Project Finance (Control and Reporting)

Core Competency - Level 3

- Ramesh Palikila B.Tech, FIS, FAIQS, FRICS

Founder I CEO I Chief Mentor

AIMS , UAE
Project finance (control and reporting) :
This competency covers the effective cost control of construction projects during the construction phase,
including the principles of controlling and reporting costs on any construction project. They should have a
detailed understanding of the control and reporting processes used on their projects (please note: for
surveyors working in contracting this competency covers externally issued cost advice and reports).

Level 1 Level 2 Level 3

Demonstrate knowledge and understanding of the
effective control of costs during a project.
Demonstrate understanding of the legal and
contractual constraints and the effect of time and
quality on the cost of a project.
Apply your knowledge to the management of project Advise on strategies and procedures to control
costs. This should include the preparation and predicted expenditure in line with a budget.
presentation of financial reports on the performance
of a project at appropriate intervals, to provide
effective forecasting of costs, risks and their financial
implications.

Examples of knowledge comprised within this level are: Examples of knowledge comprised within this level are: Examples of activities and knowledge comprised
within this level are:
• The effective control of costs during • Managing project costs during the
the construction phase of a project construction phase • Implementing change control
• The legal and contractual constraints • Reporting and forecasting costs for procedures within the contract
on the cost of a project such as different procurement routes and • Establishing reporting
changes in building legislation and client types regimes/protocols
design risk allocation • Using cashflows in financial • Using risk management and
• The reporting and forecasting of management analysis techniques.
costs during the construction phase • Managing provisional sums and risk 2
allowances.
• The principles of risk allowances.
 Agenda

➢ Introduction
➢ Mapping with other related competencies.
➢ What is Cost? What is Financial Control?
➢ Little talk on “Risk”
➢ What do we mean by “Change Control”
➢ Cash Flow basics
➢ What are the components of a financial report?
➢ Some example questions for APC
➢ Q&A
Introduction

Few buzz words which will be dealt in this competency are;

❖ Cost Control
❖ Cost Reporting
❖ Life Cycle Cost
❖ Cash Flow
❖ Provisional Sum
❖ Change management system
❖ Variance report
❖ Risk Management
Mapping with other related competencies.

Project financial control and reporting:

This competency covers the effective cost control of
construction projects during the construction phase. Candidates should be aware of the principles of controlling and
reporting costs on any construction project. They should have a detailed understanding of the control and reporting
processes used on their projects.

Commercial management of construction:

This competency covers the commercial management of construction works. Candidates should have an awareness
of how commercial competitiveness balances against profitability. They must have a thorough understanding of the
financial processes used to achieve profitability and how these integrate with the overall delivery of the project.

Quantification and costing of construction works:

This competency covers the measurement and definition of construction works in order to value and control costs.
Candidates should have an awareness of the various methods of quantifying and pricing construction works used
throughout a project. They must have a thorough understanding of the specific methods used on their projects.
COSTING & FINANCIAL
LIFE CYCLE OF A
PROJECT
Project finance (control and reporting)

▪ Cost denotes the amount of money that a company spent on the

creation or production of goods or services. It does not include
the mark-up for profit.
▪ From a seller’s point of view, cost is the
amount of money that is spent to
produce a good or a product.

▪ From a buyer’s point of view the cost of

a product can be called the price. This is
the amount that the seller charges for a
product, and it includes both the
production cost and the mark-up cost,
which is added by the seller in order for
him to make a profit.
Project finance (control and reporting)

Cost Control Financial Control

Cost control:
The process of controlling costs associated with an activity, process, or company.
Cost control typically includes (1) investigative procedures to detect variance of actual costs from
budgeted costs, (2) diagnostic procedures to ascertain the cause(s) of variance, and (3)
corrective procedures to effect realignment between actual and budgeted costs.

Financial control:
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.
Project finance (control and reporting)
Risk Management
Risk is the potential of losing something of value.
Values, such as physical health,
social status, emotional well being
or financial wealth.

Risk analysis:
▪ Identification
▪ Assessment
Risk management:

▪ Initial response and mitigation

▪ Action
 Project finance (control and reporting)

Risk Matrix

Probability >80% 80% - 50% 50% - 20% 20% - 5% 5% - 0

Assessment/Score Very High (5) High (4) Medium (3) Low (2) Very Low (1)

Very High 5 10 15 20 25
AM/PM/ AM / PM
BDM BDM MD COO COO
High
4 8 12 16 20
AM/PM/ AM / PM
BDM BDM SVP MD COO

3 6 9 12 15
Medium AM/PM/ AM/PM/ AM / PM
BDM BDM BDM SVP MD

2 4 6 8 10
Low AM/PM/ AM/PM/ AM/PM/ AM / PM
BDM BDM BDM BDM SVP

1 2 3 4 5
Very Low AM/PM/ AM/PM/ AM/PM/ AM / PM AM / PM
BDM BDM BDM BDM BDM

Very Low Low Medium High Very High

Project finance (control and reporting)

Question: (Basic)
What measures can be taken to effectively control costs during the construction phase of a project?

Answer:
Outline some of the following measures:
▪ Proactive risk and contingency management
▪ Implementing a robust change control process
▪ Management of provisional sums within budget
▪ Regular cost reporting
▪ Rolling final account with closure process for financial impact of change
 Project finance (control and reporting)
Change Management
Change control

Question:

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

Answer:

▪ To provide a method of assessing and managing change, giving details of consequent cost, program
and scope effect.

▪ To enable the monitoring and reporting of cost changes where they affect the out-turn cost.

▪ To monitor and appraise program implications and impact.

Project finance (control and reporting)

Change control
The Client should be made aware of the consequences of a
potential change and the effect this will have on the overall
project.

Some key issues to be considered in advising the Client upon the

Change procedure to be adopted
✓ What are the Client’s objectives in terms of monitoring
change?
✓ Who are the key decision makers in the design and approval
of changes?
✓ What are the trigger levels of authority in respect of value,
program and quality?
Project finance (control and reporting)

Some more key issues:

▪ What is the procurement process and how
will this affect change control during the
design and construction phases?
▪ Confirm with the client of what costs need
to be included within the change, e.g.
professional fees, Statutory fee etc.
▪ Who takes responsibility for raising the
Change Proposal
▪ How will the change control procedure
link with contract instructions and
contractor procedures (e.g. RFI’s) during
the construction period?
Project finance (control and reporting)
Cost Reports
Question: (mid-level):

What information would you include within the cost report for a project?

It depends…..
Your experience

Type of the Project

Client’s requirement

Nevertheless, a cost report will include the following information:

Project finance (control and reporting)

A cost report will include the following information:

1. Executive summary (next slide)

2. Analysis of contingency and risk status
3. Register of approved changes/ instructions and pending
changes
4. Summary of provisional sums and progress against these
5. Value engineering or opportunities register
6. Risk register
7. Cash flow forecast
Project finance (control and reporting)

Executive summary

✓ Current budget and forecast

✓ Contingency position
✓ Level of cost ‘certainty’, i.e. agreement of provisional sums
✓ Total commitment and expenditure to date
✓ Final account progress
✓ Cash flow position
✓ Progress in the period and current financial position
✓ Major risks for concern
✓ Recommendations
 Project finance (control and reporting)
Financial Reports
– What are the components of a financial report?

▪ Contract / package name and reference

▪ Budget associated with each contract / package

▪ Contract award amount

▪ Instructed variations (agreed / not agreed)

▪ Anticipated variations (forecast)

▪ Claims / EOT

▪ Forecast Out-turn Cost

▪ Expenditure summary
What does a financial report look like?
Project finance (control and reporting)

Contingency / Risk allowances

A sum of money allocated for unforeseen / possible additional costs during the life of the
project.
Expended with the permission of the client?
Project finance (control and reporting)
Cash flow Management

Cash Flow

Cash flow is the lifeblood of the construction industry

It relates to the
incoming or outgoing of money
to, or from, a company
over a given period (usually monthly).

Within construction contracts a cash flow forecast is generally

used to inform the Employer what and when their monetary
commitments under the contract will be.
Project finance (control and reporting)

Cash Flow

There are two main types of cash flow forecast:

Organizational cash flow

▪ The cash flow forecast of a company (i.e. a

contractor or consultant)
▪ The cash flow forecast of a particular
construction project – otherwise known as
Project cash flow. (funding purposes)
Project finance (control and reporting)

Cash Flow
Various parties within a construction contract use
cash flow forecasts for different reasons

It is therefore not
uncommon to present cash
flow forecasts in different
ways to fit the requirement.

It is also important to note

that cash flow can travel in
different directions
Project Finance
(Control and
Reporting) –
Reference
Guidance notes
Project finance (control and reporting)

Tools used for Cost Control Process

1. CCS (Construction Candy Software) – An integrated product for Project Management and Control
where we do Budgeting, Valuations, Budget Transfers, Variations, Scope Changes…… etc.

2. Build Smart – a Construction Cost Management and Enterprise Accounting system which directly
work with candy resource budgets and provide effective cost control and reporting procedure.

3. Microsoft Excel.

4. Independent Company developed software.

Project finance (control and reporting)

What legal and contractual constraints might influence project cost?

➢ Legislation

➢ Design risk allocation

➢ Cost risk allocation

➢ Other contractual risk allocations

Project finance (control and reporting)

When can a contract sum be changed?

➢ Instructed Variations

➢ Expenditure of provisional sums

➢ Claims / EOT

➢ Penalties / LAD’s
Project finance (control and reporting) Examples of interview questions (some more!)
1. Why is important to control project costs?
2. What tools would you use to control
project costs?
3. What would a typical cost report
include?
4. Explain budget vs actual / forecasted
costs.
5. How would you manage change / variations
in a cost report?
6. How would use contingency / risk
allowances?
7. What is a cash flow? Why would you use a
cash flow?
8. How would you manage the expenditure of
provisional sums?
 Project finance (control and reporting) Level 3
Core Competencies – Study Check list

Post contract cost Change control Change control

Cost reporting
control procedures forms

Risk management
Final accounts Loss and expense Cash flows
and quantification

Benchmarking/Best
Value engineering
value

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Project finance (control and reporting)