Project finance Flashcards
What are the techniques to manage cost?
Common project finance and cost control techniques include:
Cost planning using elemental breakdowns (e.g. NRM1).
Cash flow forecasting to align expenditure with funding drawdowns.
Cost/value reconciliations (CVRs) to track budget vs actual costs.
Risk analysis and quantification, including contingency allocation.
Value engineering to optimise cost-performance balance.
Cost reporting to provide updates on financial position at defined intervals.
What is the difference between cost control and cost reporting?
Cost control is the proactive management of project expenditure to stay within budget. It involves monitoring, forecasting, and decision-making (e.g., change control, risk management).
Cost reporting is the presentation of project financials (e.g., committed costs, variances, forecasts) to the client at regular intervals. It’s a communication tool to inform decision-making.
Cost control is the active process; cost reporting is the outcome.
As a QS what should you be doing for your client?
I should:
Provide accurate and timely cost advice across all project stages.
Monitor and control expenditure through cost plans, budgets, and change management.
Maintain an up-to-date cost report including risk/contingency forecasts.
Advise on procurement, tendering, and contract selection.
Track progress through valuations, CVRs, and cash flow forecasts.
Protect the client’s commercial position, ensuring best value and financial visibility.
How would the number of changes affect the frequency of reporting?
A high number of design or scope changes may require:
More frequent cost reporting to track rapid budget shifts and advise on updated forecasts.
Real-time change control procedures and variation logs to prevent surprises.
More engagement with the client and design team to manage decisions with financial implications.
Would it not be better to prevent/manage the changes rather than just report on them?
Absolutely. Cost reporting alone is retrospective. Effective cost control includes:
Identifying and challenging change drivers early (e.g. design development, client instructions).
Participating in design coordination meetings to mitigate late changes.
Maintaining a robust change control process so only approved changes impact cost.
Implementing a value engineering strategy to manage changes positively, rather than reactively.
How do you compile a risk register?
A risk register includes:
A list of identified risks (e.g. ground conditions, inflation, delayed approvals).
Their probability and impact.
Assigned risk owners.
Mitigation strategies.
Risk values (for financial quantification).
It’s developed collaboratively with the client and design team, then updated regularly
How do you quantify them?
Risks are quantified by:
Assigning a cost impact value based on historical data or expert judgement.
Assessing the likelihood (L) and impact (I) using a probability-impact matrix.
Calculating expected value = L × I × cost.
High-risk items may be fully priced as part of contingency; lower risks might be monitored without financial allocation.
What are the key components of a cost/value reconciliation?
A CVR typically includes:
Budgeted costs (from the cost plan).
Committed costs (awarded packages).
Actual costs (payments to date).
Forecast final costs per package.
Variances between forecast and budget.
Explanatory notes on changes or risks.
It supports financial management and is updated monthly or quarterly.
What is the importance of having a project cash flow forecast?
Helps clients manage funding drawdowns and financing costs.
Identifies future cash requirements, aiding budget approvals.
Identifies if the project is on programme
What information would you provide in your cost report?
A cost report typically includes:
Current approved budget.
Committed and actual costs to date.
Forecast final cost.
Summary of variations and changes.
Risk register updates and contingency usage.
Cash flow forecast.
Commentary on financial risks and next steps
How would you define contingency?
Contingency is a pre-allocated sum of money within the cost plan to cover foreseeable but undefined risks or changes, such as:
Design development.
Client-led scope changes.
Inflation or market volatility.
What do you understand to be the difference between prime cost and provisional sums?
Prime Cost (PC) Sum: An allowance for a supply-only item (e.g., sanitaryware), excluding labour. The contractor includes for fixing only.
Provisional Sum (PS): An allowance for a supply and fix item or undefined scope. It is included in the contract but subject to variation once defined.
Both are used to allow flexibility where design or scope isn’t finalised but are treated differently in post-contract cost control.
What current challenges is Covid and/or Brexit bringing to Project Finance?
Inflation and volatility in material pricing (e.g. steel, MEP).
Supply chain disruption, impacting procurement and payment cycles.
Extended lead times, delaying packages and affecting interim valuations.
Increased contractor risk allowances, impacting cash flow forecasting.
More frequent use of fluctuation clauses and increased contingency levels in cost plans.
How did you control cost on this project?
Maintaining a change control register, logging all instructed variations and tracking their impact.
Reviewing contractor applications against site progress and scope completed, ensuring accurate valuations.
Issuing monthly cost reports to the client, including forecasts and risks.
How did you create a cost report for this project?
Including a summary dashboard showing current budget, committed costs, actual spend, forecast final account, and variance.
Incorporating a cashflow forecast highlighting the actual and forecast cashflow
Incorporating a risk register update, including any emerging risks that could affect cost or programme.
Highlighting key commercial decisions required (e.g., unresolved changes)
What did you include and exclude in your cost reports?
Included:
Original budget (elemental breakdown).
Committed costs (orders placed).
Actual payments to date.
Forecast outturn cost.
Variations (approved and pending).
Risk/contingency drawdown.
Cash flow updates.
Commentary on financial health.
Excluded:
Client-side fees outside my QS remit (e.g. legal or land acquisition).
VAT (unless instructed otherwise)
How did you update the cashflow for this project?
Reviewing actual valuations and payments made.
Adjusting the forecast for approved variations and known cost events.
How would you create a cashflow?
I would use the contract programme and contract sum and assign values to the path of the programme and present the data via an s curve
What is s curve?
An S-curve is a graphical representation of cumulative project cost or value over time.
It starts slowly (mobilisation), rises steeply during the main construction phase, and flattens toward completion.
How would you create a cashflow if no programme is available?
I would either use an s curve formula or benchmark against a similar project and estimate that way
How would you agree variations with the contractor?
Upon receiving a contractor variation quotation, I validated the scope change against the contract.
Assessed the quote using:
Rates from the CSA.
In-house data for abnormal items.
Labour and material build-ups if necessary from market testing.
Engaged in negotiation where needed to ensure value for money.
How did you manage provisional sums with this project?
I managed provisional sums on Princes Parade by:
Clearly identifying all provisional sums (PS) within the tender documents and cost plan, distinguishing between defined and undefined sums
Maintaining a provisional sum tracker throughout the project, documenting when each PS became defined, and tracking approvals. Also including when design needs to be approved by to avoid delays
Working with the design team to finalise scope early, enabling us to convert PS to firm prices through contractor quotations.
Ensuring each PS instruction was issued through a formal contract instruction, and valuing each using BoQ rates, benchmarked market data, or negotiated lump sums
How did you ensure you were getting value for money with the provisional sums?
To ensure value for money:
I requested the contractor submit detailed cost breakdowns when a PS was instructed.
Compared those quotations to the tendered rates, similar projects,
Where prices seemed excessive or unsubstantiated, I engaged in a negotiation process to reduce or align them with expected market values.
