Commercial Management in Construction Flashcards
What is a cost value reconciliation? (CVR)
A document that reconciles value and cost to determine the profitability of a construction project throughout its lifecycle.
Cost = expenses
Value = value of the work undertaken
V – C = R
Value – Cost = Reconciliation (Profit)
Why would you use a CVR?
- Ensure the project is completed within budget
- Improves the predictability of a project’s financial outcome
- Helps a team monitor and measure a project’s performance
- Tool to management and project team to identify any issues to be resolved
- Ensure unnecessary losses aren’t overlooked
What are prelims made up of?
Costs that are not directly related to any component, element, or work section
Examples: management and staff, site establishment, temporary services, security, safety and environmental protection, control and protection, common user mechanical plant, common user temporary works, the maintenance of site records, completion and post-completion requirements, cleaning, fees and charges, site services and insurances, bonds, guarantees and warranties.
What is a commitment?
The sum of costs which have to be paid and have been committed to as part of running the project. e.g. upfront payment of rent for site cabins
What is earned value?
A technique used to assess project progress by comparing the amount and cost of work that was planned to have been done by a particular stage with the amount that has actually been done and what it has actually cost.
AKA a quick way to tell if you’re behind schedule or over budget on your project.
How did you produce a cost-to-completion exercise on your project?
Accounting for the cost of design, construction, materials and internal management. I picked this up in the DDS phase for the NW Capacity Upgrades, accounting for:
* DDS contract value
* DDS risk allowance – separate register for construction phase yet to be produced
* Current forecasted internal PM costs – duration of construction phase benchmarked
* Forecast for PM costs on construction phase based on benchmarking and resource profiles
* Procurement of materials
* Estimated cost of construction – nominal figure provided in FDS stage which could be benchmarked and reassessed as design matured
* Current contingency allowance for construction
Why maintain cumulative accounts and payment procedures?
- Ensure full extent of financial information is accounted for
- Better identification of errors / in-period mistakes
- Less chance of double bubbling
What are contra charges?
Issued as a deduction to a subcontractor’s work packages as a result of a cost item that has been incurred due to their activity on site e.g. damage to property/equipment
Why might a project budget evolve?
- Value engineering
- Variations
- Change in outputs – item cannot be delivered in a certain way or maybe quicker
- Updates to resource rates
- Insolvency of a particular subcontractor so hard to find cheaper
- Changes to overheads, prelims, no. of staff, duration
- Updates to the risk register
What were the considerations when you suggested purchasing equipment rather than hiring it?
- Initial cost and finance
- Depreciation
- Life of plant
- Hours worked per annum
- Repairs and renewals
- Insurances and licenses
- Fuel, oil and grease
- Maintenance
What are the remedies to manage a negative cash flow?
- Arrange short term loans from the Company itself.
- Reduce the bulk orders.
- Delay sub-contractor, vendor’s payments by negotiations.
- Take advances from the Client.
- Obtain bonds to get release retentions.
- Advance possible invoices to collect payments quickly.
- Borrow fund from bank for a short term (this should be the last option).
Why is commercial management important to a project?
- Ensuring profitability and controlling costs.
- Ensuring a successful project in terms of time, cost and quality
- Looking at the lessons learned to contribute to a long-term strategy
How have you ensured profitability?
- Cost to complete exercises;
- Cost Value Reconciliations (CVR);
- Contract Variance; and
- Earned Value Analysis (EVA).
What is the difference between a budget and an estimate?
Estimate = approximation of the cost of a construction project produced to progress the project to the construction phase. By its nature, this is usually produced at pre-construction and pre-contract stage.
Budget = evolution of the estimate, updated usually to reflect information that was not available when the estimate was first produced. Budget is basically an estimated plan/approved estimate/cost limit to complete the project fixed mostly after contract award, based on the project team’s planned procurement and delivery methods.
Is the contractor responsible for the performance of nominated subcontractors?
Yes – same as domestic (appointed by contractor)
