The measure ofprogress
Your cost report says half done.
Percent complete is not one number. A cost-based input reading and a physical output reading can sit almost nine points apart on the same job, and ASC 606 does not let you keep the convenient one. This guide is about choosing the measure: what each assumes, why uninstalled materials and rework are carved out of the input, and when only an output will do.
What a measure of progress is
A measure of progress is the method a contractor uses to decide how much of a performance obligation has been satisfied at a reporting date. ASC 606 recognizes revenue over time in proportion to that measure, so the choice between an input such as cost incurred and an output such as work in place sets the revenue figure itself.
The money-flow hub places progress inside the full circuit from incurred cost to the WIP position, and the percentage-of-completion guide runs the cost-to-cost arithmetic once the input measure is selected. Neither asks the question this page asks: which measure should the ratio be built on in the first place, and what has to be removed from it before it is honest.
The rules sit in a narrow band of the standard. ASC 606-10-25-31 sets the objective: depict the contractor’s performance in transferring control. ASC 606-10-25-32 requires a single method per performance obligation, applied consistently to similar obligations. ASC 606-10-25-36 permits over-time recognition only when progress can be reasonably measured. ASC 606-10-55-16 through 55-21 describe output methods, input methods, and the adjustments an input needs. The AICPA Revenue Recognition guide carries an engineering and construction chapter on the topic, and CICPAC, CFMA, and national CPA firms such as Baker Tilly have published implementation guidance on the uninstalled-materials question specifically, because it is where contractors most often get the input measure wrong.
Input and output methods, defined
An input method measures the effort consumed, almost always cost incurred against total estimated cost. An output method measures the work the customer has received: surveyed quantities, units installed, milestones certified. The first is cheap to run because the ledger already exists. The second is closer to the thing being measured. ASC 606 wants whichever one best depicts the transfer of control.
Set side by side on the $46.0M job this guide follows, where $39.0M of cost is expected, $19.0M has gone in, and $4.0M of that is switchgear and generators the owner holds title to in the laydown yard.
| Input method (cost-to-cost) | Output method (physical, units) | |
|---|---|---|
| What it measures | Effort consumed: cost incurred, labor hours, machine hours | Work transferred: surveyed quantities, units installed, milestones certified |
| Formula | Cost to date divided by total estimated cost | Quantity in place divided by total quantity in scope |
| What it assumes | Each dollar of cost moved the job forward by the same amount | The survey or count is accurate and current |
| Where it distorts | Uninstalled materials, rework, front-loaded cost, and inefficiency all read as progress | Stale surveys; work in progress that sits outside the unit count |
| Data it needs | The job cost ledger and a current estimate at completion | A quantity survey, inspector sign-off, or certified milestone each period |
| On the $46.0M job | 48.7% raw, 42.9% after the carve-out | 40% of the work in place |
| ASC 606 reference | 606-10-55-20 to 55-21 | 606-10-55-17 to 55-18 |
The uninstalled-materials problem
Uninstalled materials are goods the customer controls before they are built in. Their cost sits in cost to date, so a raw cost-to-cost ratio counts them as progress. ASC 606-10-55-21 excludes that cost from the numerator and the denominator and recognizes revenue for the materials only to the extent of their cost, with zero margin.
On the $46.0M job, raw cost-to-cost is $19.0M over $39.0M, or 48.7 percent. Take the $4.0M of delivered equipment out of both sides and the ratio becomes $15.0M over $35.0M, or 42.9 percent. Applied to the $42.0M of transaction price that excludes the equipment, that is $18.0M of margin-bearing revenue. Add the $4.0M back at cost and recognized revenue is $22.0M. The raw reading would have booked $22.4M, which is $410K of margin recognized on equipment still on pallets.
The carve-out applies when, at contract inception, all four of the following hold:
- The material is not a distinct performance obligation on its own
- The customer takes control of it significantly before it is installed
- Its cost is significant relative to total expected cost
- You procured it from a third party and were not significantly involved in designing or making it
- 01Identify the uninstalled materials
List materials delivered to the site or otherwise controlled by the customer but not yet installed, where the cost is significant, the item is not distinct, and you procured it rather than designed or manufactured it.
- 02Remove their cost from both sides of the ratio
Subtract the uninstalled material cost from cost incurred to date and from total estimated cost before dividing.
- 03Compute the adjusted percent complete
Divide the adjusted cost to date by the adjusted total estimated cost, then apply the result to the transaction price less the material cost.
- 04Recognize the materials at cost
Add the material cost back as revenue equal to that cost, with zero margin, until the material is installed and absorbed into the measure.
The carve-out, drawn
One hatched slice is the $4.0M of equipment. Watch it drop out of the cost bar while the bar contracts behind it on both the spent side and the estimate side, and the reading falls from 48.7 to 42.9 percent. Then it travels down and docks on the end of the revenue bar, where it counts as revenue but carries no margin.
Rework and wasted cost are excluded
Cost that does not contribute to progress is left out of the measure. ASC 606-10-55-21(a) names unexpected amounts of wasted materials, labor, and other resources. The money is real and it stays in actual cost and in the estimate at completion, but it did not move the job forward, so it does not raise percent complete or release revenue.
Tearing out and re-pouring a slab doubles the cost of that slab and delivers it once. Under a raw input measure the second pour reads as progress. Under the standard it is excluded from the ratio, lowers margin through the estimate at completion, and leaves percent complete where the work actually is.
Normal waste factors, learning-curve hours, and weather allowances that were priced into the estimate are part of the cost of delivering the work. They remain in both sides of the ratio. The exclusion is for the unexpected and the non-contributing, not for every dollar that went badly.
Two edges deserve care. If the contract reimburses the wasted cost, as some cost-plus arrangements do, the cost may remain in the measure because the customer is paying for it. And front-loaded cost that did transfer control, such as engineering a customer-controlled design, is not waste and is not carved out; the test is whether control moved, not whether the spend was early.
When output is the better, or the only honest, measure
An output measure is required when cost incurred stops depicting the transfer of control and no adjustment repairs it. ASC 606-10-55-17 lists surveys of performance, appraisals of results, milestones reached, time elapsed, and units produced or delivered. The measure must be observable, and 55-18 permits an input only when the output cannot be seen without undue cost.
On the job in this guide the surveyed work in place reads 40 percent. Under a pure output measure the $4.0M of equipment is not progress at all until it is set and energized; it is simply inventory the owner happens to control. The 8.7-point gap between 48.7 and 40 is the distance between what was spent and what was built.
Cubic yards moved, linear feet of pipe, tons of asphalt. The pay item is the unit, the survey is the measure, and cost incurred is a poor proxy when a wet month doubles the hours per yard.
Piles driven, panels set, turbines erected, rooms turned over. Units of delivery are observable, countable, and already tracked on the daily report.
Equipment-heavy jobs where generators, chillers, or transformers arrive long before they are set. An unadjusted input measure would recognize half the job before a crew touches it.
Where the contract pays on inspected stages, the certification is itself an output. Time elapsed alone is rarely acceptable because it depicts the calendar, not the work.
Two cautions come with output measures. ASC 606-10-55-17 warns that units produced or delivered do not faithfully depict performance when material work in progress or finished goods the customer controls sit outside the count at period end, so a units-of-delivery measure needs a work-in-progress adjustment of its own. And the choice is sticky: 606-10-25-32 applies one method consistently across the obligation and across similar contracts, so a contractor cannot read cost-to-cost in a good month and surveyed quantities in a bad one. Updating the inputs to a measure as the job moves is a change in accounting estimate under 606-10-25-35. Changing the measure itself is a change in accounting method.
In practice most building contractors keep the input method and discipline it with the carve-outs above, while heavy civil, utility, and renewables work leans on quantities. What the standard will not accept is the version where the measure is whichever one produces the number the quarter needs.
The same $46.0M job read three ways. The physical arm is the surveyed work in place at 40 percent. The earned arm carries the adjusted input reading, 42.9 rounded to 43, which is the value the cost ledger supports once the equipment is carved out. The schedule arm is the calendar: 47 percent of the planned duration has elapsed. The card’s verdict compares work in place to time elapsed, which is why it reads behind. The spread between the three is the information.
Progress Overview
| Reading | Numerator | Denominator | Percent | What it books |
|---|---|---|---|---|
| Raw input | $19.0M cost to date | $39.0M estimated cost | 48.7% | $22.4M, margin on equipment still on pallets |
| Adjusted input | $15.0M, equipment out | $35.0M, equipment out | 42.9% | $22.0M, of which $4.0M at cost with zero margin |
| Physical output | Surveyed work in place | Total scope | 40% | Uninstalled equipment is not progress until it goes in |
A stored cost file vs a read one
Choosing the measure is a judgment. Checking it is arithmetic on three inputs: what cost has gone in, what has been installed and billed, and what the field reports as complete. The judgment is only as good as how current those three are when the comparison is made.
- ·Cost to date is exported from accounting after the period closes
- ·Uninstalled materials are found by someone remembering what is in the yard
- ·Quantities installed live on the pay application; percent complete lives on a weekly report; nobody has both open at once
- ·The input and output readings are compared once a quarter, if at all
- ·POD reads the cost reports, pay applications, and progress reports a job already produces
- ·Cost to date, quantities billed against the schedule of values, and reported percent complete stay current per project
- ·The input reading and the output reading can be set side by side on this period’s numbers
- ·The choice of measure, and the carve-outs, stay with your controller and CPA
POD does not select the measure of progress or apply the ASC 606 adjustments. It reads the cost, pay-application, and progress files a job already generates, keeping cost to date, billed quantities, and reported percent complete current per project, so when a controller asks whether the ledger and the field agree, the answer is about this period. It sits alongside the revenue recognition decision, the cost-to-cost mechanics, and the WIP schedule where the chosen measure meets the billings.
The construction finance library
The parent hub: incurred cost, progress, earned revenue, billings, and the WIP position as one circuit. This page deepens its progress link.
The top of the library: where a measure of progress sits alongside the schedule, change, and cost controls on a live job.
The ASC 606 decision layer: the five steps, the over-time test, and where the input-or-output choice falls in it.
Whatever measure you choose produces a cumulative figure. This is how the period increment and the catch-up are derived from it.
The cost-to-cost mechanics once the input measure is selected: the ratio, earned revenue, and profit fade.
Where the chosen measure meets the billings, job by job, and the contract asset or liability is reported.
Measure of progress questions
What is the difference between the input method and the output method for percent complete?▾
An input method measures progress by the effort put in, almost always cost incurred as a share of total estimated cost. An output method measures the work the customer has actually received, such as surveyed quantities, units installed, or milestones certified. The input method is easy to run because the cost ledger already exists, but it presumes each dollar of cost converted into an equal measure of progress. The output method measures progress directly and is harder to observe between surveys. ASC 606-10-55-16 to 55-21 describe both and require whichever one best depicts the transfer of control.
Is cost-to-cost always allowed under ASC 606?▾
No. ASC 606-10-25-31 sets the objective, a measure that depicts the contractor’s performance in transferring control, 606-10-25-32 requires a single method applied consistently, and 606-10-25-36 lets revenue be recognized over time only when progress can be reasonably measured. Cost-to-cost is permitted when cost incurred tracks the work delivered, which is true for most labor-driven building work. It is not a free election: when cost arrives without a matching transfer of control, as with uninstalled materials or wasted effort, the standard requires an adjustment or a different measure.
How are uninstalled materials handled in percent complete?▾
Under ASC 606-10-55-21, when a contractor procures a material the customer takes control of well before it is installed, and that material is significant, not distinct, and not something the contractor designed or manufactured, its cost is excluded from both the numerator and the denominator of the cost-to-cost ratio. Revenue for that material is then recognized only to the extent of its cost, with zero margin. On the job in this guide, $4.0M of delivered but uninstalled equipment moves the reading from 48.7 percent to 42.9 percent and re-enters as $4.0M of revenue at cost.
Are rework and wasted costs included in percent complete?▾
No. ASC 606-10-55-21(a) says costs that do not contribute to progress, such as unexpected amounts of wasted materials, labor, or other resources, are excluded from the measure of progress unless the contract specifically reimburses them. Rework that corrects defective work falls here: the money is spent, it belongs in actual cost and in the estimate at completion, but it did not move the job forward, so it does not raise percent complete or pull revenue and margin forward.
When should a contractor use a physical or units-of-delivery measure?▾
Use an output measure when inputs and delivered work visibly diverge: unit-price and heavy-civil contracts with surveyed quantities, repetitive production such as piles driven or panels set, and jobs with large front-loaded material or equipment purchases. ASC 606-10-55-17 lists surveys of performance, appraisals, milestones reached, and units produced or delivered as acceptable outputs, and 55-17 warns that a units measure is not faithful if material work in progress controlled by the customer sits outside the count at period end. When the output cannot be observed without undue cost, the standard allows an input method instead.
How does POD relate to measuring progress?▾
POD does not choose the measure of progress or make the ASC 606 adjustments; that judgment stays with your controller and CPA. What it does is keep the inputs behind either measure current. It reads the cost reports, pay applications, and progress reports a job already produces and keeps cost to date, the quantities billed against the schedule of values, and the reported percent complete current per project, so the input and output readings can be compared on this period’s numbers rather than last month’s.
POD keeps both readings current
Begin with the free budget tracker, then let POD keep the cost reports, pay applications, and progress reports your jobs already produce current, so cost to date and work in place can be compared the day the files land.