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Vendor Management Tools for Project Cost Tracking

Vendor Management Tools for Project Cost Tracking

Project Cost Tracking

Even the most organized and planned projects can have ad-hoc purchases that happen at the jobsite. In an ideal world, all vendor expenses would be controlled by issued purchase orders driven by a project budget. Vendor expenses should be recorded as an incurred cost against the original purchase order so that you know all of your budgeted costs upfront and you have full clarity around your accruals.

In reality, a project can have a substantial number of non-purchase order vendor expenses that need to be recorded and accounted for on a project. The right vendor management tools can provide you with full visibility into vendor accruals so that you have accurate project cost tracking.

Keeping track of vendor accruals: a typical case scenario

Vendors rarely invoice you at the time they completed the work or delivered the materials.  Let’s take an example of a site foreman who needs to order some gravel for the jobsite. This was not a planned purchase, but the site foreman needs it quickly, so he calls up a trucking company and asks them to deliver 10 cubic yards of gravel.

That afternoon, the gravel shows up and the truck driver promises to invoice the company directly. When the site foreman is entering all the hours and expenses for the day, he estimates that the gravel delivery cost $750. Three weeks later, Accounts Payable receives an invoice from the trucking company for $920.
 
Accounts Payable has to hunt down where, when and who is responsible for this charge to match the $920 invoice against. Without recording the expense upon receipt of the work, it is difficult and time consuming to attest the invoice and there could be hundreds of invoices like this in a month. Companies will often hire multiple staff in the Accounts Payable department just to deal with this situation.

The bigger problem is that, without a purchase order, dealing with vendor invoices is a reactionary approach and provides zero insight into total project costs. 

Managing vendor accruals without a purchase order

4castplus separates out the stages of a vendor contract and tracks the work received separately from the invoice.  These stages are referred to as:

Committed: Once the initial contract (or purchase order) is issued to the vendor, the total amount of that contract is registered as 'committed’. The amount is a sum of all quantities and unit rates for each item on the purchase order.

Incurred: These are the quantities received which are compared against that committed work or supply. This could be a progress draw, partial receive, or fully completed work or delivery. This is a key state, because it records the cost of the transaction on the project, even though the invoice hasn’t been received.

Invoiced: Once the vendor sends the invoice, this can be attested or approved against quantities incurred. Any adjustments can be entered here if the invoice values differ from the incurred values.

Accrual: This is the area between incurred and invoiced expenses, and represents the liability of your contract – and of your project.

Vendor expenses that don’t originate on a purchase order can still be recorded in 4castplus. In this case, the expense is recorded as incurred rather than validating it against a purchase order commitment. When there is a purchase order involved, there is a 3-way match between the committed, incurred and invoiced expenses.  

The right vendor management solution  

Circling back to our earlier example, if the site foreman had the right vendor management solution in place, like 4castplus, he could record the expense, upon receipt of gravel from the trucking company, into the software and it would show up automatically as an accrual.

When Accounts Payable receives the invoice from the trucking company three weeks later, they can go into 4castplus and validate that amount and perform an ‘Invoice Attest’ between the gravel delivery cost of $750 with the $920 invoice. This is known as a 2-way match between incurred and invoiced expenses and it provides Accounts Payable with visibility of the true cost on the project, even when there is a delay in receiving vendor invoices.

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By Michael S. Wilson | March 10, 2015 | Categories: Construction Cost Tracking, project cost management, project cost management software, project cost tracking, vendor accruals tracking, supplier management software, vendor management software, project management software vendors, cost management software, vendor management tools, vendor management solutions, vendor risk management software, vendor management solution | 0 Comments

About the Author: Michael S. Wilson

Michael S. Wilson
information management