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Budget and Commercial Management – Report

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Name of University

Budget and Commercial Management: BUDCOM (M20564)

Instructor

May 3, 2024
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Contents
Statement of Originality...........................................................................................................................4

Introduction...............................................................................................................................................5

Business Case and Necessary Requirements for Providing Funding for Projects.............................5

Necessary Requirements for SPV Financing..........................................................................................6

The Project Finance Process....................................................................................................................9

The Steps Project Finance Process.......................................................................................................10

Cost Estimation & Budget Monitoring...................................................................................................12

Budget Monitoring...................................................................................................................................13

Benefits Realization.................................................................................................................................15

Project Sustainability........................................................................................................................16

Buyer-Supplier Relationship...................................................................................................................17

Contracting-Tendering Framework........................................................................................................18

Negotiation Process................................................................................................................................19
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Case Study: Mega Construction Industry.............................................................................................19

Conclusion................................................................................................................................................20

References.................................................................................................................................................23
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Statement of Originality

This report on ‘Budget and Commercial Management’ is my original work. All ideas,

views, and conclusions expressed herein are solely mine, unless otherwise cited. I have

adhered to all academic integrity guidelines and have not engaged in any form of

plagiarism in this assignment.

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Budget and Commercial Management – Report

Introduction

The complex nature of project financing in relation to the special purpose vehicle
(SPV) funding is the fundamental investigation to be exhaustively carried out in this
report. The special purpose vehicles funding refers to a particular financial paradigm
that commonly applied in extensive and byzantine ventures such as large structural
projects. The paradigm looks into its significant purpose in the financial practice,
enhancing delivery of business activities that could not be easily achieved due to
financial limitations (Moody’s, 2023). Furthermore, the key importance and role of
budget management in context of the SPV funding is the key assignment that this
report purposes to look into.

Accomplishment of extensive projects is determined by the effectiveness of the

budget management framework, which stimulates the utilization and optimal
distribution of resources. Additionally, the SPV funding provides a tangible methodology
for pursuing the overall outlays of large developments, enhancing its practicability and
in managing the uncertainties that associates with the latter (Datarade, 2023). Similarly,
this prompt further studies the features of development funding approaches through
delving into the acumens of constant variations of demand and supply affairs in the
modern and competitive economic background. A highlight of awarding contracts and
the tendering procedures, elements of negotiation process add to the list of the studied
prompts in this report.

Business Case and Necessary Requirements for Providing Funding for Projects

Special Purpose Vehicle funding model is very important particularly due to its
benefits to extensive project’s case. For instance, risks associated with the project are
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isolated from the parent company as compared to the traditional funding model where
the latter bored the financial uncertainties during the entire extensive project’s
execution, thus minimizing the implications on the financial accounting of the parent
company. Through the SPV funding model, a separate authorized institution is created
and this implies that the costs-related risks are covered by the separate entity and does
not affect the parent company in any way, thus not hurting its financial accounts and
records. This approach provides a key advantage of the SPV backing model and
integrates a crucial component in the extensive project’s scenario.

The establishment of a separate project company from the parent company

defines the new approach for creating funding models for the extensive business
ventures. This is an important aspect in funding process since the incidence of financial
losses only occur for that particular project and does not affect other projects for the
parent company thus presenting significant advantages for entities that require huge
capital for their projects. Another important aspect of the SPV funding system is its
ability to attract financial support from institutions in the private sector.

Extensive business ventures require huge capital for their execution, and in most
cases the viable option is to allow other external entities to invest their money into the
project without worrying on the parent company’s financial risk. Thus, implying that
significant number of financial resources can be sourced from separate entities and
spreading the financial risks accordingly, and contributing to the project’s stability and
its success especially in the modern economic situation where the private sector leads
the stage in infrastructure development projects.

Necessary Requirements for SPV Financing

While there are numerous benefits of the SPV financial framework, there are
defined conditions that needs to be considered for the financial support provision to
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take effect. For instance, there has to be a well-developed contract policy that brings
together the Special Purpose Vehicle, the private investors and the project’s contractors.
The actual contracts should clearly demonstrate the rights, specific functions, and the
mandates for the associated parties. The crucial component which must be involved in
the contract is the dispute resolution methodology and risk mitigation strategies.
Existence of a crystal-clear predetermined outline should be clearly looked at since it
determines the capability of attracting private investors, and without it the execution of
the project’s activities may fail miserably.

A full-bodied supervisory methodology is an important aspect for the SPV

funding. In the absence of a robust regulatory framework, the uncertainty of financial
collapse in the ongoing project’s execution may pose a threat to the supervisory
framework. The financial practicality of the project can be influenced by variations in
supervisions that in any way affect its delivery. The need to oversee a project in a
prudent and consistent governing system underlines the needs for delivering the project
in a stable economic and socio-political background. The latter can be achieved through
initiating advocates for development and fostering of crystal-clear and stable policies
and supervisions that oversee the development from its initiation to its abdication for its
actual operations or uses. Funds administration, risk management, operational
methodologies and policy mandates adds to the list of instructions and contract
requirements that should be covered in all aspects of project execution.

The project’s operations could also be affected by the changes in the existing
supervisory structures thus potential changing the operation’s process and presenting a
daunting effect on the financial access while also scaring away potential investors. This
however calls for establishment of a reliable regulatory system that is crucial for the
onset and delivery of the project. Particular regulatory changes, such as financial
changes could result in changes in eco-friendly governance, thus necessitating inflated
changes to business processes and its strategies. Such deviations possibly will upsurge
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the venture’s expenses, decrease the proceeds, or equally, in that way distressing the
fiscal possibility and actually leading to fiscal interruption.

Additionally, the presence of consistent revenue sources indicates a key necessity

for proper implementation of the funding system for the special purpose vehicle’s
activities. Private investment partners need to be certain of stable revenue generation
viability of the project’s activities and this determines their willingness to pump in more
financial support or withdraw from the project indefinitely. The crucial aspect that
determines the investor’s sureness of the viability of the project includes the provision
of practical revenue expectations once the project is fully operational. Therefore,
attracting a positive assurance of the private investors warrants the provision of crystal-
clear revenue estimations which form significant aspect of the special purpose vehicle
funding framework.

The projection should take into consideration both internal and external
conditions that affect the execution and the usefulness of the project subsequent to its
conclusion. For instance, the project’s demand in the economy, project’s overall output
cost and its operational costs should be clearly reviewed. Additionally, the project’s
potential challenges and economic uncertainties that could affect the delivery of the
project must also be taken into account with ample contingency measures put in place.
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The Project Finance Process

Image Source: efinancemanagement.com

The project finance process revolves on the complex nature of development

funding, a very essential component that fixes the effectiveness of implementation of
extensive development structures. The key aspects of project finance process including
examination of the suitability of the project, the project’s cost, budgetary supervision
and benefits realization are the cornerstone to a vibrant and successful implementation
of the project. The project’s cost estimations and budgetary management are the
cornerstone of monetary planning and management and provides for financial viability
and the project’s adherence to the budgetary requirements. The benefits realization
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refers to the investigations of whether the project coincides with the expected quality
and whether it meets the intended goals.

Similarly, the project justifiability appraisal encompasses the contemplation of the

long-term effects and practicability of the development project in question. This
discourse will thoroughly examine each of the mentioned concepts, outline their
importance, and investigate their relationship as far as the project finance is concerned.
Additionally, a comprehensive comprehension of the topic and its key functions in
proper development administration is thoroughly explored.

The Steps Project Finance Process

The project finance procedure refers to a professional policy that establishes

prudent funding approaches for very extensive development structures such as the
super highways and seaports or airports structures. The process entails the creation of
a separate special purpose vehicle, an entity that is distinctly separate from the main
company and oversees particular project at a time. The funding process for the SPV’s
projects is made through provision of nonrecourse loans, where only specified assets of
the SPV can be seized in the incidence of default.

The initial step in the funding procedure entails the candid examination of the
development practicality and the potential to generate proceeds within a specified time.
A project deemed feasible will warrant the execution of the subsequent phase in
funding process which is the project’s financial structuring. Structuring in this context
entails the establishment of the financial proportions that both the investors and
financial institutions will raise respectively. There are significant risks associated with
mega projects and it provides the necessity of clearly examining and identifying them
from all perspectives of economic and sociopolitical factors. For instance, market
inflations and uncertainties in the financial systems may affect the overall project’s
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costs. This therefore calls for the institution of potential risk and mitigation strategies to
address the uncertainties.

Image Source: github.com

Due to intense capital outflow and prolonged timelines in the implementation,

execution and the delivery of the mega projects, project finance process comes in
handy in ensuring the fulfilment of the latter. The SPV project financing process is of
significant advantage over the traditional process where the parent company could be
held liable for the loans provided for a particular project and thus putting huge risk to
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its assets and financial accounting. The modern financing process in this context carries
along substantial benefits in the realization of the project’s success. For instance, it
plays a crucial function in implementing an operative risk planning, distribution of
financial resources and aligning of investment partners to the same purpose.

Cost Estimation & Budget Monitoring

Image Source: GCF Global

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Cost estimation entails forecasting on the required fiscal requirements that would

ensure complete delivery of a project, thus a key component in the project initiation

process (PMI, 1987). The process also forms a critical aspect in establishing the

practicality, budget setting and establishment of possible expense overruns in the

advanced stages. One advantage of the cost estimation aspect is its role in enhancing

proper decisions about the execution of the project, adjusting the objectives and

proposing for more financial or investment support. The process also aids in planning

and mobilizing financial resources, expenditure distributions and establishing the

baselines for the overall project’s activities. Cost estimation plays a key role in

evaluating project’s feasibility, which provides a reference point for the investment

partners and institutional lenders to make decisions on the impacts and risks of that

particular venture.

Budget Monitoring

Budget monitoring refers to a process that entails comprehensive tracking and

directing of revenue streams and managing spending to facilitate the configuration and

ensuring that it conforms to the budgetary requirements (PMI, 1987).

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Image Source: volfront.weebly.com

The process involves consideration and examining the variances of both planned

and real project’s cost. The process is regularly executed through consistent fiscal

reporting, and this is made possible through tracking of project’s expenditure, uprising

financial estimates, and linking the outcomes against the premeditated budget. Budget

monitoring is a complex process in nature (Stenbeck, 2008). It allows swift

identification of budgetary inconsistencies and thus providing a framework for

subsequent execution of the counteractive procedures prior to the hysterical

heightening of the project’s overall costs. It also forms a good basis for the project

managers to properly arrive at project decisions that relates to proper distribution of

capital resources and the management of the project’s activities.

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Financial accountability and openness also add to the list of benefits of budgetary

monitoring by enhancing responsible use of financial resources thus providing a sense

of complete assurance to the project’s investors and the lending institutions. Through

consistent update of the budgetary supervision, improved funds. Regular budget

monitoring can also lead to improved financial forecasting together with the supervision

of upcoming development projects is warranted thus resulting to the growth of the both

the SPV and the parent company.

Benefits Realization

In the context of project management, benefits realization refers to a significant

systematic process that delves into the classification, arrangement, governance, and
examination of the intended project’s significance to the economy and society (Serruga
et al., 2020). The key objective of this incredible process is to attest the project’s
configuration to the predetermined goals of the organizations and the anticipated
results. An exhaustive look up into the benefits realization approaches shows that the
latter is very fundamental in ensuring planned project’s accomplishment and a potent
strategy performance. Studies indicates that the practices carry along tremendous
influence on key performance indicators related to the project’s worth creation, as
compared with project delivery outcomes process.

A candid examination of benefits realization also entails the interrogation of the

tangibility, quantifiability, and whether they align with the firm’s strategic intentions.
The latter further encompasses an examination of the capabilities the supervisory
approach in ensuring the delivery of the project’s activities. Therefore, such an
assessment can be handy in the establishment of the project’s possible challenges, and
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thus providing good platform to find appropriate counteractive measures. The process
also provides an irreplaceable outlook on the presentation of the project’s activities,
thus backing the augmentation of the upcoming development projects.

Benefits realization method is an incessant loop that starts during the project
commencement stage and entails the establishment of the possible advantages of the
project and then measured and incorporated in the project’s case. The benefits in this
context are examined and managed to attest to their realization status during the
project development phase. Upon the culmination of the project, a post-implementation
review is commenced to evaluate the alignment of the project with the intended
benefits (Pereira et al., 2021).

Project Sustainability

The project’s ability to yield the anticipated paybacks in a financial long-term is a

significant project sustainability facet that encompasses the examination of the overall
project’s impression on the socio-economic, environmental and political outlook.
Supportable project organization exceeds the limitations of existing as purely an
inclination or a specification action. It basically transfigures the style to assortment,
completing and doing appraisal of a development project. Within the contemporary
realm of project management, the incorporation of sustainability is essential, indicating
a dedication that goes beyond environmental protection.

A candid examination on its long-term viability is a crucial aspect that also helps
in assessing the overall effects to the private investors, stakeholders and the lending
institutions. Gaining the insights on its viability involves evaluating its sustainability
through assessment of whether the latter is socially beneficial, environmentally friendly
and supports economic development. Additionally, the assessment will also look into the
long-term profitability of the project subsequent to its culmination. Besides the
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assessment of whether the project is environmentally friendly, the sustainability

assessment further inspects on whether the latter supports creation of employment
opportunities to the community, thus improving the living standards for the locals and
contributing to economic development. Similarly, the effectiveness of the project in
terms of resources utilization is also looked at in the entire project phase.

Buyer-Supplier Relationship

In the modern times, buyer-supplier association has proved to be an important

element that determines business how businesses are conducted globally. The
association is a multi-faceted interaction of business consultations, mutual connections
and conventions that have the capabilities of influencing the company’s success. The
significance of this association can be overstated in the current market structure where
superiority and rivalry in the commercial background is increasing significantly (Ampe-
N’DA et al., 2022). With improved technological approaches in doing business, firms
face a prolonged pressure to comply with these technological requirements to ensure
delivery of high-end products and services while adhering to their budgetary plans thus
advocating for better heightened relationship between the buyer and the seller.

However, the process of issuing of tenders and contracts takes a considerable

function in maintaining a stable relationship between the two partners. A structured
procedure is therefore warranted to ensure the relationship is aligned to the business
and market conditions thus providing a fair, transparent and worthiness in the business
context. However, the process is also bound by limitations as a vigilant concession and
keeping of the conventional commitments is strictly warranted. Similarly, the
negotiation process forms another important component in the business management
system. The process facilitates an enhanced consultation between the buyer and the
seller regarding their shared dealings (University of Gothenburg, 2024). The conditions
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outlined in the conventional agreement forms the basis of the negotiations as both
parties will resort to adhering to them, thus providing overall satisfactory experience.

The relationship between the buyer and the seller has evolved overtime from
business connections to prearranged partnerships. In the traditional context, both the
buyer and the seller were confronted with situation where they both focused on the
profitability of their dealing on their firms and individual level respectively. However, in
the modern business environment, it no longer holds. Both parties have realized that
long-term relationship is akin to improved business experiences and collaborations thus
resulting to upgraded business value and efficiency for the two entities.

Through a heightened buyer-supplier connection, enhanced business and

decrease in the operations outlays can be observed in the long-term. The latter then
transforms to overall customer fulfilment and better access to the competitive
marketplace. However, skewed business objectives may result into significant
challenges such as underprivileged delivery of communication processes, trust issues
and cultural variations, which could lead to catastrophic conflicts if no appropriate
counteractive measures are put in place. Therefore, a healthy connection between
business partners presents important opportunities that encompasses of possible
innovation developments, reduction of business operations costs and further access to
the competitive market.

Contracting-Tendering Framework

The outline of a contract refers to a well-organized procedure adopted by

business entities in procurement of relevant dealings. The bidding process is initiated
through bid invitation, assessment following a designated methodology, and awarding it
to the utmost appropriate supplier. The contract outline allows for transparent, fair and
competitive procurement course since the buyers are accorded the best opportunity to
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select their preferred candidate after review of the associated costs and the quality of
goods or services to be delivered (SCSI, 2020). Over the recent years, the tendering
process has witnessed significant evolution therefore outshining the traditional methods
which were time-consuming and paper-based.

Owing to the significant technological evolution, e-tendering has become the

norm in the procurement sector thus reducing the costs of doing business while
facilitating heightened market access. Changes in the legal and supervisory background
has also been aligned to meet the tendering practices. For instance, the tendering
policies outlines the stringent guidelines that ought to be followed to ensure effective
use of public resources (RICS, 2014). Acknowledging the framework provides for both
parties to accomplish their objectives in the commercial landscape.

Negotiation Process

A key component of the buyer-supplier is the ability to enhance a healthy

negotiation process. The latter entails sequences of business consultations between the
associated parties and with the scope of delivering a beneficial mutual agreement. The
important characteristic of the negotiation process incorporates the preparation,
discussion, clarification, negotiation, agreement, and implementation (Fells, 2014).

Negotiation comes into play during the consultation and the concession phase, and an
agreement is hereby reached subsequent to agreeing on the outlined contract terms.
The process further cements the association between the two business partners
through providing a truthful mechanism to agree on the contract terms such as the cost
and delivery of the contract service. A properly managed negotiation process provides a
fulfilling sense, where both partners reap from the benefits the tender (Lin & Cheung,
2023).
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Case Study: Mega Construction Industry

The construction sector provides a perfect example for the evolution of the
buyer-seller connections, contract framework, and the negotiation progression. In the
mega construction sector, the construction entity and the material suppliers are
engrossed in a multifaceted consultative connection with the objective being to facilitate
a healthy contract, tendering and supply of materials and machinery in the most
effective and beneficial business terms (McKinsey, 2014). The dynamics of the
relationship between the construction companies and the suppliers has advanced from
exchange-based to calculated deals thus resulting on timely delivery supply of materials
and the effectiveness in terms of quality and operations expenses. The necessity for
timely delivery of contractual terms has led to enhanced and structured supervision
which has been made possible through adoption of modern technologies such as
electronic tendering process, which promotes transparent and competitiveness as far as
the tendering/ contractual business is concerned.

However, this approach is also faced by multi-faceted challenges that includes

the requirement for thorough inspection of the bidding procedures and the supervision
of conventional requirements. For the case of a mega project undertaking, the
procurement of several construction materials and the machineries from varied sellers
become necessary. Therefore, to ensure transparent and honest bidding process, the
company would resort to the electronic tendering process where interested suppliers
are accorded equal opportunities to submit their supply bids (Aiyetan & Das, 2022). The
subsequent step would be to carefully examine every supply in terms of the supply
costs, delivery terms, and choosing the most preferred supply based on their
qualifications.
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Conclusion

The elaborate evolution of project funding particularly in the context of SPVs,

play an important function in the positive accomplishment of mega construction

structures. However, successful accomplishment of the same demands a candid

acknowledgement of funding requirements and the possible challenges tied to it. The

comprehension report on Budget and Commercial Management accentuates on the

significant predetermined fund supervision and functioning efficacy in the context of

accomplishment of intended goals. The use of financial tools such as diagrams and

reports has been outlined as a vital element in the measurement of project’s progress

thus helping in decision making.

Effective incorporation of financial tools results in sustainable project’s growth,

minimization of risks and counteractive measures thus resulting in proportional benefit

in the competitive market structure. The budget and commercial management in this

occasion perform a vital part in advancing the company’s project activities to align with

the intended objectives. Therefore, a company can advance their investment in the

financial control frameworks for it to accomplish project’s profitability both in the short-

term and long-term business cycle.

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The report has further delved on the role played by budget and commercial

supervision in the background of overall project’s success. Appropriate use of financial

diagrams and reports has also been looked at in the report. The images provided in this

report assists in comprehending the multifaceted information and processes in budget

process and monitoring. Furthermore, the report has emphasized the need for

businesses to continuously monitor and adjust their budget and commercial

management strategies in response to changing market conditions and business needs.

This proactive approach can help businesses stay ahead of the competition and achieve

their financial objectives.

In core, the report on ‘Budget and Commercial Management’ attends as a

treasured reserve for industries looking to progress their fiscal achievements and realize

their predetermined objectives. It also delivers an inclusive summary of important

facets of budget and commercial administration and proposes real-world

understandings into how the latter can be successfully executed in the corporate

situation. The report thus underwrites knowingly to the prevailing form of information

on budget and commercial management together with offering a compacted basis for

impending exploration in the financial sector.

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References

Aiyetan, A. O., & Das, D. K. (2022). Factors and Strategies for Improving Construction
Management on Sites in Mega-Projects in South Africa: An Explorative Survey.
Infrastructures14.

Ampe-N’DA, L. D., Sabatelle, A., O’Loughlin, T., Maddick, K., Segars, D., & Govindia, K.
(2022). Buyer-Supplier Relationships: Role of Collaboration, Sustainability, and
Technology. Buildings7.

Datarade. (2023). Best +8 Finance APIs to use in 2023. Datarade2.

Fells, R. (2014). Effective Negotiation. Cambridge University Press11.

Lin, S., Li, K., & Cheung, S. (2023). Managing Disputes for a Sustainable Construction: A
Perspective of Settlement Facilitating Elements in Negotiations. Infrastructures12.

McKinsey. (2014). Megaprojects: The good, the bad, and the better. McKinsey13.

Moody’s. (2023). Generic Project Finance Methodology. Moody’s Investors Service1.

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Pereira, L., Sempiterno, M., & Jerónimo, C. (2021). Benefits realisation management: systematic
literature review. Int. J. Agile Systems and Management6.

PMI. (1987). Cost Management. PM Network3.

RICS. (2014). Tendering strategies. RICS10.

SCSI. (2020). CAPITAL PROJECTS: PROCUREMENT & TENDERING STRATEGIES.

SCSI9.

Serugga, J., Kagioglou, M., & Tzortzopoulos, P. (2020). Front End Projects Benefits Realisation
from a Requirements Management Perspective—A Systematic Literature Review.
Buildings5.

Stenbeck, J. (2008). Five keys to estimating. Paper presented at PMI® Global Congress 2008—
North America, Denver, CO4.

University of Gothenburg. (2024). Buyer-Supplier Relationships. University of Gothenburg8.