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RICS APC - ERH > Commercial Management > Flashcards

Commercial Management Flashcards

1
Q

What do you understand by the term working estimate?

A

Estimate of costs used for a bid

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2
Q

What is your understanding of the components that make the cost of the project to a contractor?

A 
Subcontractor costs
Consultants
Materials
Plant 
Preliminaries
Design contingency 
OH&P
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3
Q

What are the key components of a CVR report in respect to cost/value to date?

A

External Value
Actual costs
Contingency spend
Profit

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4
Q

What are the key components of a CVR report in respect to cost/value to complete?

A

As above plus Liabilities & Costs to complete - s/c / consultants / materials / prelims

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5
Q

Explain the CVR process.

A

Regular review in form of a report to analyse value vs cost to ensure actual spend is as forecast and project & elements are profitable
May identify overspend, package spend creep, resource spend creep.
Contingency spend
Costs to complete

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6
Q

What you understand by the term liability?

A

Financial responsibility to another company - i.e. trade payables, loan payments, staff salaries

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7
Q

Difference between liability & asset ?

A

Liability is an obligation

Asset is a future economic benefit

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8
Q

How does this differ from cost?

A

Costs are expenses paid immediately. When not paid they become a liability on a balance sheet

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9
Q

What would you consider before constructing a project cash flow forecast?

A

Program / What is it for / incl VAT on income or not

For income - what the final project value is & program
For outgoings - what final project cost will be & program

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10
Q

Why is the construction of a cash flow forecast so important?

A

Allows for business planning to forecast turnover
Identifies if other funding / assets needed to be released
Plan for monetery spending - is it viable

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11
Q

How is wastage calculated?

A

Usually a % - 5-10%
Benchmark
Fair & reasonable

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12
Q

What insurances are required under a contract? How are they included in a tender?

A
  • PII cover - protection if negligence… Fire & Cyber
  • Employer’s liability insurance (if not a sole trader) - help pay compensation if an employee is injured or becomes ill because of the work they do for the employer.
  • Contractors all risk / Contract Works Insurance - cover for damage to building works, biz interuptions, plant.
  • Public Liability - required of contractors to provide cover against personal injury / death / loss or damage to property of third parties such as members of the public or independent sub-contractors.
  • Building & Contents insurance
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13
Q

What you understand by the term project budget?

A

Clients overall budget for a project - inclusive of contractor cost, consultants, fees, contingencies

For contractors - their internal budget (external value less profit)

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14
Q

How does this differ from the tender budget?

A

Tender budget excludes any other costs such as consultants, contingencies, fees

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15
Q

What current challenges is Covid and/or Brexit bringing to Commercial Management?

A

How to forecast / plan for covid / brexit changes
How to forecast / mitigate material delays / cost increases
Additional risk allowances - enhanced H&S / welfare / staff absences
Brexit - deliveries , delays
How to claim - under CE / FM?

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16
Q

Tell me more about the contents of the cost reports. What action did you take where actual costs and forecasts were exceeding the budgets?

A

Examine where & why - was budget insufficient, has something else been priced? Budget allocated incorrectly?
Identify areas for betterment, programme, prelims, check measures for doubel count, establish if double up on any access, prelim items
VE options - alternative products, methodology, buildability
Review holistically - coudl be overspend on one package but under on another
Manage expectation upline as early as possible.
Any overspend recoverable?

17
Q

Take me through the process of producing a cashflow forecast that you have referred to in your summary of experience.

A

Barton Cashflow - asked to review in line with business year end t/o targets
reviewed sequence & program with team to establish if any works could be accelerated to ensure mobilisation milestones achieved, steelwork brought forward 2 weeks on main block

18
Q

Tell me, what other action did you take where the reviews you are referring to were showing a negative impact on profitability?

A

Reviewed alternative options in other packages also - Alternative cladding, furniture & external finishes - standardised multiple finishes (tarmac in leui of paving)

19
Q

Using examples from the Barton Court Project, explain the difference between value engineering and cost cutting.

A

Value engineering - changing the methodology to undertake something quicker or eliminating unnecessary costs & offering better value for money. Choosing a slightly more expensive product as offers better warranty / life span - opted for a resitrix product which was slightly more expensive as opposed to Icopal (based on feedback from previous projects).

Cost cutting - alternative manufactures at cheaper prices. Reducing spec / scope to cut costs for client

20
Q

Tell me more about this advice you gave for your client’s year end cashflow requirements. Explain rationale.

A

Targeting large mobilisation milestones, securing materials ahead of brexit to secure on site & gain payment for materials on site
Gaining commitment from supply chain on resources to reduce risk in contingency forecasting.
I advised targetting these items would help secure year end turnover targets and help to reduce risk costs allocated in contingency

21
Q

Give me an example where you have advised on the profitability of a project.

A

VE at Barton - Feature stair large profit
By omitting would have detremental impact on profit plan, as such looked at alternatives such as brick cladding, FF&E furniture - some reduced, some alternative manufacturers.

22
Q

What recommendations would you make where your forecast shows that the project is losing money.

A

Understand why & where
Is any of it recoverable / entitlement for RE / RM
Can it be reduced? Alternative products, acceleration?
Manage expectations
Negotiate with subs & suppliers - buy materias directly to avoid add markup

23
Q

Take me through the headings in cost reports that you present to senior management. Explain the rationale for including each item.

A

Monthly cost reports:
Supplement CVR with exec summary
OR
S/c cost report - procurement spend on packages to be let - over or under spend, risks, opps, program, scope, T&Cs issues

Subcontract costs & variations
Consultant costs & variations
Contingency Spend
Prelims 
Materials
Movement in period on forecast FA position / end life forecast - explain whats changed & why
Impacts on profit / turnover if delays
How contingency spent
Need for additonal resources
24
Q

What is a purchase order used for

A

Securing materials - usually suppliers & payment of consultant resources - can be increased as and when necessary

25
Q

Capital allowances

A

Incentives (tax relief) used by gov as investmnt incentive to encourage spend on assets.
Way of reducing after tax cost of buying plant, equipment or fitting out of buildings.
Capital Allowances Act 2001

26
Q

Capital expenditure

A

Spending used by a company to aquire / upgrade assets / buildings

27
Q

EOT process under JCT

A

Prolongation - actual delay & actual cost

28
Q

Difference between Code of measurement & IPMS

A

IPMS - comm & resi

Code of meausing - retail / schools

29
Q

Valuing change

A

Schedule 5 of JCT :
Issue of notice of change - RE & RM
Value in line with contract rates
Respond within specified period - 12 weeks by CA / EA

30
Q

What to do if Cashflow overbudget

A 
Ask why
Review if any front loading
Review financial stability
Review actual progress on site vs costs to date
Any errors in cashflow
Are there any advanced payments
31
Q

What are the uses of a cashflow

A

To establish monetary spend for a client for funding / planning reasons
Drawdowns

32
Q

Types of cashflow

A

Obtaining loans / funding
Review progress
Management of cash within the business

33
Q

Why use an S curve

A

S is standard - identifies pattern of costs over time

Cash drawdown high at start and slows towards end

RICS APC - ERH (22 decks)

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