Project Finance

Question 1

What are the contents of a Cost Report?

Answer 1

“a. Executive Summary
b. Cost Summary
c. Cash-flow
d. Change Orders approved, forecast and potential/risk
e. Risk Analysis
f. Forecast Final Account
g. Invoices tracker and submissions.”

Question 1

What is a Cost Report

Answer 1

A document produced periodically that sets out the financial position of a project.

Question 2

What is the purpose of producing a cost report?

Answer 2

“To monitor and manage cost throughout the project.

To inform the client on actual project cost against the budget.”

Question 3

Why is it important for the client to know the anticipated out-turn cost?

Answer 3

“It gives them the best possible basis on which to base future project decisions.
Funding purposes”

Question 4

What is the budget?

Answer 4

The budget is usually ‘cost of work’ both under & not under construction contract.

Question 5

If the anticipated final account is over-budget, what could you consider doing?

Answer 5

“Review of any open allowances.
Reduce spec of elements of remaining work”

Question 6

How do you agree a Change Order?

Answer 6

“A modification to the quantity or quality of the project scope.
- Negotiation what is fair and reasonable.
- Material and Labor breakdown
- Substantiation
- Whether means and methods”

Question 7

What are some reasons for change orders

Answer 7

”- Client change
- Design Development
- Design Error
- Field Condition”

Question 7

What is means and methods?

Answer 7

Means and methods of construction refer to the techniques, procedures, and materials used during the construction process and to achieve specific outcomes.

Question 7

Are project cashflows only used between clients and contractors?

Answer 7

No, contractor and subcontractor too.

Question 8

What can an organisational cashflow be used for?

Answer 8

It can be used to assess whether a company will be able to adequately cope with the works being considered.

Question 8

Would you include LADs in a cost report?

Answer 8

Yes, but I would seek the client’s instruction on this.

Question 8

What is the purpose of producing a cashflow for a client?

Answer 8

”- It informs them what and when their monetary commitments are
- This is important for them in order to secure the correct funding
- Checking progress and identifying if we are behind Schedule. i.e. the contractor’s payment are behind the forecast.”

Question 9

What types of cashflow are there?

Answer 9

“1. Turnover
2. Cost”

Question 9

What do you do after issuing a cost report?

Answer 9

Meet the client in person to review it.

Question 10

What types of information should you seek from the brief before producing a cashflow forecast?

Answer 10

“WWWP

• Who will use the cashflow forecast - contractor or client?
• Whole development or just for the construction contract?
• Which date should be used i.e requisition date, invoice date, etc
• Payments - Should it display cumulative payments, monthly payments or both?”

Question 11

What is the Cost Manager expected to do in terms of cashflow forecasting?

Answer 11

“BIUM

1. Take a brief from the client to understand their requirements for a cashflow forecast
2. Produce initial cashflow at feasibility stage
3. Update the forecast throughout design, RFP and construction period
4. Monitor actual payments made against the forecast and explain the discrepancies”

Question 12

Why is it important to consider the form of contract when producing a cashflow forecast?

Answer 12

Because different forms of contract have different payment timescales between application and payment.

Question 12

What are important points when reviewing an organisational cashflow?

Answer 12

”- Overdraft level
- Frequency of overdraft use
- Potential effect of bank removing overdraft
- Potential effect of company losing 1 or more key clients”

Question 13

What other considerations should be made when producing a cashflow forecast?

Answer 13

Vacation / Public holidays / time of the year.

Question 13

What are the different ways of producing a cashflow forecast?

Answer 13

“Pre-contract I would use an s-curve formula.

Once a contractor is appointed, I would use the contractor’s Schedule and pricing document. I would also seek input from the contractor.”

Question 13

Should risk be included in the cashflow forecast?

Answer 13

Yes, to make allowance for any likely change orders.

Question 13

What types of cost are carried in the cash flow

Answer 13

Hard Cost, Soft Cost, FF&E, audio/visual (if applicable)

Question 14

Why might a contractor re-sequence works?

Answer 14

”- Late procurement of sub-contractors
- Recover time due to slow progress.
- Site conditions”

Question 15

The contractor’s payment application is higher than the forecast cashflow, why could this be? (list some)

Answer 15

"- Front loading - Ahead of Schedule - Change Orders - Works have been accelerated."

Question 15

The contractor’s payment application is lower than the forecast cashflow, why could this be? (list some)

Answer 15

"- Poor site conditions - Adverse weather - Materials stored off-site not claimed - Slower site progress. - Change Orders"

Question 16

What was included in the Final Account that you prepared?

Answer 16

"CACPT Contract Sum Allowances Change Orders Total Value Previously Paid"

Question 16

How do you value a Provisional Sum (allowance)?

Answer 16

"a. Defined - Discribed in sufficient detail that a GC should have made an allowance for them b. Undefined - less well described and allowance made by contractor for schedule and pricing."

Question 17

How to avoid claims ?

Answer 17

1. Balance risk 2. Sufficient design & specs. 3. Correct procurement route."

Question 17

What is loss and expense ?

Answer 17

A contractors claim for loss and expense at the same time as an extension of time. It is the money required for delay and disruption, inefficient working and/or employing more resources - UK

Question 18

How do you establish/design change control procedure?

Answer 18

"PIP CEC RA 1. Project procurement route and impact during design and construction 2. Identify key decision makers to approve changes 3. (Client’s) Priorities from monitoring change? 4. Change control procedure process and forms 5. Evaluation and measuring change 6. Costs to include in evaluating - Hard, Soft, FF&E 7. Responsibility and communication matrices for raising changes 8. Applicable contract mechanisms."

Question 19

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

Answer 19

"- Regular meetings with contractor - Regular Cost reporting - Proactive risk & contingency management - Robust change control. - Allowance tracking."

Question 20

What is Cost Control and Procedures you undertake to cost control?

Answer 20

"Process of controlling costs through the duration of the project. includes procedures to: 1) Detect change variances between budgeted and actual cost. 2) Detect cause of change orders. 3) Corrective measure to re-align actual cost with budget."

Question 21

What are the cost control tools?

Answer 21

"Pre contract - Estimates - ROM, SD, DD, CD Post Contract - Cost Report, Risk Management/register, Allowance Tracker, Change Order Log, Final Account."

Question 22

What are Finance Control tools?

Answer 22

Financial Statements - Cashflow forecast, budget, etc.

Question 23

What is Value Engineering?

Answer 23

"It is a structured process that aims to maximise value of elements without detriment to function or quality. Why: VE Right delivery strategy for performance/function. When: VE preferable at outset put usually reactive Report: VE report to project technical team"

Question 24

What is Value Management ?

Answer 24

"Exploring how value could be provided for a project at a strategic level by helping to develop the right project brief. Why: VM To for strategic decisions (right project for objectives). When: VM Proactive at earliest to maximize value Report: VM report to Client/stakeholders"

Question 25

Value Engineering techniques

Answer 25

"FFFW 1. Function analysis i.e. value tree and mind map 2. FAST diagram 3. Function performance specification 4. Weighing and evaluation"

Question 26

VE report contents

Answer 26

"1. Executive summary 2. Shortlist options considered 3. Value assessment of options 4. Conclusion and recommendation 5. Appendices"

Question 27

"What are the different types of Listed buildings?

Answer 27

"· There are three categories (USA): o Grade I – Buildings of exceptional importance o Grade II – Buildings of more than special interest o Grade III - Buildings are non-statutory buildings of local interest"