19 - Project Finance Flashcards
How do you ensure effective cost control of construction projects during the construction phase?
- Use the cost plan (agreed before task order) as an objective to manage delivery of project within budget
- Regular cost reporting - to manage spend to date, predict fa, manage vo’s
- Following a change management/VO process - authorisation process
- Regular updating and revision of cost plan
- Review of provisionals and contingencies
- Contractor to update cashflow monthly
What are the differences between cost management and cost reporting?
Cost management - process of planning and controlling the costs associated
Cost reporting - used to inform client or other party about magnitude of construction predicted/actual cost
What are the advantages the employer gets through cost reporting at the end of a project?
- Identify project over/under spends
- Lessons learned
- Ensure accounts are settled
- Understanding of actual spend
- Management of/guide future budgets/ inform future budgets
Are cost control and cost monitoring the same thing?
No, but they interrelate.
Cost control - managing the delivery of the project within the budget including controlling risk, reviewing changes in line with cost plan, contingency, provisional sums, following change mgt
Cost monitoring - the process of tracking and monitoring spending and cost-related activities
What is being controlled in cost control?
Budget versus variations and actual cost.
How would you assess a contractors financial accounts?
Request a copy of the contractors company accounts for the last 3 years which should incl profit and loss, balance sheet and cash flow statement.
I would then be able to assess;
-if the contractor has been profitable in the last few years
-calculate liquidity ration by looking at their assets v their liabilities to see if they would be able to cover losses and stay solvent
I would always caveat any advice given to a client on a contractors financial position and recommend that further advice is sought through financial reports and a qualified accountant
How do you approach payment mechanisms?
Interim stage payment
Contractor presents valuation based on progress during set day each month. Allow 5 working days to review and negotiate in accordance with progress of works on site. Capturing any variations including additions, omissions and review of provision sums.
Issue the payment cert, receive invoice for payment.
Whats the difference between cost reports you provide to the client and to the contractor?
Cost to client informing on predicted or actual cost.
Contractor reporting on over/under spend, progress against cashflow - early identifier of delays
