Project Finance (Control and Reporting) - Level 3

Question 1

Manchester Project - Tell me more about the advice you gave on provisional sums and prime cost sums.

Answer 1

I put together a provisional sum tracker document which demonstrated all of the provisional sums and prime cost sums taken from the cost plan which highlighted:
- the budget cost of each item.
- the status of what information is required for the item to be firmed up, for example information from the client design team or where the subcontractors need to put together coordinated information to price.
- Estimated dates where firm costs would be provided were also given by reviewing the programme of works and procurement strategy.

Question 2

Give me an example of a work package where you did this. What was the rationale?

Answer 2

I put together a Prime cost sum for the reception carpet, where the drawings denoted carpet, but the specification of the carpet was not yet confirmed. had the measurement but not a rate, so that a budget rate was provided until the specification was confirmed.

There was also a provisional sum of the steel support that would be required to support the sliding folding wall, however, the extent of this was not known at the time as there were no steel drawings. Therefore, a budget was produced based on an estimated amount of steel required and an estimated amount of Labour required to install it.

Question 3

What type of provisional sum was it? Explain the difference (if any).

Answer 3

The first was a Prime cost sum as the financial adjustment of work whose extent was known, but whose specification has yet to be determined.

The second was a provisional sum which is the cost allowance for works or services whose design specification are not known, and the extent is not known or sufficiently well-known at the date of contract.

Question 4

Give me an example of cost reporting procedures that you have implemented. What are the key headings that you included in the report? Explain the rationale for the main items that are included in such a report.

Answer 4

I have implemented cost reporting procedures for the monthly client valuation, where this is to be issued to the client on 3rd of each month and agreed by the 10th of each month. I record progress of the works completed, valued up until the 3rd of the month, where the document is broken down into the works packages, the preliminaries, and variations. Substantiation is also provided in the form of progress marked up on drawings and photographs. This is all issued to the client’s quantity surveyor via email.

Question 5

Tell me, what procedures would you advise where project costs are out of control? Why?

Answer 5

1. General risk allowance maintenance method Costs incurred and forecast for which no other provision was made in the budget should be set against the general risk allowance. The balance of remaining risk allowance should be maintained throughout the remainder of the project.
2. General risk allowance progressive release method costs incurred and forecast for which no other provision was made in the budget should be set against the general risk allowance. The balance of remaining allowance should be progressively reduced on an agreed basis – The release of remaining general risk allowance may be made pro-rata to:
   * percentage completion of programme
   * percentage completion of cost

Question 6

Explain how a risk register would help with project financial control?

Answer 6

A risk register is a risk management tool generally adopted as a central repository for all risks and threats identified. For each threat or risk identified, information in relation to each risk is included, such as a description of the risk, risk consequences, impact rating, risk owner and so on.

Proper risk identification, assessment, monitoring and control are therefore a prerequisite of realistic cost estimates and of minimising the consequential costs arising from the employer’s residual risk exposure.