In construction and project-based industries, it’s not unusual for a job to start strong—only to tighten as it progresses. At the beginning, the numbers make sense. The margin is there. The job is approved with confidence. But halfway through, something changes…
Costs begin to increase. Timelines shift. And the profit that once felt secure starts to narrow.
This is where many teams feel like the numbers are “moving on them.” In reality, what’s happening is more straightforward:
The original estimate is being replaced by actual performance.
And that’s exactly what the Percentage of Completion Method (PCM) is designed to reflect.
What Is PCM—and Why It Matters
PCM is the method used to recognize revenue and costs over the life of a project based on progress.
Instead of waiting until a job is complete, PCM spreads financial results across the duration of the project.
This means:
- Revenue is recognized as work is performed
- Costs are recognized as they are incurred
- Profit is updated as estimates change
For businesses with long-term contracts, PCM provides a more accurate view of performance—but it also introduces a level of visibility that can catch teams off guard.
Red Flags as Profitable Jobs Start to Drift
Most jobs don’t become unprofitable overnight. The change happens gradually as real-world conditions replace original assumptions, but there are red flags to watch out for:
- Labor taking longer than expected
- Material costs increasing after the bid
- Subcontractor changes or delays
- Scope changes that aren’t fully captured
- Project timelines extending beyond plan
Individually, these may seem manageable. But together, they begin to reduce the margin that was originally built into the job.
The key challenge: Revenue is typically fixed, but costs continue to evolve.
How PCM Brings These Changes to Light
One of the most important aspects of PCM is that it does not allow these changes to stay hidden.
As updated cost estimates are entered, PCM adjusts:
- The percentage of completion
- Revenue recognized to date
- Projected profit
This means that when costs increase, the impact is reflected immediately—not at the end of the job.
Example
Project:
- Contract Value: $2,000,000
- Estimated Cost: $1,700,000
- Expected Profit: $300,000 (15%)
Mid-project, costs are revised to $1,850,000.
Under PCM:
- Total projected profit decreases
- Margin tightens
- Financial statements reflect the updated estimate
The job didn’t suddenly lose profitability—it was happening over time. PCM simply forces that reality into view.
Where Issues Typically Occur
When teams struggle with PCM, the issue is rarely the method itself. It’s usually tied to the inputs driving the calculation.
Areas to evaluate include:
- Cost Estimating
Initial estimates may not fully capture labor, materials, or project complexity. - Job Cost Tracking
Delays in updating actual costs can create a gap between what’s reported and what’s happening. - Change Order Management
Additional work may not be priced or recorded in a timely manner. - Project Oversight
Financial performance may not be reviewed consistently throughout the job lifecycle.
When these areas are not aligned, PCM can feel unpredictable—when in reality, it is highlighting inconsistencies in the process.
Using PCM as a Management Tool
While PCM is required for financial reporting in many cases, its real value comes from how it is used internally.
Strong project-based businesses use PCM to:
- Monitor margin throughout the life of the job
- Identify cost overruns early
- Adjust operations before issues escalate
- Improve future estimating accuracy
This shifts PCM from a compliance exercise to a decision-making tool.
The Bottom Line
If your project results are consistently different from your original expectations, it may be time to take a closer look at how those projects are being estimated, tracked, and updated throughout the process.
PCM is not just a reporting method—it’s a reflection of how well your project data is being managed.
Working with your CPA to review these areas can help improve visibility, strengthen margins, and support more predictable project outcomes. Contact us today!
