Definition

The cost-to-cost method is a way to measure percentage of completion: POC % = Cost incurred to date ÷ Total estimated cost at completion. That percentage is then applied to total contract value to determine revenue (and often cost and profit) to recognize in the period. It is one of the most common POC measures in construction.

Why It Matters

Cost-to-cost is widely accepted and relatively easy to implement because cost data is already tracked. It assumes cost incurred is a reasonable proxy for progress, which is true when cost is incurred evenly with work. When front-loaded or back-loaded cost doesn’t match physical progress, other measures (e.g., units, labor hours) may be preferred.

Field Example

Contract $500,000; estimated total cost $400,000. At month 3, cost incurred = $120,000. POC = $120,000 ÷ $400,000 = 30%. Revenue = 30% × $500,000 = $150,000. If this is the first period, recognize $150,000 revenue and $120,000 cost (profit $30,000). Next period, recognize the change in cumulative revenue and cost.

Calculation / Formula (if applicable)

POC % = Cost incurred to date ÷ Total estimated cost. Cumulative revenue = POC % × Contract value. Revenue this period = Cumulative revenue − Revenue recognized in prior periods. Cost recognized typically equals cost incurred (matching).

Software Application

For each job, store contract value and total estimated cost (updated as needed). Sum cost incurred to date from job cost. Calculate POC % and cumulative revenue. Period over period, compute revenue to recognize and post to GL. Support revision of estimate (total cost) and catch-up adjustment. Report with WIP and over/underbillings.

Tooltip Version

Cost-to-cost measures percent complete as cost incurred divided by total estimated cost; that percent is used to recognize revenue over the life of the job.

Cost-to-Cost Method