Project Finance

Question 1

What are the different types of financial control procedures?

Answer 1

1) Cashflow forecasts
2) Cost reporting (cost to completion)
3) Life cycle costing
4) Applications for payment
5) Monthly liabilities

Question 2

What is a cashflow forecast and when would it be used?

Answer 2

A financial planning tool used to show the predicted flow of cash in and out of a project for the duration of the project and is typically updated on a monthly basis.

Question 3

What are the advantages of a cashflow forecast to the employer?

Answer 3

1) Planning expenditure to receive relevant funding
2) Identify months with shortfalls and address
3) Used as a sense check for monthly valuations

Question 4

What is the purpose of cost reporting to project completion?

Answer 4

1) To identify outturn costs and track the trajectory of the project
2) To identify week performing areas and address accordingly
3) To understand whether the project is under or over performing

Question 5

What is life cycle costing?

Answer 5

A method of measuring the lifetime costs of an asset or project by adapting the design to adopt a more holistic view of the costs associated with the asset throughout its lifetime, as opposed to just the initial costs.

Question 6

What is an application for payment?

Answer 6

An application for payment is a document issued to by the Contractor to the Client which states the amount of money they believe to be due at the agreed valuation date.

It should include the following:

Prelims
Measured works
Materials on site
Variations

Question 7

What are monthly liabilities?

Answer 7

Monthly liabilities is a submission issued by all projects which captures the costs a project is liable for at the end of each month. This is not a snapshot of what has been paid, but a snapshot of the amount owed and therefore includes unpaid invoices and unagreed variations.

Question 8

What is a CVR?

Answer 8

Cost Value Reconciliation

The process of reconciling actual cost against value in order to determine the overall profitability.

Question 9

What is a CRF and what are the outputs?

Answer 9

The CRF stands for contract review form which is a monthly project review to determine the performance of a business. It discusses the outputs such as commercial, Programme, health and safety, client feedback and quality.

Question 10

What is the process of reviewing planned outputs against actual outputs called?

Answer 10

Earned value analysis

The process of reviewing the progress made and the commercial impact to forecast the final costs and completion date based on trend analysis.

Question 11

What are the three main components of earned value analysis?

Answer 11

PV (Planned Value) - The planned value of works complete based on time in isolation
EV (Estimated Value) - the actual value of works complete
AC (Actual Cost) - The actual cost incurred

Question 12

What can Earned Value analysis identify?

Answer 12

1) Under/overspends
2) Project delays

Question 13

What is CPI in the context of earned value management?

Answer 13

Cost performance index - The method of calculating cost efficiency of a specific project?

CPI = EV / AC

Question 14

What is SPI in the context of earned value management?

Answer 14

Schedule performance index - A measure of planned progress (EV) against actual progress

SPI = EV / PV

Question 15

What does a CPI value of greater than 1 show?

Answer 15

The project is performing well against budget

Question 16

What does a CPI value of less than 1 show?

Answer 16

The project is performing poor against budget

Question 17

What does a SPI value of greater than 1 show?

Answer 17

The project is ahead of schedule

Question 18

What does a SPI value of less than 1 show?

Answer 18

The project is behind schedule

Question 19

What is planned output?

Answer 19

The planned percentage of works complete at a certain point in time

Question 20

What is planned value?

Answer 20

The expected costs at a point in time based on the planned output

Question 21

What is actual output?

Answer 21

The actual percentage complete at a certain point in time

Question 22

What are actual costs?

Answer 22

The actual amount of costs incurred at a point in time

Question 23

What is the difference between a cost and cashflow forecast?

Answer 23

A cost flow forecast is a measure of the forecasted cost outflow over a period of time, whereas a cashflow looks at both the cost incurred and cash received to determine the net cash position.

Question 24

When would you use a cost flow forecast rather than a cashflow forecast?

Answer 24

A costflow forecast is used to help determine the cashflow forecast, it is used specifically toward the beginning of a project when the value of works is minor yet you have incurred costs for staff, materials, design etc.

Question 25

What is a risk allowance?

Answer 25

A monetary or programme allowance made for the occurrence of uncertain events materalising

Question 26

What would determine the amount allowed for risks in a construction project?

Answer 26

A true valuation of the risk occurring multiplied by the probability and severity factor of it occurring.

Question 27

You mention your monthly project finance cycle, please can you take me through this?

Answer 27

1) Weekly BPR, issued every Tuesday included labour, plant and materials costs
2) CIM1, the cumulative liability for cost heads is reported on the last working day of each month
3) CIM2, the monthly reporting of the net cash position at a point in time, submitted the first week end of each month
4) Contract Review - monthly review of profit and loss of the project based on forecasted cost against forecast value

Question 28

How would you forecast costs?

Answer 28

1) Identify past trends and continue into future
2) Review programme activities and make allowances for the associated costs
3) Speak with package manager to determine what activities are likely to be complete

Question 29

What is the benefit of a short term cashflow forecast?

Answer 29

Short term cashflow forecasts are more focused on near future activities and are therefore give a more accurate representation of costs. This allows the business to address any high cost months which arise from bottle necked programmes.

Question 30

You mentioned that you advise your client on the expected cashflow position, what is the purpose of this and is it a contractual requirement?

Answer 30

This was not a contractual requirement, but a goodwill gesture to maintain a good working relationship. The client was a private and therefore obtained funding from the bank to pay for the works complete to my company. Given I worked for the contractor I was much closer to the detail and was best placed to advise on the completion of key activities.

Question 31

When would you show an increase when reporting costs?

Answer 31

If the cost was genuine and there was no contingency available or the contingency allowance was needed for other future costs.

Question 32

When would you offset a cost increase with contingency?

Answer 32

If the contingency covered the nature of the cost increase or if the full contingency of another heading was not going to be used.

Question 33

When would you report a saving during the project lifecycle?

Answer 33

Due to the nature of construction, I would move any savings made into a contingency pot to cover any future cost incurred, I would then show the saving towards the end of the project lifecycle?

Question 34

Please could you explain your understanding of the term resilience?

Answer 34

Resilience is a lump sum contingency pot to deal with any unexpected costs.

Question 35

You mention that you do cashflow forecast both internally and externally, can you please explain how your reporting’s might differ?

Answer 35

Internally i may have to consider whether to client always pays on time, weather they are flexible or rigid within payments, willingness ti pay on account.

Question 36

Can you advise of a time you have had to advise senior commercial leadership of an increase the EFC?

Answer 36

During the construction of the residential project I worked on, we incurred significant water ingress through rainfall. At the time there were no allowances made for the repair of the damage. I therefore reported this in our EFC as well as a forecast for future damage as the building was not water tight.

Question 37

Can you advise of a time you have had to advise senior commercial leadership of an increase the EFC?

Answer 37

During my case study, i recognised that the subcontractor we had fixed a cost with was under delivering despite charging a premium. Knowing an alternative subcontractor was willing to carry out the same works on dayworks based on a 3 week programme, i recognised an opportunity to reduce the costs whilst mitigating the risk of further delays.

Question 38

What methods could you adopt to avoid cost increases on your project?

Answer 38

1) Robust control of costs
2) Use of provisional sums with client
3) Value engineering

Question 39

How would you estimate a contingency for your project?

Answer 39

I would calculate this based on a percentage of each works package dependent on the complexity of the scope and the risks involved, the higher of both of these the higher the % I would apply.

If the contingency was specific, I would try to forecast a contingency based on the known facts. For example, on the residential project i knew there would be future water damage, so I took a view on the areas that weren’t water tights and made an allowance based on the contract some of said areas for reworks.

Question 40

Can you please tell me what you would change about the way you currently report on costs on your project?

Answer 40

I would ensure there is absolute alignment with the project WBS code when raising new orders for materials and plant. I would make the headings clear, and ensure that all codes are approve by the owner of the feeder sheet from commercial before the order being placed. This would give us a clear indication of whether we were likely to go over the budget, enabling my project to focus on key overspends.

Question 41

How would you report on the costs of a performance bond?

Answer 41

This would be considered a sundry cost which should have a budget allocated against it.

Question 42

What are your companies rules around reporting unimplemented/unagreed change?

Answer 42

Only report on value when it is highly probable that it will be implemented (80% or more sure)

Question 43

What are your companies rules around reporting insurance claims?

Answer 43

Only report on value when it is almost certain (95% or more)

Question 44

Outside of your write ups, please can you provide another example of when you have demonstrated good project finance skills?

Answer 44

1) NTT procured a lot of specialist MEP materials
2) Important review this in depth
3) Created my own materials EFC
4) Included budget + client change against orders let, CTD, and EFC
5) This was managed and advised to the commercial director on a monthly basis