Cost the project you built, not the one you bid.
The bid is a forecast made before the work; the as-built cost is the truth discovered during it. Between them sits everything the bid never modelled: overhead allocated by a flat percentage, equipment charged at an average, crews idle waiting on a dependency, and the rework and change orders that never made it onto a cost code. Project costing with TDABC closes that gap, phase by phase, so the next bid is informed by the last project's real cost.
Cost and Profitability Consulting · 150+ engagements since 2010 · TDABC
True project costing assigns overhead by consumption, equipment and crew capacity cost, supervision, and rework and change-order time to each project and phase, not a bid plus a flat overhead percentage. Traditional costing spreads overhead by volume, so complex, low-volume work comes out cheaper than it is, and practical capacity, by the rule of thumb Kaplan and Anderson set out, is only 80 to 85 percent of theoretical, with the idle slice almost never measured. TDABC produces a true as-built cost per project without timesheet surveys, so the firm learns which work pays and bids the next job on real cost. We apply transversal evidence and the method, not an invented construction benchmark.
Overruns are not random. They are unpriced consumption.
A cost overrun looks like bad luck and is almost always unpriced consumption. The bid modelled direct labour and materials accurately, then added a flat percentage for everything else, and that everything else is exactly what varies between a project that paid and one that did not. Supervision on a difficult client, equipment standing by for a late dependency, a crew idle while a permit clears, the rework after a design change, none of it was in the bid, and none of it is charged to the project that caused it. Until a firm costs the project it actually built, it bids the next one on the same blind percentage and repeats the same loss.
Overhead by consumption
Charge supervision, planning and office time to the project that pulled them, not a flat percentage of contract value. A flat percentage hides the distortion in one direction: complex work looks cheap.
Equipment and crew capacity
A machine or specialist crew costs whether it works or waits. Practical capacity is 80 to 85 percent of theoretical; the idle slice is a real cost almost nobody books.
Rework and change orders
The crew, equipment and supervision time consumed by rework and changes is the cost the bid ignored. Charged to the project, it becomes a number the next bid can learn from.
Idle and wait time
Crews waiting on a dependency and equipment standing by are paid for. Tracked per phase, the wait time that overruns are made of finally becomes visible.
THE BID IS NOT THE COST
Illustrative structure, not a sector benchmark. The as-built bar carries the overhead, rework and idle time the bid never priced.
Cost follows the phase, not the percentage.
A project's cost is built from the resources each phase consumes: crew hours at the crew capacity cost rate, equipment hours at the equipment rate, PM and supervision time driven by complexity, the rework and change-order time the bid ignored, and a share of office and engineering overhead by time actually consumed. Each term is an as-built fact, not a bid assumption.
Project cost = direct labour and materials + crew hours per phase x crew capacity cost rate + equipment hours x equipment capacity cost rate + PM and supervision time driven by complexity + rework and change-order time + share of office / engineering overhead by time consumed
Illustrative structure, not a measured benchmark. The rework and idle terms are where the as-built cost pulls away from the bid.
Bid the next job on the last one's truth.
The value of a true as-built cost is not the post-mortem; it is the next bid. Once a firm knows what a phase really cost, including the overhead, rework and idle time the bid ignored, it can price the next project on evidence rather than on a blind percentage, decline the change-order-heavy clients that erase margin, and schedule equipment and crews to cut the wait time that overruns are made of. The whale curve drawn on true project cost tells the firm which work to chase and which to walk away from, a decision that a blended margin can never support.
Frequently asked questions
- What is project costing with TDABC?
- Assigning crew and equipment capacity cost, supervision, rework and a consumption-based share of overhead to each project and phase with time equations, producing a true as-built cost rather than a bid plus a flat overhead percentage.
- Why is overhead by percentage wrong?
- Because it charges every project the same regardless of how much supervision, planning and admin it actually consumed. Traditional costing spreads overhead by volume, so complex, low-volume work comes out cheaper than it is.
- How do you cost rework and change orders?
- As the crew, equipment and supervision time they actually consumed, charged to the project that caused them, so the next bid is informed by the real cost of the last one.
Find the as-built cost your bid never modelled.
The Profit Check needs no data upload. It points to where your overhead, rework and idle time are most likely hiding, and what costing the real project is worth.
- Duration
- 10 minutes
- You receive
- Score, 7 dimensions, sector benchmark
- Price
- Free, three fields
Proof
A distributor in New Zealand. €1.335M of cost-to-serve made visible, then halved, and 830 loss-making customers brought down to 295.
Read the case study →Who you would be talking to
Miguel Guimarães, Founding Partner
Cost and profitability practitioner for 25+ years. Presented the Damco cost-to-serve case at Managing for Profit (Amsterdam RAI, December 2009), on the same programme as Robert S. Kaplan.
Call +351 910 313 731
Workshops
Bring the method into the room.
One working profitability model, built from real data, that you take home at the end.
Reserve a seat
Reviewed by
Miguel Guimarães
Founding Partner, Cost and Profitability Consulting
More than 150 Time-Driven ABC engagements across 11 sectors since 2010, working within the Kaplan and Anderson framework.
About the author →Published
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- 1Time-driven activity-based costing: ABC made simple and scalable
- 2Whale Curve: Definition, How to Build One, Live Simulator
- 3Cost-to-Serve Analysis
- 4Cost-Volume-Profit (CVP) and Break-Even Analysis
- 5How to calculate cost to serve, step by step
- 6TDABC vs ABC: same goal, very different effort
- 7Make-or-Buy and Relevant Costs
- 8Pocket Price Waterfall and Price Realization
- 9Transfer Pricing for Internal Profitability
- 10How to Build a TDABC Model