The four numbers on a land development budget
Every line on a land development budget carries four numbers, and each one answers a different question. Original is what the deal was underwritten on. Current is the original plus every reallocation approved since. Committed is money promised under a signed contract or change order and not yet paid. Actual is what the books have recorded. One rule holds them together: the original equals the current less the net of the approved moves. The original is not a number anybody edits. It is a number the history has to keep explaining.
A workbook with a budget column and a spent column has collapsed all four into two. That does not simplify the deal. It removes the deal’s ability to say why it is where it is, which is the only question anyone asks once a line is over.
Original: the number the deal was underwritten on
The original budget is the one in the loan package. It is what the bank sized the facility against, what the equity model returned on, and what the land was paid for on the strength of. Nine months in, it is the only surface left that still describes the deal as it was sold.
Which is why it should not be editable. The failure here is quiet. Somebody updates the budget to reflect a bid that came in over, the original moves along with the current, and from that day forward the variance on that line reads zero. Nothing warned anyone, because as far as the workbook is concerned nothing happened. The line that overran the most is now the line with the cleanest variance column on the page.
Current: the original plus the moves somebody approved
The current budget is where the deal actually stands. It differs from the original by exactly one thing, which is the set of reallocations that were approved.
A move has two sides. Contingency releases into mass grading. Storm takes from paving because the storm bid came in over and the paving bid came in under. Inside the project the two sides net to zero, and that property is what makes the current total mean anything: the project total only changes when the facility itself changes, and that is a different event with different signatures on it.
Approval is what makes a move a move rather than an edit. Who can approve, and up to what dollar ceiling, is worth settling before the first one rather than during the fourth. A move made without approval and a move approved but never recorded produce the same symptom months later, which is a budget nobody can reconcile back to the loan agreement.
Committed: promised, and not yet spent
Committed money is under contract and unpaid: executed subcontracts, purchase orders, approved change orders. It is the number that answers whether you can still afford the scope you have not bought yet.
Current less committed is what remains available to commit. A line can be barely spent and fully committed at the same time, and those two facts point in opposite directions. Read the spent column alone and the line looks like it has room. It has none. The distance between committed and actual is not slack, it is invoices that have not arrived.
Actual: what the books say, from wherever the books are
Land deals run through more than one entity, so actuals arrive from more than one company file, and the intercompany leg has to be reconciled rather than counted twice. That alone is why the actual column in a workbook is usually a monthly event rather than a number.
Two things make actuals lag, and only one of them is the close. The other is retainage. An amount retained from a subcontractor is cost incurred that has not been paid, so a system recording only cash out understates actual cost by the amount held back, and overstates every percentage derived from it, in the same direction, all year.
The invariant, and why it is a rule and not a report
Original = Current − net(approved moves)
Written as a report, that is a reconciliation somebody runs at month end. Written as an invariant, it is a rule the database will not let you break. The difference is the several weeks in which a reconciliation tells you about a problem that was cheap to fix when it happened.
There are exactly three ways for it to fail:
- Somebody edited the original.
- A move was recorded on one side and not the other.
- Money moved without an approval attached to it.
Each of the three is a specific thing that happened, with a person and a day attached, which is only true if the moves were recorded as moves. Both sides of a move belong in one database transaction, so there is no window in which half of one exists.
The four numbers on one line
02-400 Storm and sanitary
- Original
- Approved moves
- Current
- Committed
- Actual
The whole point of keeping four numbers is in the sentence under that figure. Three different questions get three different answers, and each of them is wrong if you ask it of the wrong column.
What the lender is doing with all of this
At draw time the lender is holding the original budget, because that is what is attached to the loan agreement, and you are presenting the current one. The draw goes smoothly to the extent that the difference between the two is a list of approved moves rather than an explanation.
A budget that reconciles to the loan agreement through a documented set of moves is a completely different conversation from a budget that simply no longer matches it. The first is a reviewer ticking through a list. The second is a request to trust the borrower’s memory, made at the exact moment in a project when nobody has any spare goodwill.
What collapsing them actually costs
A two-column budget can tell you that a line is over. It cannot tell you whether the line is over because the scope grew, because the bid came in high, or because money was moved out of it to cover something else. Those are three different problems with three different responses, and only one of them is anybody’s fault.
It also cannot tell you what is left. Remaining money read as current less actual is a number that has already been promised elsewhere, and it reads as available right up until the invoice arrives. The four numbers are not bookkeeping ceremony. They are the difference between knowing where a deal stands and knowing where it stood at the last close.
Questions
- Can the original budget ever change?
- Only when the deal changes, not when the costs do. A loan modification, an increase in the facility or an equity contribution that enlarges the project resets the baseline the deal is measured against, and each of those is an event with a document behind it. A bid coming in over is not one of them. That is a variance, and keeping the original still is what keeps the variance visible.
- What is the difference between committed and actual cost?
- Committed is money you are contractually obliged to pay and have not paid: signed subcontracts, purchase orders, approved change orders. Actual is what the books have recorded. Committed leads actual by roughly a billing cycle, and the gap between them is obligation rather than headroom.
- How much of a budget line is still available to spend?
- Current budget minus committed, not current budget minus actual. The second figure counts money that is already promised as though it were still free. It is the arithmetic behind most of the moments where a line runs out earlier than anybody expected.