Project finance (control and reporting)
| Question | Answer |
|---|---|
| What is Cost? | Cost refers to the estimated and total expenditure incurred by the contractor on a specific project, and included all overheads associated with the project. (Net cost of production + Overheads) |
| What is Value? | Value is all costs as above plus the margin of profit. Value is the figure paid by the client to the contractor following interim / final certifications. |
| What is the purpose of cost controlling? | • The purpose of cost controlling is to give the client good value for money • Keep the expenditure within the client’s budget. • To achieve the balance of expenditure within the various part of the buildings |
| How do you control the cost in a project as a contractor’s QS? | 1. Monitoring and Reporting: During construction, QSs monitor project expenditures, comparing them with the approved budget. They track labor costs, material prices, and any changes to the design or scope of the project. QSs prepare regular cost reports to keep stakeholders informed of the financial status. 2. Managing Variations and Change Orders: Construction projects often experience changes in design, materials, or scope, leading to variations in cost. QSs are responsible for managing these variations by assessing their financial impact, negotiating with contractors, and ensuring that any changes do not derail the budget. They issue formal change orders, ensuring that additional costs are accounted for and justified. 3. Interim Valuations: Throughout the project, QSs conduct interim valuations to assess the value of work completed to date. Based on these valuations, they certify payments to contractors, ensuring that payments are made according to the contract and reflect actual progress. |
| How do you establish a change control strategy in a project? | • Set the main client’s objectives • Define the change control procedure • Maintain a change control log • Monitor the change – identify the potential change. • Reconciliation with the budget • Remedial actions to be taken |
| How do you report the cost to the employer as consultant QS? What are the contents of a Cost report? | • I will report the cost to the client through monthly cost report Contents of a Cost report will be: • Executive summary • Project details which includes project name, Contract price, time for completion, EOT granted • Approved variations, anticipated variations • Approved claims, anticipated claims • Adjustment of provisional sums and PC sums • Contingencies position • Then the anticipated final contract price • If there is any significant difference between last month and this month that should be highlighted. • Major risks or causes of concern • Next steps and recommendations |
| What is the purpose of cost reports? What are the advantages the employer gets through cost reporting? | The purpose of submitting a cost report is for the employer to get an idea of what is the anticipated final value of the project. It shows anticipated variations of the project. So the employer can take actions if the project value is increased than his budget, or he can take decision whether he will go ahead with variations then he can allocate additional funds. |
| What is the difference between Cost Reporting & Cost Management? | Cost reporting is making or reviewing records of how money has already been spent. But Cost management involves making day-to-day decisions on the expenditure of funds |
| What is the difference between Cost planning & Cost control? | Cost planning is done in the pre-tender stage, which involves controlling the design the of the building within allocated budget. Cost control is done in the post-tender stage, which involves controlling the actual costs incurred within the project’s budget. |
| What is being controlled in cost control? | Capital cost of building works, professional fees, Finance charges, Loss of interest on capital used to finance the construction, Cost of running the building (local taxes, lighting, water, electricity), Cost of refurbishment & alteration, cost of demolition and site clearance. |
| What is CVR? | Cost Value Reconciliation (CVR) is the process of comparing the actual cost of construction with earned value to determine profitability of project. Actual costs incurred might include direct costs (materials, labour, subcontractor fees, and any other expenses directly related to the construction work) and indirect costs (overheads, administrative expenses, and other costs not directly tied to specific project activities.) The value of work completed (value earned) might include work certified (the value of work that has been completed, inspected, and approved by the client or project manager) and work not yet certified (the value of work that has been completed but not yet certified). By comparing costs and value, CVR helps assess the profitability of a project. This analysis can inform decision-making and adjustments to project execution strategies. CVR helps track the financial health of a project by continuously comparing costs against the value of work done. This enables early detection of cost overruns and other financial issues. |
| What is process of preparing a CVR? What are the sources of information in preparing a CVR? | The process of CVR might include: 1. Gathering detailed information on costs incurred, including Labour costs, material costs, Materials received at site, Subcontractor and supplier liabilities, Plant returns, receipts, payroll records, Site / HO Overheads and other financial documents. 2. Assessing the value of work completed, often through site inspections and progress reports. This might involve input from quantity surveyors and project managers. 3. Comparing the actual costs against the value of work completed. Analysing any discrepancies and investigate the reasons behind them. 4. Generating CVR reports that summarise the financial status of the project. These reports typically include key metrics such as cost to date, value to date, profit margins, and cash flow projections. 5. Reviewing CVR reports with project stakeholders and take necessary actions to address any issues identified. This could involve adjusting project plans, renegotiating contracts, or implementing cost-saving measures. |
| What is the purpose of Change Control? | The purpose of change control is to provide a method of assessing and managing change, giving details of consequent cost, programme and scope effect. Effective cost control procedures enables the monitoring and reporting of cost changes where they affect the out turn cost and enables the project team to monitor and appraise programme implications and impact. The client is made aware of the consequences of a potential change and the effect will have on the overall project. |
| How will you establish a cost reporting protocol? | • Content & format of cost report • Timing and frequency of issue of report • Interfaces with other parties (Eg. Contractor & Client financial teams) • Distribution list • Method of presentation of report |
| What are the Types of financial reporting systems adopted in a project? | Balance sheet, Income statement, statement of cash flow. |
| How you will use risk management and analysis techniques while preparing budget? | 1. Identify your risk sources – These could be external, such as economic conditions, customer demand, regulatory changes, or competitor actions, or internal, such as operational issues, human resources, or technology failures. You can use various methods to identify your risk sources, such as brainstorming, surveys, interviews, historical data analysis, or scenario planning. 2. Assess your risk exposure – means estimating the likelihood and impact of each risk on your budget and forecast. |
| What is meant by Design Risk. How you will allocate it? | Design Risk means the contractual risk that a party assumes in relation to a project’s design failing to deliver the project’s requirements as set out in the Contract. Such legal risk divides into: (1) Responsibility/Obligations and (2) Standard of Care/Performance. |
| What is Benchmarking? | Benchmarking is the process of measuring and comparing the performance, efficiency, or quality of a product, service, or process against recognized standards or competitors. Businesses use benchmarks in many different contexts to identify areas for improvement and drive better performance. |
| What are the Financial benchmarking tools? | • Income statements, balance sheet, cash flow analysis, financial ratios • Five year industry forecasts • Data to compare the company results with its competitors • KPI based benchmarking |
| What are the Advantages of benchmarking? | 1. Compare your performance with peers 2. Understand performance trends 3. Identify areas for improvement |
| What is BCIS? | The Building Cost Information Service (BCIS) provides cost and price data for the UK built environment, for construction, insurance and life cycle costing. People in many capacities – both professional and personal – regularly rely on BCIS information. Quantity surveyors use BCIS data to give early cost advice, to budget and benchmark projects and to prepare life cycle cost plans. Insurers use rebuilding cost data to quote more accurate and competitive premiums for buildings insurance. BCIS historic data goes back 50 years; while their forecasts will help you plan for the next five years. |
| What is the difference between cost control and financial control? | Cost control is the process of controlling costs associated with an activity, process or company. It typically includes: 1. investigative procedures to detect variance of actual costs from budgeted costs 2. diagnostic procedures to ascertain the causes of variance 3. corrective procedures to effect realignment between the actual and budgeted costs Financial control is the management control of financial activities aimed at achieving desired return on investment. Managers use financial statements ( a budget being the primary one ), operating ratios and other financial tools to exercise financial control. |
| What measures can be taken to effectively control costs during the construction phase of a project? | 1. Pro-active risk and contingency management 2. Implementing a robust change control process 3. Management of provisional sums within budget 4. Regular cost reporting 5. Rolling final account with closure process for financial impact of change |
| What are the main types of cash flow forecast? | There are two main types of cash flow forecast: • The cash flow forecast of a company (i.e. a contractor or consultant) – otherwise known as organisational cash flow. • The cash flow forecast of a particular construction contract or project – otherwise known as project cash flow. |
| What are the uses of a cashflow forecast? | 1. Obtaining loans and bank monitoring 2. Contractor progress monitoring 3. Managing cash within a business 4. Forecasting business performance |
| How to control cost if it is exceeding the budget? | From a client’s perspective, Value engineering -> Cost cutting -> Scope reduction. From a contractor’s perspective, I would first check for errors in budget considered. Next I would investigate in which items it is exceeding and the reasons behind it and then implement measures to improve the situation. |
| What is the difference between an Internal Cost report and External Cost report? | Internal cost report is presented to our management and gives profit margin that can be achieved; comparison is done with internal budget and not BOQ. External cost report is presented to Client and will be based on BOQ value. |
| How is Head office Overhead % determined in a project’s budget? | Take last 3 years Head office OH cost and divide by the number of projects. OR The expected Head office OH cost divided by number of projects you think your firm will get. |
| If actual Labour productivity is less than that kept in budget, how will you manage the costs? | 1. Give skilled training to workers 2. Assign proper mix of skilled and unskilled labour for the job 3. If nothing works, check mistake in the estimate and inform management |
| What effect does time, quality, safety and sustainability have on the cost of a project? | 1. Time – Time directly impacts the cost of a project by influencing labor expenses, resource allocation, and potential delays, all of which can increase overall project costs. 2. Quality – The cost of poor quality (COPQ) has a significant impact on a company’s profitability. 3. Health & Safety – Preventing workplace injuries helps reduce compensation claims, insurance premiums, and legal expenses. By implementing proactive safety measures, companies can avoid costly medical bills and lawsuits. 4. Sustainability – Sustainable initiatives can initially entail upfront costs however, over time these investments can often lead to savings through reduced energy consumption, waste reduction and improved efficiency. |
| What is financial risks? | Financial risk refers to the possibility of a business losing money. Financial risks cover a wide range of situations including market instability, credit risk, financial obligations and interest rate rises. |
| What is a contingency? | A construction contingency refers to a designated amount of money within a construction budget that you can use to pay for unexpected costs that may occur while completing the project. |
| How would you create a cashflow forecast? | I would need to have access to the construction programme and contract sum analysis in order to populate the cashflow. The values associated with each element of construction could be forecast at times to reflect their installation within the programme. I would split the works into the different packages as shown on the contract programme and include individual s-curves for each package. Obtaining drawdown schedules from specialist subcontractors and professional consultants can also assist when populating the cashflow. An alternative approach would be to utilise a previous cashflow from a similar scheme or to use cashflow forecasting software although this may not be as accurate. |
| In a scenario where the construction budget was £2.5m and proposed construction period was 25 weeks, would a forecast cashflow expenditure of £100,000 per week be realistic? | In reality this would not be very realistic as the cashflow expenditure per week is unlikely to have a flat or regular profile. In reality the expenditure is much more likely to have an S-curve (standard) profile where at the start of the scheme, the expenditure per week will be fairly low as the site setup and enabling works are undertaken. As the scheme progresses, items that are of higher value such as the steel frame and mechanical & electrical installations will be undertaken. The cost expenditure per week at this stage will be much higher than at the start of the scheme. As the scheme draws to a close, minor finishing items such as decoration and cleaning packages will be undertaken again resulting in a lower expenditure cost per week. |
| What are the common items included within a loss and expense claim? | Loss and expense commonly refers to a claim by the contractor for any monetary loss and expense they suffer as a result of an event that causes delay to the regular progress of the contract works. Common items within Loss and Expense claims include:- Extension of preliminary costs for the period of prolongation. Disruption and standing time that results in plant or labour being under utilised. Increases in labour or material costs during the period of delay. Head office overheads. Loss of profit. Finance charges. Acceleration costs. Claim preparation costs. |
| Please explain your understanding of the term dayworks? | Dayworks are a method of valuation that can be utilised to value building works that are difficult to value under the rates of the contract. A daywork record sheet listing the actual cost of all the materials, labour and plant expended is used to enable the contractor to seek financial recovery from the employer. |
| What information is necessary in order to assess dayworks? | Daywork records are submitted by the contractor to the employer so they can seek financial recovery for the works expended. These will make reference to the names of the workmen, plant and materials used in addition to a description of the work undertaken. Sometimes marked up drawings and photos are also submitted to substantiate the daywork claim. The daywork records are usually signed and authorised by a representative of the employer. |
| What are variations? | Variations are alterations or modifications to the design, quality or quantity of the contract works or to the site access or working conditions. |
| Why might variations arise? | Variations may arise due to a change of the specification, discrepancies between contract documents, discrepancies with statutory requirements, errors or omissions and deficiencies in the employer’s requirements |
| What items in a contract sum can affect the outturn of the final account? | 1. Provisional sums 2. Provisional quantities 3. Prime cost sums 4. Daywork allowances 5. Variations – Contract instructions, Anticipated instructions/early warnings, Loss and expense, Fluctuations, Risk allowances |
| Is there any cost report format recommended by RICS? | There is no single type of cost report format recommended by RICS. Most professional practices have a preferred or standard format which is used in the absence of specific client requirements. |
| How often should a cost report be submitted? | Normal industry practice is to value work on a monthly basis. It is therefore recommended that cost reports are also updated and published on a monthly basis. There may be specific project or client requirements to report costs on a different frequency, e.g. quarterly, but this should be at the specific request of the client. |
| Who should the cost report be distributed to? | The quantity surveyor must take instruction from the client as to who the cost report should be distributed to. The information contained in a cost report is confidential and should always be marked as such and be prepared, distributed, handled and stored in a manner to protect its confidentiality. |
| What is a final account? | The final account is the conclusion of the contract sum (including all necessary adjustments) and signifies the agreed amount that the employer will pay the contractor. It includes any works that are paid to the contractor through the main contract. Typically, the final account includes any loss and expense associated with any extensions of time and any other claims the contractor feels they are due under the contract. It also indicates the finalisation of any disputes that may have arisen and in that sense draws a line under the financial obligations of both parties, save in respect of defects. The final account will not typically include items such as liquidated damages, VAT or interest on overdue payments. |
| What are the prerequisite of Final account? | 1. Performance certificate – A certificate issued under most of the FIDIC contracts by the engineer/employer confirming that the contractor has completed performance of its obligations under the contract (including all testing and correction of defects). 2. Discharge certificate – Upon submission of the Final Statement, the contractor provides a written discharge letter to the Employer, with a copy to the Engineer. This letter confirms that the total amount specified in the Final Statement settles all financial matters related to the contract. |
| What is Rolling final accounts? | Rolling final accounts will ensure that all instructions and cost effects to a project are agreed and up-to-date at the point of the latest financial report. |
| What are disallowed costs and who bears it in the Project? | If the cost overrun is due to the contractor’s inefficiency or fault then this is categorised as a disallowed cost. Under cost reimbursable contracts, the employer is not liable if the spending is not justified, even if the expenditure has been incurred. |
| What are Residual risks? | Residual risk is the risk that remains after efforts to identify and eliminate some or all types of risk have been made. Residual risk is important for several reasons. First to consider is that residual risk is the risk “left over” after security controls and process improvements have been applied. |
| What is Change control forms? | This form is an example of a sign-off sheet documenting client acceptance of changes made to a project. When you have a lot of changes, it is essential that you have a way of tracking them. This form will provide you with a useful paper trail of what changes were made and when. |
| What are the various cost control measures that are used in your project? | Monthly cost reports such as CVR, CTC Material reconciliation reports |
| What is a Change Management and why is it required? | Change management encompasse the skills, tools and techniques that enable these changes to be carried out effectively at both pre- and post-contract stages, resulting in the best outcome for all parties. |
| What is the Change Control procedure in your contract? | This will be specific to each individual candidate. |
