Commercial Management Flashcards
What is an estimate?
an approximate calculation or judgement of the value, number, quantity, or extent of something
What is a budget?
A budget is a spending plan based on income and expenses. In other words, it’s an estimate of how much money you’ll make and spend over a certain period of time, such as a month or year.
What is margin?
Profit margin is a common measure of the degree to which a company or a particular business activity makes money. Expressed as a percentage, it represents the portion of a company’s sales revenue that it gets to keep as a profit, after subtracting all of its costs
What is value engineering?
alue engineering is a systematic, organized approach to providing necessary functions in a project at the lowest cost. Value engineering promotes the substitution of materials and methods with less expensive alternatives, without sacrificing functionality
What is the supply chain?
A supply chain includes every step that is involved in getting a finished product or service to the customer.
How would you carry out monthly external valuation?
Review and arithmetic check application
Visit site to review progress
Use your company’s standard valuation template
Ask EA / CA to confirm if there’s any work not in accordance with the contract
Make sure any variations being claimed for have had instructions issued
Does payment for materials off site meet the requirements of the contract?
Has the amount stated as previously certified been checked against the last payment notice?
Has the employer been notified of any right to deduct liquidated damages?
Have the reasons for any deductions in the valuation been communicated in accordance with the contract?
Has the valuation been signed off by a director?
What forms part of the Subcontractor scorecard?
Rating out of 5
Predictability (Claim v’s Paid)
Timeliness of Applications
Quality of Applications
Collaboartive Working / Partnering
Quality of Design Proposals
Level of resource on site v planned
Quality of Workmanship / Materials
Quality and Level of Supervision
S/C Operatives On Site Holding CSCS or Equivalent card
Cleanliness
Correct PPE provided
Safe Working Practices in Place and followed
Number of Defects at handover
Recitification of Defects
Adhering to programme
Teamworking with other Trades
How would you carry out monthly CVR?
Download costs at green light
Insert costs into posted cost summary
allocate monthly costs to Prelim, overhead, plant, material or subcontractor
Carry out internal valuation
calculate accruals and liabilities
Insert external valuation info
Insert information to evision
What forms part of a two stage tender?
1st stage
Quality and prelim submission
2nd stage
Design and cost submission
How would subcontractor quotes be analysed to detect anomalies or abnormals?
- Measures checked
- rates checked against previous schemes
- Gifa rate compared against previous schemes
What is discussed in internal tender adjudication meeting?
Reason for tendering, priority and attractiveness (e.g. strategic fit)
- Brief overview of the project including important observations drawn from the tender documentation
- Tender submission arrangements and method to be used by the client to evaluate and select the winning bidder
- Tender programme – methodology and logic
- Accurate estimated net cost of measured works:
- Direct Labour content
- Material content (overview of key materials / specifications and competitiveness of quotes received / suppliers used in tender)
- Subcontract content (overview of key trades / specifications / number of enquiry responses / competitiveness of quotes received / subcontractors used in tender)
- Plant and skip content
- Accurate estimated net cost of fees and stats
- Accurate estimated net cost of prelims based upon tender programme
- Confirmation of PC, Prov Sums and Contingencies
- Risks and Opportunities developed into Risk Management & Contribution Action Plan:
- £ Evaluation of key threats and opportunities
How have you advised on cashflow positions?
- Calculated forcasted cash flow
- Advised client of the cash flow for the duration of the project
- Explained S curve
- Explained why certain peaks and troughs
Give examples of items on risk and opportunities register?
- subcontractor buying gains
- weather delay
- fire clerk of works
- Material rebates
Give an example of how you have advised on costs for variations?
reviewed requirements
Advised subcontractors what is required and to price
Formulated Variation quote
Advised client on costs and working method
Give an example of value engineering options you have proposed?
Due to my experience in drylining sector I advised that partitions could be built to underside of ceilings whilst maintaining fire compartmentation
What do you understand by the term working estimate?
- Estimate of costs used for a bid
What is your understanding of the components that make the cost of the project to a contractor?
- Subcontractor costs
- Consultant Fees
- Materials
- Plant
- Preliminaries
- Design contingency
- OH&P
What are the key components of a CVR report in respect to cost/value to date?
- External Value
- Actual costs
- Contingency spend
- Profit
What are the key components of a CVR report in respect to cost/value to complete?
- As above plus Liabilities & Costs to complete - s/c / consultants / materials / prelims
Explain the CVR process.
- 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
What you understand by the term liability?
- Financial responsibility to another company - i.e. trade payables, loan payments, staff salaries
Difference between liability & asset ?
- Liability is an obligation
- Asset is a future economic benefit
How does this differ from cost?
- Costs are expenses paid immediately. When not paid they become a liability on a balance sheet
What would you consider before constructing a project cash flow forecast?
- 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
Why is the construction of a cash flow forecast so important?
- Allows for business planning to forecast turnover
- Identifies if other funding / assets needed to be released
- Plan for monetery spending - is it viable
How is wastage calculated?
- Usually a % - 5-10%
- Benchmark
- Fair & reasonable
What insurances are required under a contract? How are they included in a tender?
- 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
What you understand by the term project budget?
- Clients overall budget for a project - inclusive of contractor cost, consultants, fees, contingencies
- For contractors - their internal budget (external value less profit)
How does this differ from the tender budget?
- Tender budget excludes any other costs such as consultants, contingencies, fees
What current challenges is Covid and/or Brexit bringing to Commercial Management?
- 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?
Tell me more about the contents of the cost reports. What action did you take where actual costs and forecasts were exceeding the budgets?
- 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?
Take me through the process of producing a cashflow forecast that you have referred to in your summary of experience.
- Queenshill 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, roof structure and glazing brought forward 2 weeks on main block
Tell me, what other action did you take where the reviews you are referring to were showing a negative impact on profitability?
- Reviewed alternative options in other packages also - Alternative roofing materials, flooring & external finishes - standardised multiple finishes (tarmac in leui of paving)
Using examples from your projects, explain the difference between value engineering and cost cutting.
- 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 Steel roof cladding product which was slightly more expensive as opposed to Vieo due to material delays
- Cost cutting - alternative manufactures at cheaper prices. Reducing spec / scope to cut costs for client
Tell me more about this advice you gave for your client’s year end cashflow requirements. Explain rationale.
- 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
Give me an example where you have advised on the profitability of a project.
- 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.
What recommendations would you make where your forecast shows that the project is losing money.
- 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 materials directly to avoid add markup
Take me through the headings in cost reports that you present to senior management. Explain the rationale for including each item.
- 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
What is a purchase order used for
- Securing materials - usually suppliers & payment of consultant resources - can be increased as and when necessary
Capital allowances
- 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
Capital expenditure
- Spending used by a company to aquire / upgrade assets / buildings
EOT process under JCT
- Prolongation - actual delay & actual cost
Valuing change
- 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
What to do if Cashflow overbudget
- 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
What are the uses of a cashflow
- To establish monetary spend for a client for funding / planning reasons
- Drawdowns
Types of cashflow
- Obtaining loans / funding
- Review progress
- Management of cash within the business
Why use an S curve
- S is standard - identifies pattern of costs over time
- Cash drawdown high at start and slows towards end
How did you advise the client of the cash flow projection on your projects?
- Formulate cashflow using external valuation and programme
- format into easy understood format
- Explain any peaks and troughs
- Repeat process on monthly basis
What risks have you advised your directors on on your projects
How did you advise you client on the additional costs for the link corridor
- agreed spec and design with architect
- put together CPs
- Issued details to subbies
- Collated quotes answered queries
- Issued cost to the client
- Reviewed
How did you advise client on value engineering options?
