Level 3 - Project Financial Control & Reporting

Question 1

What measures can be taken to effectively control costs during the construction phase of a project?

Answer 1

• proactive risk and contingency management
• Implementing a robust change control process
• Management of provisional sums with budget
• Regular cost reporting which is also forward looking
• Rolling final account with closure process for financial impact of change

Question 2

What is included in a monthly cost report?

Answer 2

• Current budget and forecast
• Contingency position
• Level of cost ‘certainty’ i.e. agreement of provisional sums
• Total commitment and expenditure to date
• Final account progress
• Contract position
• Progress in the period and current financial position
• Outstanding information
• Major risks or causes for concern
• Next steps and recommendations

Question 3

How do you put together a cashflow? Basic steps if no specialist programme or formula being used? If you were reviewing the work of a colleague that had a contract sum divided exactly over the number of months, what advice would you give them?

Answer 3

What should be included in a cash flow forecast?
There are three key elements in a cash flow forecast: likely sales, projected payment timings, and projected costs.

Likely sales
To start, estimate likely sales for the weeks or months covered by the cash flow forecast. The easiest way to do this is to look at sales history from the last few years. Take note of any seasonal patterns, or the impact of promotions in those months.

If it is a new business, then use data from suppliers, industry experts and even competitors to make predictions.

When estimating these sales, it’s important to take any future plans into consideration. Take a look at the current state of the market and any emerging trends, as these may have an impact on the business. Things to consider include any promotional activity or product launches, and the activity of competitors too.

Projected payment timings
Once the estimated sales are in place, add in when payments are expected to be received. Factor in a delay for most payments.

Projected costs
Next estimate outgoings. The business will likely have fixed and variable costs, and both will need including.

Fixed costs include things such as rent and salaries. Add these dates and projected amounts, including bills, fees, memberships and tax payments.

Variable costs are the opposite – they’re usually dependent on the sales made. For example, stock or raw materials. In this instance, use likely sales to predict how much these costs will be.