The CFO’s Guide to Cost Forecasting in Construction

Construction CFOs walk a fine line every day. One delay, one misread contract term or one overlooked invoice can derail the financial outlook of a project or even the entire company. That’s why reliable cost forecasting is no longer just a best practice. It’s a survival skill.

Cost forecasting in construction is complex because the moving pieces are constant. Lumber prices spike overnight. Subcontractor bids fall through. Supply chains falter. Meanwhile, your team is expected to deliver accurate reports, stay within budget and make sharp financial decisions in real time. That’s a tall order, especially when your systems aren’t in sync.

At James Moore, we believe a solid forecast starts with solid data. But it also takes clarity, communication and a culture of accountability between finance and operations. If you’re a CFO in the construction industry, your forecasts should do more than report the numbers. They should guide smarter decisions that lead to better outcomes.

Why accurate job costing is the bedrock of forecasting

If you’re forecasting with inaccurate job costs, your projections will be off before you’ve even begun. That’s why the first step in any construction forecast should be confirming that your costs are properly assigned. Payables, payroll and employee expenses must be mapped to the correct jobs, phases and cost codes. And we’re not just talking about labor burden or material costs. Travel, per diem, tool rentals and indirect labor all need to be properly allocated.

Too often, job costing errors start with siloed systems or decentralized approvals. A project manager may approve a vendor invoice without knowing that it was coded to the wrong job. A foreman might mark time for a crew without splitting their hours across multiple tasks. These small inaccuracies create ripple effects that distort your budget variance reports, throw off cash flow planning and lead to misinformed decisions about project continuation or expansion.

That’s where integrated systems make a difference. Cloud-based accounting platforms can sync with time tracking, procurement and field management tools to centralize your job cost data. These integrations reduce manual entry errors and help ensure that everyone — from your site teams to your back-office accounting staff — is working from the same source of truth.

Construction companies that take this seriously are seeing real benefits. Disciplined job costing and consistent budget-to-actual reporting are essential for minimizing cost overruns and improving financial predictability. When your team understands what’s actually being spent job by job and phase by phase, you can make faster, smarter decisions about reallocating resources or adjusting budgets before problems spiral.

At James Moore, we help construction clients identify the cracks in their job cost tracking and tighten those workflows so their forecasts reflect reality. If the data is wrong, the decisions will be too.

 

 

Stay informed: Monitoring market conditions in real time

If there’s one constant in construction, it’s that market conditions never sit still. From rising fuel prices to shifts in steel and concrete costs, external variables can wreak havoc on even the most carefully built budget. And while you can’t control these market forces, you can plan for them if you’re paying attention.

Construction CFOs must stay alert to changes in commodity pricing, labor rates and local economic factors that affect cost assumptions. If your forecasting model is still using last year’s numbers, your projections may already be off.

Labor is another area that demands regular review. Wage rates can vary drastically depending on project location, union involvement and evolving regulatory requirements. This is especially true in states that enforce prevailing wage rules, which can drive up total project costs. Forecasting that fails to account for these changes puts your profit margin at risk.

Smart forecasting means building flexibility into your assumptions. Create ranges rather than static points. Use conservative estimates for materials with high price variability. Set up a rolling cost index in your ERP or financial planning software that updates based on the latest market data.

And just as importantly, make market condition reviews a routine part of your forecasting process. Whether it’s monthly or quarterly, your team should meet to assess recent changes in supplier pricing, subcontractor bids, freight costs and fuel. These real-time insights give you the power to adjust your cost-to-complete and protect your margins before things go sideways.

Bringing finance and operations together

Forecasting isn’t just about data accuracy. It’s also about communication. When project managers, site supervisors and the accounting team aren’t on the same page, your forecast will reflect the gaps. And those gaps can get expensive fast.

All too often, construction companies fall into the trap of siloed systems. The field team uses their tools. Accounting uses theirs. Project management relies on yet another set of spreadsheets or software. While everyone works hard, the lack of integration leads to lagging data, duplicated work and inconsistent reporting.

This disconnect shows up in key areas, like cost approvals, change orders, subcontractor invoices and percent complete updates. When the left hand doesn’t know what the right is doing, your forecasts end up outdated or overly optimistic.

The solution is better collaboration. Establish recurring touchpoints between your finance and project teams. Weekly job cost review meetings are a great place to start. Make sure project managers understand how their field updates drive the numbers that finance reports to ownership. On the flip side, help your accountants understand how schedule slippage or delivery delays affect your forecasted spend.

Als, make full use of your platform’s integration capabilities. Sync purchase orders, timecards and billing records so you’re not manually reconciling reports at month-end.

When you bring finance and operations into alignment, forecasting becomes a shared tool for driving job profitability. Our team at James Moore has seen firsthand how better communication between departments can dramatically reduce budget variances and rework. And when it comes to large-scale commercial or infrastructure projects, those improvements translate directly to stronger financial outcomes.

Make KPIs meaningful: CPI, ETC and budget variance

Key performance indicators are only useful if they’re tracked correctly and understood across your team. For construction CFOs, that means focusing on metrics that measure cost efficiency, predict future needs and explain why budgets are shifting. Three of the most valuable tools in your forecasting arsenal are the cost performance index (CPI), estimate to complete (ETC) and budget variance.

The CPI helps you gauge how efficiently you’re spending against your earned progress. A CPI of 1.0 means you’re exactly on budget. Higher than 1.0, you’re spending less than expected; lower than 1.0, you’re over budget. Tracking CPI throughout a job lets you spot cost problems while you still have time to adjust. For example, if your CPI dips below 1.0 early in the foundation phase, that may signal deeper labor inefficiencies or material overuse that could impact future phases.

ETC, on the other hand, looks ahead. It tells you how much more money you’ll need to finish the project based on current performance. That’s critical when you’re making resource decisions in real time. A sudden jump in ETC without a change in project scope usually means your spend rate is accelerating, which should raise flags.

Budget variance ties it all together by showing the gap between what you expected to spend and what you actually spent. While it’s a backward-looking metric, budget variance gives context to both CPI and ETC and helps drive better forecasts going forward.

These KPIs only work when they’re consistent and visible. Set up a monthly dashboard that pulls directly from your accounting and project management tools. Make sure project managers and executives can access it without needing to dig through multiple reports. Most importantly, define your thresholds. If your CPI drops below 0.9 or your ETC increases by more than 10%, trigger a job cost review.

 

 

Rolling forecasts: Your plan should move as fast as your job site

Annual budgets might work for the boardroom, but they don’t cut it on the job site. Construction CFOs need forecasting tools that update as fast as project conditions change. That’s where rolling forecasts help.

Unlike static budgets that are set once a year, rolling forecasts are updated regularly (usually monthly or quarterly) using the most recent data available. This allows you to adjust your projections based on actual spend, job progress and any surprises along the way. For projects that span multiple years or face shifting conditions, this type of dynamic forecasting is essential.

Let’s say a large commercial build starts in January. You’re halfway through the schedule by July, but unexpected permitting delays have pushed a key phase into the next calendar year. If you’re still working from your original annual forecast, you’re likely misallocating both resources and cash flow. A rolling forecast would capture those delays, update your ETC and recalculate cash needs based on the new timeline.

Beyond flexibility, rolling forecasts help with better decision making. If your ETC reveals that your concrete subcontractor is trending over budget and your CPI confirms inefficiencies in that phase, you have the data you need to renegotiate, rebid or re-sequence the remaining work. That kind of agility can save hundreds of thousands on large-scale projects.

Rolling forecasts also support more accurate bonding and financing conversations. Lenders and sureties are increasingly looking for real-time insights, not just end-of-year reports. With updated forecasts, you can show where you stand now.

To get started, use your ERP system or project accounting software to pull real-time costs and percent complete data. Build a forecast model that can be updated monthly and reviewed during regular leadership meetings. Train your project teams to flag changes early so they feed into the forecast as they happen.

Want help building a system that’s responsive to your reality? James Moore’s controllership specialists know how to design rolling forecast models that match the pace and complexity of construction.

Earned Value Management (EVM): From reactive to proactive

If your forecast is purely based on budgeted spend and actual cost, you’re only seeing part of the picture. Earned Value Management gives CFOs in construction a more accurate and complete view by combining scope, schedule and cost in one measurable framework. And when used correctly, it helps you move from reacting to problems to predicting and preventing them.

EVM measures three key components. Planned value (PV) is what you expected to spend for work scheduled to be completed at a given time. Earned value (EV) is what that work is actually worth based on completion. Actual cost (AC) is what you’ve spent to date. Comparing these numbers helps you understand both cost and schedule performance.

For example, imagine a sitework phase that should be 50% complete by now and budgeted at $400,000. If your EV is $200,000, but your AC is $240,000, you are over budget. If the PV was $250,000, then the project is also behind schedule. With EVM, you can clearly identify where and why your performance is slipping and adjust your forecast accordingly.

Many construction firms avoid EVM because it feels too technical or time consuming. But with the right systems in place, it becomes much easier to implement. Some software platforms often have EVM tools built in. The key is ensuring your job cost data, schedule progress and percent complete tracking are accurate and regularly updated.

EVM becomes even more powerful when combined with rolling forecasts. Together, they allow you to respond quickly to overruns, revise your ETC and keep stakeholders informed with clear, data-driven updates.

Federal construction projects that used formal EVM processes were significantly more likely to meet schedule and budget targets. While private construction firms are not required to follow government protocols, the benefits of visibility, control and accountability are just as relevant.

Forecast forward with confidence

A good construction CFO should truly know the business and be in step with operations management on a weekly basis to properly forecast costs. Open communication and dialogue between operations and finance is key to strong forecasting.

Strong cost forecasting also requires systems, communication and consistency. From tracking job costs with precision to monitoring market changes and integrating finance with operations, today’s construction CFO needs more than spreadsheets and hope.

At James Moore, we help construction companies build smarter forecasting frameworks that match the complexity of their projects. With our construction fractional CFO services, we bring financial clarity to the job site and help leadership teams make better decisions backed by real numbers.

Contact a James Moore professional to see how better forecasting can reduce surprises and improve your bottom line.

 

 

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.