tender budgets for the base scope and they have never been re-baselined for the £620,000 of approved variations. The cost of doing the variation work is landing in these categories against budgets that were never uplifted for it.

So the variance column above is currently meaningless. Fixing that is action 2 below.

3. MARGIN ANALYSIS

| Item | Value | % |
|------|-------|---|
| Current Contract Value (incl. £620,000 approved variations) | £10,120,000 | |
| Forecast Final Cost | £9,535,000 | |
| FORECAST FINAL MARGIN | £585,000 | 5.8% |
| Of which: base scope (£9,500,000 value vs £9,230,000 budget) | £270,000 | 2.8% |
| Of which: approved variations (£620,000 value vs £305,000 cost) | £315,000 | 51% |

The headline is 5.8%, more than double the 2.8% we tendered. That reads as a job going well. It is not, and the split is why.

The base scope is forecasting exactly its tender margin: £270,000, or 2.8%. It has not improved at all. Every penny of the uplift comes from the variations, which are carrying a 51% margin.

A 51% margin on variations under Option C should stop you. Compensation events under this contract are assessed on defined cost plus the contract fee, not at commercial rates. A 51% return says these have been valued optimistically and will not survive the Project Manager's assessment or a defined cost audit.

If the £620,000 were reassessed on defined cost plus the fee, the value would be nearer £329,000 and the forecast margin would fall from £585,000 to roughly £294,000, or 2.9%. That is the same 2.8% job we tendered, with all the risk of the last 45% still to run.

The reported number is not wrong. It is just resting entirely on an assumption nobody has tested.

4. RISK AND OPPORTUNITY SCHEDULE

Top 5 risks:
R1. Subcontract position unclear. Packages are forecasting £150,000 above a budget that was never uplifted for variations, so we cannot currently say whether that is variation work or genuine overrun. Until the re-baseline is done this is an unquantified risk, not a known one. HIGH.
R2. The £180,000 anticipated variation pipeline. VO-31 (£95,000, external works redesign) has been with the client since January with no response. If rejected, we have already incurred approximately £40,000 of the work. MEDIUM.
R3. Preliminaries overrun to completion. £1,250,000 forecast assumes November completion. Every week beyond adds approximately £14,000. Currently no float. HIGH.
R4. Labour rates. £1,150,000 forecast assumes current rates hold to November. Two subcontractors have signalled increases. MEDIUM, £35,000.
R5. Option C pain/gain share. At forecast, we are above target cost. Under the share ranges, our exposure on the overrun is roughly 50% of the excess. This is not currently reflected in the margin above and needs quantifying next month. HIGH.

Top 5 opportunities:
O1. VO-31 approval at full value. £95,000, approximately £48,000 margin. MEDIUM.
O2. Groundworks final account. £45,000 of contra-charges against the groundworks subcontractor for the January reworks, not yet booked. MEDIUM.
O3. Steel package underspend. Forecast £30,000 below committed on final measure. LOW/CERTAIN.
O4. Prelims release. If the fit-out sequence holds, two weeks of site management could come off in October. £28,000. LOW.
O5. Materials rebate. Q4 volume rebate with the main supplier, approximately £18,000. LIKELY.

5. MOVEMENT SINCE LAST REPORT (February 2027)

| Item | Feb | Mar | Movement |
|------|-----|-----|----------|
| Current Contract Value | £10,020,000 | £10,120,000 | +£100,000 |
| Forecast Final Cost | £9,465,000 | £9,535,000 | +£70,000 |
| Forecast Final Margin | £555,000 | £585,000 | +£30,000 |
| Margin % | 5.5% | 5.8% | +0.3% |

Margin is up £30,000 this month. Every bit of that came from £100,000 of newly approved variations. Cost rose £70,000 over the same period.

How much of that £70,000 is the cost of doing the new variation work, and how much is the base job slipping? On the current budget structure we cannot tell, because the budgets have never been re-baselined for variations. That is not a small reporting nicety. It means that for three months we have reported an improving margin without being able to say whether the underlying job is getting better or worse.

That is the finding of this CVR.

6. ACTIONS AND RECOMMENDATIONS

1. Re-baseline the category budgets to include approved variations, before the April CVR. Until that is done the variance column is not telling us anything and we cannot separate base performance from variation work. This is the priority.
2. Quantify the Option C pain share exposure at forecast and report it as a discrete line next month. We are forecasting above target cost and our share of the excess is not reflected in the £585,000 above. It is the largest unreported item in this report.
3. Stress-test the variation valuations against defined cost plus fee. A 51% margin on compensation events will not survive assessment. Model the downside (roughly £294,000 margin, 2.9%) and report both.
4. Escalate VO-31 to the client in writing this week. Ten weeks with no response on a £95,000 variation where we have incurred £40,000 of cost is not sustainable. If the answer is no, we need it now.
5. Book the £45,000 groundworks contra-charge or explain why not. It has been an opportunity for three months, which usually means nobody is chasing it.
6. Present the base versus variation margin split to the board. The headline 5.8% without that split is misleading, and reporting it unqualified is how a 2.8% job gets managed as if it were a 5.8% one.

── THE POINT ──

The margin went up and the report still has bad news in it. Both of those are true, and a CVR that only says the first one is not doing its job.

An AI given this data will produce every table above quite happily and they will look immaculate. What it will not do is notice that the 5.8% is entirely variations, that a 51% margin on Option C compensation events is not credible, or that the budgets were never re-baselined so the variance column means nothing. That is not a formatting problem. It is knowing what to look for, and it is the whole reason a commercial manager reads a CVR rather than generates one.

Then check the arithmetic. The cost categories here sum to £9,535,000 and the margin is a £585,000 difference between two eight-figure numbers. An AI table that is £30,000 out on one category total moves the reported margin by 5%, and it will look exactly as convincing as a correct one.

And check the arithmetic. On this data the cost categories sum to £9,535,000 and the margin is a £585,000 difference between two eight-figure numbers. An AI table that is £30,000 out on a category total moves the reported margin by 5%, and it will look exactly as convincing as a correct one.

Use Case