Commercial Management Flashcards
What is cashflow
Cash flow refers to the movement of money in and out of your business in terms of income and expenditure. While your turnover might be a nice big number that gives you confidence that your business is doing well, it’s the cash flow that offers a better insight into how well your business is managing.
What is a cashflow statement/ how is it used generally in businesses?
A cashflow statement shows cash in and out of the business and gives a summary of how much cash is available for operations and details the ways in which the business is generating revenue.
This reveals a lot about how growth is taking place, i.e. whether it is through increasing debt, income etc. This sort of information is important if you want to be able to plan ahead.
You might even wish to make a forecast, based on how you think changes you are making to the business will be reflected in future cash flow statements.
This statement is a way of ensuring that you are going to be able to pay all of your bills.
As a start-up, it might indicate when you need to get an alternative source of finance as you find your feet.
What is profitability
Profitability is a measurement of efficiency used to determine the scope of a company’s profit in relation to the size of the business
A company is profitable if its revenue exceeds its expenses
How is profitability monitored
Profitability ratios assess a company’s ability to earn profits from its sales or operations, balance sheet assets, or shareholders’ equity. They indicate how efficiently a company generates profit and value for shareholders.
Profitability ratios are a class of financial metrics.
These ratios are used to assess a company’s current performance compared to its past performance, the performance of other companies in its industry, or the industry average.
Profitability ratios
Gross margin
Operating margin
Net profit margin
Cash flow margin
Return on equity (ROE)
Return on invested capital (ROIC)
What methods can be used during the design & construction phases to identify efficiencies/ reduce costs & maximise profitability/ savings?
Applying value engineering techniques during the design phase, looking at the whole lifecycle of the project and most optimal solution, e.g.
- What is the objective of the project
- What are the different solutions (e.g. is a new building the most effective option)
- Are there alternative methods that can be used such as off-site construction, in-house delivery
- Are there cheaper materials that can be used/ can materials be free issued?
Use of technology such as BIM can be an effective way of doing this.
Ensuring good quality design before construction commences to prevent change which is costly
Coordinated programme to prevent clashes taking place and constant review
Collaborative working to resolve/ prevent issues as smoothly as possible with good management of trades for coordination.
What is a periodic forecast/ what does it include/ how is it used?
Periodic forecast is a cost report detailing all project costs, (internal & external). This includes contractors, any materials, plant, labour, risk, direct labour, tfl staff (PM, CM, Planner, engineer).
It forecasts the value of work done instead of the actual cash out the door, identifying actuals to date, and a periodic forecast of when work is to be done and all costs associated with it. This is aligned with the project programme and updated periodically to identify any programme changes.
What is VOWD, how is this different to cashflow?
VOWD is value of work done and looks at when the works take place, e.g. install of foundations will show one period of when the materials are bought, the next period when the install takes place (including cost of any necessary labour, plant hire and usually a risk value), whereas cashflow is when the cash goes out the door e.g. the payment for the labour may go out of the business a period after the work is done.
What make up project costs?
plant, labour, materials, risk, overheads (offices, computing systems)
What data/ how was it collected for forecast
Used a system called SAP to run various reports for the projects and download and collate into once document for the cost report, the forecast tab is then updated and the report re-uploaded.
The reports that were run and downloaded from SAP were;
Employee time report (showing the hours booked to the project and by who)
Actual report (shows the actual costs (paid) to date including prior years)
Forecast report (the forecast that was uploaded last period with adjustment for actuals and inclusion of accruals)
Accruals report (detailing all accruals which are VOWD which have not yet been actualised)
PO report (details all the PO’s against the project, the value of them and what has been paid to date)
Cashflow reporting
Any period with forecast costs over £250k had to be put into the cashflow forecast which was a separate report and instead of forecasting the VOWD you had to forecast the date of payment to show when the cash was leaving the business. This was done for all high value transactions to ensure the business had sufficient cash to make its payments.
How was budget/ forecast balanced at portfolio level vs project level
The portfolio was allocated a budget (this included a budget allowance for each project and an overall risk value for the portfolio). Each project had its own budget allowance which also included a project risk value.
If an individual project EFC increased above the project budget, the budget from either the individual project risk, or the portfolio risk could be transferred to the project. If there was insufficient budget within the portfolio then additional budget would have to be requested from the business. (this is the same process for project authority)
What were the savings used for in Power portfolio & what was the reporting process on this
As I work for a client company there is not profit in the same way a contractor would have. When reporting on profit we report project costs against budget and any project that comes in under budget achieves savings (our version of profit).
Savings at project level could either be balanced within the project to provide additional contingency, transferred to the portfolio (usually risk pot and then transferred to other projects within the portfolio that are over budget as and when required) or transferred back to the business to be utilised by other departments.
How did the monitoring of green, amber & red scope work & the decision points
Following funding from the DfT greater control/ monitoring of budget was required. Therefore all projects within the portfolio for FY 21/22 were split into red (cancelled this FY), amber (will be spent if green is not all achieved), green (spend in budget and to go ahead as planned).
Monitoring the progress of the green projects was essential hence the requirement for confidence of spend as if the green spend was not expected to be achieved this FY then amber spend would be started to balance cashflow (budget) in the FY.
Decision points were identified for all amber projects to identify a lever point on when the go ahead must be given to allow the project to achieve the forecast spend for the FY. For example: Putney Earthing project had a low confidence spend for Q4 as there was £125k forecast and it was reliant on an available possession. This was monitored as it was likely that a project on the amber list could be started instead to ensure the spend was achieved that FY. The ACB project was one that was identified but had to be given the go ahead by P07 to allow the procurement & tendering process to be undertaken prior to spend taking place on the project.
All green, amber and decision points were visually identified using colour coding within the cost report to clearly identify what is green and amber and where all decision point are across the portfolio
Cost Value Reconciliation
Known as cost/value comparison (CVC). The project’s profit and loss statement, comparing the internal valuation with the costs incurred, including liabilities and accruals for goods and services consumed in the works that have not yet been paid for.
The process involves comparison of the overall cumulative project cost versus the overall cumulative project value, taken to the same point in time (date), a review of the period movement for value and cost is undertaken. This includes cross checking all internal value is accounted for and comparisons are undertaken at all levels of cost/ various cost elements are as expected. All variances should be logged and investigated, with lessons learnt reported.
