Project finance control and reporting (L3)

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 within a budget
• Regular cost reporting which is also forward looking
• Rolling day 1 final accounts

Question 2

What is the purpose of change control on a construction project?

Answer 2

To provide a method of identifying, assessing and managing change, giving details of cost and programme impact. Helping safeguard the client’s investment and the contractor’s profit.

Question 3

What is the purpose of a financial report?

Answer 3

To report against budgeted values and act as a working cost check on the total project budget.
To report on the contract progress against the pre-contract predictions
For internal use to identify cash shortfalls
To present financial accounts at year end on CH
To avoid surprises for the client

Question 4

What would you include in a financial report for a client?

Answer 4

The contract sum
Instructed variations
Potential future variations as advanced warnings
Claims
Anticipated final account total
Cost to complete

Question 5

What information is included within Contract Review forms?

Answer 5

Current cost, value and margin
Estimated final cost, value and margin
Cash flow
Certified to date position
Risk and opportunites
Subcontract liabilities
Progress of works against the contract programme

Question 6

What are contract liabilities?

Answer 6

The amount owed on the contract if the account was final accounted at the present point in time

Question 7

What two things does an earned value analysis tell you?

Answer 7

Will work cost more or less than planned?
Will work finish before or behind schedule?

Question 8

How would you set up a Change Control system on a project?

Answer 8

Communicate the contract baseline to the project team against which changes will be measured and what constitutes a change
Establish change control meetings with the team to assist in quantifying, valuing and actioning changes.
Establish the change register.
Once a change is identified it should be added to the register and either actioned or an instruction requested.

Question 9

Difference between value management and value engineering?

Answer 9

Value engineering is a systematic approach that seeks to enhance value by eliminating unnecessary cost whilst maintaining function.
Value management is a systematic review of essential project functions or performance, focused on achieving the best value for the money.

Question 10

What is your understanding of Project Financial Control?

Answer 10

This covers the financial management of a project during the construction phase. Reports on: Staff, Labour, Materials, Plant, Sundries & Sub-Contractors.

Question 11

What does financial management of construction projects entail?

Answer 11

The main areas are:
Cost and Value analysis
Cost and Cash flow analysis
Commercial decision making

Question 12

What is the purpose of cost reporting?

Answer 12

To inform the client in a construction project the likely outturn cost of the construction project.

Question 13

What does a construction cost report capture?

Answer 13

Cost to date and costs to come under a construction contract

Question 14

What are fixed costs?

Answer 14

The costs that have been agreed to be paid for the known work or services

Question 15

What is a Provisional Sum?

Answer 15

A financial allowance, included within the Contract Sum, for work which is not sufficiently designed to allow the contractor to offer a firm price at tender stage, and/or work that the employer may or may not wish to be carried out.

Question 16

How are provisional sums expended?

Answer 16

The contract administrator (JCT) should issue an instruction for its expenditure.
Prov sum omitted and replaced with the actual cost of work.

Question 17

How are prov sums dealt with in the final account?

Answer 17

By the time the project has reached final account stage, the contract administrator will have issued instructions to expend all provisional sums - these are then accounted for in the usual way.

Question 18

Explain the difference between defined and undefined provisional sums

Answer 18

For defined prov sums, the contractor is deemed to have allowed for programming and preliminaries within the contract. For undefined prov sums, the contractor does not allow for programming or preliminaries due to unknown design information.

Question 19

What are provisional quantities?

Answer 19

Provisional quantities for work where the specification is known, but the exact quantity is yet to be determined.

Question 20

What are prime cost sums?

Answer 20

A sum of money included in a unit rate to be expended on materials or goods from suppliers. It is a supply-only rate where the precise specification is TBC. Often used in conjunction with Nominated/Named Sub-Contractors.

Question 21

What is an interim certificate?

Answer 21

An assessment of the value of work done to date, to allow the contracting organisation to be paid for the work done.

Question 22

How do you value works for the purposes of interim valuation?

Answer 22

Revalue the whole work (not just the work done since last month)

Question 23

What are the two categories of contingency?

Answer 23

Allocated contingency - an allowance of likely cost, over and above estimated costs that can be allocated to a specific element or activity.

Unallocated contingency - an allowance for additional costs that have not been specifically identified, but which experience has shown ‘may happen’ and cannot be accurately predicted.

Question 24

What is an accrual?

Answer 24

A charge for work that has been done but not yet paid, for which provision is made at the end of a financial period.
Difference between the total liability and the amount already paid.