Project Financial Control & Reporting Flashcards
Describe your understanding of Cashflows?
- Cash flow forecast is prepared based on the contract programme & updated as the project progresses.
- Used to predict when the client will require specific funds at various points within the project, to allow budgeting & borrowing to be planned.
- The actuals cash flow vs forecast can also be used as method of establishing progress & any serious deviations from the original forecast could represent problems / delays to the contract or even financial difficulty for the contractor.
- A cash flow takes a typical ‘S’ curve (1st quarter - slow - procurement & mobilisation, 2nd & 3rd quarter - rapid - construction, 4th quarter - slow - completion & demobilisation)
How do you prepare a cashflow forecast?
There are 3 possible methods for preparing a cash flow forecast
1) Review the contract programme & allocating costs contained within the contract sum to the various programme activities
2) Use valuations from previous similar projects to ascertain ‘best fit’ profile
3) There is a the formula method which has been used by the DoH & MoD
How do you enforce pre-contract change control procedures?
- Regular design team meetings & communication with the project team as a whole.
- Carry out constant checks against the cost plan & ensure that each elements are within the cost limit.
- Set up a change log & review upon each set of drawings issued.
- Make sure client & design team are aware of full implications of the decisions & changes being made.
How would you ensure cost control on future projects?
Cost Plan / Estimate -
- Ensure accurate & sufficient contingency to accommodate design development based on level of information provided.
- Carry out constant checks & change management as design develops.
Tender Issue -
- Ensure sufficient design information available to allow a robust tender sum to be established.
- Advise client on risk of proceeding without full information if applicable & sufficient contingency.
Tender Return -
- Cross check tender with estimate / cost plan & reconcile any major variances & reasons why.
Post Contract -
- Cost reporting & change control procedures.
- Review design on a regular basis & monitor contingency fund.
How do you arrive at a risk/contingency allowance?
- A risk workshop was carried out & various members of the project team where involved.
- A brain storming exercise was carried out to identify the likely risks on the project & a Risk Register formed.
- Once risks identified they were assessed in terms of probability & impact (T&C) to develop a contingency.
- During previous projects, the risk register has been reviewed on a number of occasions with those risks that were closed, removed from the contingency sum.
- Other live risks were reassessed to determine their probability & impact following any mitigation measures implemented since the last review.
What is Contingency/risk allowance
The purpose of contingency is a sum of money to cover identified risks that may be encountered during the course of the project (unforeseen ground conditions, design development / additional works).
The risks should be reviewed during the course of the project and those risks that have occurred can be funded by the contingency fund.
Those risks that have passed without occurring will result in a saving being made to the contingency fund & the costs should be removed.
Is an instruction issued by email ok?
NEC - must be capable of being read, copied, and recorded. So Yes.
What is the difference between cost management and cost control?
Cost Management - Total concept for managing & controlling cost on a project from start to finish to ensure contract sum remains within budget. Helps design team prepare design based on a cost.
Cost Control - Part of cost management process & occurs post contract
How would you provide pre contract cost advice?
1) Budget estimate - early on at feasibility stage and would be provided using a cost per unit / m2 based on an indicative scope for the project
2) Cost Plan - commences when more information is available but before detailed design has begun. Sets a framework for the project so that the design may be developed (builders quants & benchmark rates)
3) Pre-tender estimate
4) Tender analysis
How would you monitor costs post contract?
1) Reviewing & checking the monthly valuations against the actual work carried out, reviewing the cost of any changes prior to issue & consider if required or alternatives available. Once issued value the works in accordance with the contract, carry out any remeasures if required, focusing on those areas where significant changes have occurred, review any potential claims before & after submission.
2) Monthly cost reports would be submitted to the client identifying the current value of works, instructions issued, claims notified, anticipated instructions & claims, reconciliation of budget & contract sum. Cash flow forecast to monitor expenditure to date, in line with initial programme, & in future to ensure sufficient monies available at the right point in the contract. Also provides an indication of progress & on time or not.”
How do you monitor/forecast and control cost under a cost-reimbursable contract?
Carry out regular audits of the monthly valuations.
Review the actual programme & level of resources in line with that anticipated at tender to determine productivity & progress.
If misaligned then establish why (not efficient enough / variations / delay due to problems on site) & make an assessment for the remainder of the contract.
Discuss progress with the contractor & project team. Regular meetings with the design team to discuss availability & status of design information.
Potential future variations.
NEC3 - Provides for EW, Risk Reduction meetings & agreement of CE up front providing a mechanism to forecast & monitor costs early on, with a view to reducing or avoiding them, which is particularly useful on Target Cost / Cost Reimbursable projects.
What is a cost report?
A Cost Report contains information regarding the costs related to a project at a specific point in time.
It reflects the current position of the project & the Anticipated Final Cost.
The Cost Report can be a high level summary or a detailed document depending on the clients requirements.
What should be included within a cost report?
a) Contract sum
b) Instructed CE’s
c) Potential future variations as advanced warnings
d) Claims
e) Anticipated final account total
f) Total of certified payments
What is a cost report used for?
It can be used as a management tool for the client to plan expenditure going forward & identify any programme & financial problems early on.
How would you advise a client if the Cost Report was showing a significant increase against the Contract Sum & the client did not have sufficient funds available?
Consider the potential remedies available to the client including:
1) Consider resequencing the project if the money was not available until the next financial year
2) Value engineer the project
3) Consider cheaper alternative materials or methods of construction
4) Descope the project if possible & take out ‘nice to have’ items such as high quality of Architectural finishes (stainless steel, etc)”
