Reporting a bad month: how to put an overrun in front of the board
For fourteen months the report has said the same thing: anticipated final cost below the GMP, contingency adequate, buyout on track. Then a month arrives when it cannot. Two large change orders, an allowance reconciled well over its value, and the projection now sits $640,000 above the ceiling. The owner's representative has a report to write and a board that has not had to read one carefully before.
The temptation is to soften it. The better course is to make it the clearest report of the project, because this is the one that will be read.
The number first
The first page should carry the anticipated final cost, the GMP, and the difference, in that order and in the first three lines. Not the movement from last month, not the causes, not the mitigations. The board is going to look for the number, and a report that makes them hunt for it has told them something about the author before they have found it.
Beneath the number, the movement: what it was last month, what it is now, what changed. On the fictional project above, the report might say the projection moved from $380,000 under the GMP to $640,000 over, a movement of just over $1 million, of which $710,000 is two executed change orders, $230,000 is the allowance reconciliation, and the rest is smaller items.
Where the money went, by cause
The second page answers the question the board will ask next, which is whether this was avoidable. The honest way to answer it is by cause. Of the $710,000 of change orders, how much was owner scope, how much was design gap, how much was unforeseen condition. The owner scope portion is the board's own decisions, and the report should say which ones. The design gap portion is a question for the design contract. The unforeseen portion is the reason the owner's contingency exists.
The allowance overrun has its own cause, which is usually that the allowance was set before the scope was known. The report should say what the allowance was for, what it was set at, what the scope turned out to cost, and whether the difference is a contractor matter or an owner one under the contract.
What the contingency did
A board that sees an overrun will ask what the contingency was for. The report should show both funds: the contractor's, what it started at and where it stands; the owner's, the same. If the owner's contingency absorbs the overrun with room to spare, the project is not over budget, it is over the GMP, and those are different things. If it does not, the report should say what the shortfall is against the owner's total budget, not just against the GMP.
The range, not the point
The projection is a point estimate built from executed changes, pending changes weighted by likelihood, and the remaining contingency. A bad month is the month to show the range around it. What is the projection if every pending change is approved at its asked price? What is it if the disputed ones are rejected? On the fictional project the range might run from $410,000 over to $1.1 million over, and the board should see both ends and what decides between them.
The point of the range is not to hedge. It is to show the board where its own decisions still matter. A pending owner scope item of $300,000 that the board has not yet approved is a decision that moves the number, and the report should present it as one.
What was true a month ago
The board will also ask why last month's report did not warn them. Sometimes it should have. A report that shows a stored snapshot from each month, rather than a recalculation, lets the owner answer that question with the record: here is what was known on the first of last month, here is what became known since, here is the date on each item. If the change orders were pending last month and weighted at half, the report showed half. That is a defensible answer if the weighting was recorded at the time and not adjusted after.
What comes next
The last page is the one the board can act on. Which pending items are theirs to decide. Which allowances remain unreconciled and what they might do. What the buyout still uncovered could bring. Whether the savings pool, which the earlier reports had projected, still exists. A bad month reported this way is a month in which the board learned where the project stands. Reported the other way, it is the month they stopped trusting the reports.
What to do this month
- Put the anticipated final cost, the GMP and the difference in the first three lines of the report.
- Break the month's movement down by cause, and name the owner decisions inside it.
- Show both contingency funds against their opening balances, and the position against the owner's total budget.
- Show the range around the projection and which pending decisions move it.
Questions on this
Should the report soften a bad number?
No. The board will find the number anyway, and a report that made it hard to find has cost the author credibility that the next twelve reports will need. State it first, then explain it.
Is over the GMP the same as over budget?
No. The owner's contingency sits outside the GMP for exactly this case. A projection above the GMP but inside the owner's total budget is a warning, not a shortfall. The report should show both lines.
How does the owner answer why last month did not warn them?
With the stored snapshot. If the report from the first of last month is kept as it was, with its pending items and their weightings, the owner can show what was known then and what changed since.
In the product
Monthly owner report, Anticipated final cost, Contingency ledger. Free tool: Change Order Exposure, Contingency Runway.
Keep reading
Earlier: Scope gaps at buyout: when a package is awarded low because something was left out. Later: Nonprofit owners: a board that reads the report once a quarter. All articles on owner reporting.
See the baseline on a contract like yours.
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