Cost Report

Question 1

What is in a cost report?

Answer 1

Summary
Contract information
Cashflow
Instructed variations
Anticipated varations
Provisional sums
Claims

Question 2

What is the primary goal of cost reporting in construction projects?

Answer 2

The primary goal is to provide the client with an accurate understanding of the project’s financial status, including costs incurred, anticipated costs, and any financial risks.

Question 3

How do cost reports help in tracking a project’s financial performance?

Answer 3

Cost reports summarize financial data, enabling clients to monitor expenditure, track variances, and compare actual costs to the approved budget.

Question 4

Why is it important to include anticipated costs in cost reports?

Answer 4

Including anticipated costs allows the client to foresee potential expenses, prepare for them, and ensure the project remains within budget.

Question 5

What role does risk allowance play in cost reporting?

Answer 5

Risk allowances provide a financial buffer for unforeseen costs, helping to manage uncertainties and maintain budgetary control.

Question 6

How can cost reports assist clients in decision-making?

Answer 6

Cost reports provide detailed financial insights, enabling clients to make informed decisions about project priorities, changes, and resource allocation.

Question 7

What is the significance of comparing current expenditures to the approved budget?

Answer 7

Comparing current expenditures to the approved budget ensures the project stays on track financially and helps identify any deviations early.

Question 8

How often should cost reports typically be prepared during a project?

Answer 8

Cost reports are typically prepared at regular intervals, such as monthly or at key project milestones, to provide consistent updates on financial progress.

Question 9

What types of variances are highlighted in cost reports?

Answer 9

Variances between actual and budgeted costs, changes due to scope modifications, and deviations caused by delays or unforeseen risks are highlighted in cost reports.

Question 10

Why is it important to have a change control process in cost reporting?

Answer 10

A change control process ensures that all project changes are documented, assessed for financial impact, and communicated to the client, preventing cost overruns and disputes.

Question 11

How are instructed and anticipated variations managed in cost reporting?

Answer 11

Instructed and anticipated variations are managed by documenting them, estimating their financial impact, and updating the cost report to reflect changes in the project’s financial outlook.

Question 12

How can cost reports be used to identify trends in project spending and forecast future financial performance?

Answer 12

Cost reports provide historical data on spending patterns, allowing project managers to identify trends such as consistent overspending in certain areas. By analyzing these trends, they can forecast future financial performance, anticipate potential overruns, and take corrective action.

Question 13

What information should be included in a detailed cost report to ensure it is comprehensive?

Answer 13

A comprehensive cost report should include current expenditures, committed costs, anticipated costs, risk allowances, a comparison to the approved budget, explanations for variances, and an analysis of potential financial risks or opportunities.

Question 14

How does the timing of cost report preparation impact project decision-making?

Answer 14

Frequent and timely preparation of cost reports ensures that project stakeholders have up-to-date financial information, enabling quicker and more informed decisions, particularly when addressing unexpected changes or risks.

Question 15

Understand the Scope of the Provisional Sum:

Answer 15

Begin by reviewing the contract documents and specifications to understand what the provisional sum covers (e.g., undefined or unquantified works).
Clarify any ambiguities with the design team or client to establish a clear scope.

Question 16

Where can you find guidance on provisional sums?

Answer 16

NRM1: For cost estimating during the pre-construction phase, it defines how provisional sums should be included in estimates.

NRM2: For Bills of Quantities, it provides detailed guidance on handling defined and undefined provisional sums.

Question 17

Methods to Calculate Contingency

Answer 17

Percentage of Project Cost:
Apply a fixed percentage of the total project cost (e.g., 5-15%) based on the project’s complexity and uncertainty.
Common for early-stage cost estimates with limited information.

Detailed Risk-Based Approach:
Break down identified risks and assign specific monetary values to each.
Sum the individual risk allowances to determine the overall contingency.

Benchmarking:
Use historical project data to set contingency percentages for similar projects.

Question 18

Process of a Final Account

Answer 18

Identify Variations:
Review all changes to the original scope of work, including instructions from the employer or consultant.
Include client-requested changes, unforeseen site conditions, or statutory changes.
Valuation of Variations:
Assess each variation in line with the contract terms.
Use rates in the original bill of quantities (BOQ) or agree on new rates if necessary.
Agreement:
Submit variations to the employer or project manager for approval.

2. Review of Provisional Sums

Resolve Provisional Sums:
Replace provisional sums with actual costs for works instructed during the project.
Ensure all provisional sum items are valued and agreed upon.

3. Reconciliation of Interim Payments

Account for Payments Made:
Review all interim payments and deductions made during the project.
Ensure payments align with valuations, retention percentages, and agreed terms.

4. Assess Contractor Claims

Claims for Loss and Expense:
Assess any claims for delays, disruptions, or other issues caused by employer-related events.
Extension of Time (EOT):
Ensure any time-related claims are resolved and the associated costs are included in the final account.

5. Adjustment of Contract Sum

Inclusions:
Variations.
Claims for loss and expense.
Final measurement of work done.
Adjustments to provisional sums.
Fluctuations (if allowed in the contract).
Exclusions:
Work omitted or not performed.

6. Resolution of Retention

Release of Retention:
Confirm the percentage of retention to be released at the end of the defects liability period.
Ensure any outstanding defects or snagging works are addressed.

7. Prepare Final Account Statement

Content of the Statement:
Contract sum.
Adjustments (variations, claims, omissions).
Payments made to date.
Retention release.
Final balance payable or receivable.
Format:
Prepare in accordance with the contract terms, typically a detailed breakdown.

8. Negotiation and Agreement

Review and Discuss:
Submit the final account statement to the employer or their representative.
Address any queries or disputes raised.
Agreement:
Ensure both parties sign off on the final account.

9. Issuance of Final Payment Certificate

Final Payment Certificate:
Issued by the contract administrator or project manager.

Question 19

What happens if the contractor is behind on programme?

Answer 19

Do a recovery plan

Reschedule and Reprioritize Tasks:
Adjust the construction schedule to focus on critical path activities.
Defer non-critical tasks that don’t impact the project’s overall completion.

Accelerate Works:
Increase working hours by introducing overtime, double shifts, or weekend work.

Bring in Additional Resources:
Hire more labor, subcontractors, or machinery to speed up progress.
Update the Programme:

Revise the construction programme to reflect recovery measures, keeping all stakeholders informed.