PROJECT FINANCIAL

CONTROL AND
REPORTING
EDWARD NYARKO
LEARNING GOALS
• Post-contract Cost Control
• Financial Reports (Interim Payment Certificates, Financial
Statements, Cost-Value Reconciliation, Final Account)
• Establishing reporting regimes/protocols
• Conditions of Contract relating to Cost.
• Change Control Procedure within the Contract
• Managing Contingencies, Prime Cost Sums and Provisional
Sums
• Using Cash flow for financial management
• Forecasting Cost for different Procurement Route and
Client Type
• Using risk management and analysis techniques.
POST CONTRACT COST
CONTROL

Objectives:
 Client’s budget or contract sum is not exceeded
 Contractor does not lose profit (production cost
does not exceed total payment under the project)
POST CONTRACT COST
CONTROL

What is the role of:

 Client’s Quantity Surveyor
 Contractor’s Quantity Surveyor
POST CONTRACT COST
CONTROL
Client’s QS Contractor’s QS

1. Prepare Cash flow forecast 1. Prepare Contract Budget

2. Value and advise on variations 2. Prepare Site Costing

3. Prepare financial statement 3. Prepare cost value reconciliation

4. Monitor Cost 4. Monitor Cost

5. Prepare interim valuation 5. Prepare interim valuation

6. Prepare final account 6. Prepare final account

FINANCIAL REPORTS

Reports:
• Interim Payment Certificate
• Financial Statements
• Cost-Value Reconciliation
• Final Account
CONDITIONS OF CONTRACT

FIDIC CONDITIONS OF CONTRACT:

• Clause 12: Measure and Evaluation
• Clause 13: Variations and Adjustment
• Clause 14: Contract Price/Payment
CONTINGENCIES
Used to address
• Variations (Discrepancy between drawings
and BOQ)
• Errors in BOQ
• Price escalation in resources
PRIME COST SUMS
• Based on estimates from potential
nominated sub-contractor or supplier.
• Process
• Invitation to tender
• Submission of tender by contractor based on
conditions of contract
• Review of quotations based on conditions of
contract, warranties, etc.
• Adjustment to include general and special
attendance
PROVISIONAL SUMS
• Project Risk
• Inadequate information to produce
realistic quantities
• Based on provisional quantities
• Based previous quotation on previous
projects
CASH FLOWS
1. Cash Inflows
• The amount of cash coming into the business.
• E.g. Payment Certificates, Bank loan or overdraft,
interest on savings and investments, shareholders
investment, profits.
2. Cash Outflows
• The amount of cash going out of the business.
• E.g. Purchase of materials, wages, rent, daily
operating expenses, loan repayments, income tax,
VAT, etc.
FINANCIAL MANAGEMENT
• Is the management of the finances of the business
or organization in to achieve financial objective.

Financial objectives include:

• Creating wealth for the business
• Generating Cash
• Providing an adequate return on investment
bearing in mind the risk the business is taking and
resources invested.
3 KEY ELEMENTS OF
FINANCIAL MANAGEMENT
1. Financial Planning
• Ensuring that there is adequate funding to meet
the needs of the business
• Short term funds will be used for buying
materials, paying workers, hire equipment, sales
made on credit, office overheads, etc.
• Medium and long term funds should be used for
purchase of plants, equipment, properties, etc.
3 KEY ELEMENTS OF
FINANCIAL MANAGEMENT
2. Financial Control
• Ensures that asset are used efficiently.
• Ensures that the business assets are secure.
• Ensures management act in the best interest of
shareholders and in accordance with business
rules. Especially in Procurement
3 KEY ELEMENTS OF
FINANCIAL MANAGEMENT
3. Financial Decision-making
• Relates to investment, financing and dividends.
• Investments can be financed by retained profit,
borrowing from banks or taking credit from
suppliers.
• Should profit earned be retained or distributed to
shareholders.
• If dividends are too high, the business may be
starved of funding to reinvest in growing
revenues and profits.
CASH FLOW FORECAST
• Provides information on when payments are due
and how much.
• Prepared from Works Programme and Priced
BOQ.
• QS should ensure efficient use of project funds.
• Accept realistic programme. Programmes with
high initial or final expenditures are not realistic.
High initial expenditure leads to more interest
charges. High final expenditure leads impossible
completion time.
CASH FLOW FORECAST
• Plot expenditure and against time
400000

350000

300000

250000

200000 MONTH
CUMM. PAYMT
150000

100000

50000

0
1 2 3 4 5 6 7 8 9
CASH FLOW MANAGEMENT
• When cash outflows exceeds cash inflows or
expenditures exceeds budget
• What are the implications to the contractor?
• What are the implications to the client?
• How do you do?
OR
• When cash inflows exceeds cash outflows or
expenditures are lower than budget
• What are the implications to the contractor?
• What are the implications to the client?
• How do you do?
PROCUREMENT ROUTE
• Traditional Approach
• Design is completed before construction begins
• Cost is determined before construction
• Design and construction by different companies
• Integrated Approach
• Design/Construction are integrated
• Same company could be engaged for both design and
construction
• E.g. Design & Build, Management Contract, Design &
Manage, Construction Management.
• Who bears the financial risk in these different
approaches? Who is responsible for financial control?
CLIENT TYPE
• Private Clients
• Private Individuals (Local/Foreign)
• Private Institutions (Local/Foreign)
• State/Public Institutions
• District/Municipal Assemblies
• ECG
• GETFUND
• Who bears the financial risk with the different
client type? Who is responsible for financial
control?
PROJECT RISK
• Physical Risk – E.g. Floods, storm, fire, etc.
• Legal Risk – E.g. Injury to persons, damage to
buildings, etc.
• Construction-related risk – E.g. Shortage of resources,
delayed possession of site, late completion, etc.
• Price determination risk – E.g. Errors in estimating,
inaccurate assessment of project risk, incorrect
forecasting of fluctuations, etc.
• Contract Risk – E.g. Uncontrolled delays, late payment,
poor performance of project participants, contractual
claims, overrunning on project programme, etc
PROJECT RISK (contd.)
• Performance Risk – Low morale, strikes, labour
dispute, inadequate planning, inadequate safety
measures, management inefficiency, etc.
• Economic Risk – E.g. Rising cost of resources,
high interest rates, funding delays, budget overruns,
etc.
• Political Risk – E.g. changes in government,
changes in taxation, etc.
• Commercial Risk – E.g. market recession, strong
competition, under-cutting of prices, etc.
THANK YOU

• Questions