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Post Contract Management -1 - midmac.net Contract Management 1.pdf– Using basic input data – BQ,...
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Post Contract M anagement - 1
Transcript of Post Contract Management -1 - midmac.net Contract Management 1.pdf– Using basic input data – BQ,...
Post Contract Management -1
INPUTS TO CASH FLOW
» BQ
» Project schedule
» Expected expenditure– Indirect and direct
– Allocated to BQ work items
ESTABLISHING THE CASH FLOW
Two methods:– Using basic input data
– BQ, Schedule, Expected Expenditure
– Using historic cash flows – Using past cash flows
Road Project Example
A road project with a contract sum of QAR 200 million and contract duration of 8 months was awarded to your company. Prepare a cash flow forecast based on the following activities of the project.
BQ Value1 Planning & design 152 Mobilization 43 Relocation of services 324 Groundwork 605 Sub-base & base course 706 Finishing course & drainage 127 Ancillaries & handover 7
TOTAL 200
Jan Feb Mar Apr May June July Aug
Planning & designMobilizationRelocation of servicesGroundworkSub-base & base courseFinishing course & drainageAncillaries & handover
Schedule
BQ Value Jan Feb Mar Apr May June July Aug1 Planning & design 152 Mobilization 43 Relocation of services 324 Groundwork 605 Sub-base & base course 706 Finishing course & drainage 127 Ancillaries & handover 7
TOTAL 200
BQ Value Jan Feb Mar Apr May June July Aug1 Planning & design 15 5 5 52 Mobilization 43 Relocation of services 324 Groundwork 605 Sub-base & base course 706 Finishing course & drainage 127 Ancillaries & handover 7
TOTAL 200
BQ Value Jan Feb Mar Apr May June July Aug1 Planning & design 15 5 5 52 Mobilization 4 43 Relocation of services 324 Groundwork 605 Sub-base & base course 706 Finishing course & drainage 127 Ancillaries & handover 7
TOTAL 200
BQ Value Jan Feb Mar Apr May June July Aug1 Planning & design 15 5 5 52 Mobilization 4 43 Relocation of services 32 12 204 Groundwork 605 Sub-base & base course 706 Finishing course & drainage 127 Ancillaries & handover 7
TOTAL 200
BQ Value Jan Feb Mar Apr May June July Aug1 Planning & design 15 5 5 52 Mobilization 4 43 Relocation of services 32 12 204 Groundwork 60 30 15 155 Sub-base & base course 706 Finishing course & drainage 127 Ancillaries & handover 7
TOTAL 200
BQ Value Jan Feb Mar Apr May June July Aug1 Planning & design 15 5 5 52 Mobilization 4 43 Relocation of services 32 12 204 Groundwork 60 30 15 155 Sub-base & base course 70 28 22 206 Finishing course & drainage 127 Ancillaries & handover 7
TOTAL 200
BQ Value Jan Feb Mar Apr May June July Aug1 Planning & design 15 5 5 52 Mobilization 4 43 Relocation of services 32 12 204 Groundwork 60 30 15 155 Sub-base & base course 70 28 22 206 Finishing course & drainage 12 6 67 Ancillaries & handover 7
TOTAL 200
BQ Value Jan Feb Mar Apr May June July Aug1 Planning & design 15 5 5 52 Mobilization 4 43 Relocation of services 32 12 204 Groundwork 60 30 15 155 Sub-base & base course 70 28 22 206 Finishing course & drainage 12 6 67 Ancillaries & handover 7 7
TOTAL 200
BQ Value Jan Feb Mar Apr May June July Aug1 Planning & design 15 5 5 52 Mobilization 4 43 Relocation of services 32 12 204 Groundwork 60 30 15 155 Sub-base & base course 70 28 22 206 Finishing course & drainage 12 6 67 Ancillaries & handover 7 7
TOTAL 200 9 17 25 30 43 37 26 13
Jan Feb Mar Apr May June July AugValue Addition 9 17 25 30 43 37 26 13Cumulative Value Addition 9 26 51 81 124 161 187 200
Value Curve
0
50
100
150
200
250
Jan Feb Mar Apr May June July Aug
BQ Value Exp. Jan Feb Mar Apr May June July Aug1 Planning & design 15 11 4 4 32 Mobilization 4 3 33 Relocation of services 32 28 11 174 Groundwork 60 51 25 13 135 Sub-base & base course 70 62 27 17 186 Finishing course & drainage 12 10 5 57 Ancillaries & handover 7 5 5
TOTAL VALUE 200TOTAL EXPENDITURE 170 170 7 15 20 25 40 30 23 10CUMULATIVE EXPENDITURE 7 22 42 67 107 137 160 170
Expenditure
Expenditure Curve
0
50
100
150
200
250
Jan Feb Mar Apr May June July Aug
ProfitValue Curve
Expenditure
Month Value Expenditure Profit Profit %Jan 9 7 2 28.57Feb 17 15 2 13.33Mar 25 20 5 25.00Apr 30 25 5 20.00May 43 40 3 7.50June 37 30 7 23.33July 26 23 3 13.04Aug 13 10 3 30.00
TOTAL 200 170 30 17.65
Contractor’s Profitability (Monthly)
Activity BQ Value Exp. Profit Profit %
1 Planning & design 15 11 4 26.67
2 Mobilization 4 3 1 25.00
3 Relocation of services 32 28 4 12.50
4 Groundwork 60 51 9 15.00
5 Sub-base & base course 70 62 8 11.43
6 Finishing course & drainage 12 10 2 16.67
7 Ancillaries & handover 7 5 2 28.57
TOTAL 200 170 30 17.65
Contractor’s Profitability (Activity)
Jan Feb Mar Apr May June July Aug DLP
1 Planning & design 5 5 52 Mobilization 43 Relocation of
services 12 204 Groundwork 30 15 15
5Sub-base & basecourse 28 22 20
6Finishing course & drainage 6 6
7Ancillaries & handover 7
TOTAL 9 17 25 30 43 37 26 139 17 25 30 43 37 26 13
Retention 0.9 1.7 2.5 3 1.9
INCOME 8.1 15.3 22.5 27 41.1 37 26 18 5
13 +5Retention 10% with a limit of 5% (Max retention fund is QAR10 million)
Income
0
50
100
150
200
250
Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec Jan Feb
Cu. Income vs. Cu. Expenditure Curve
Expenditure Curve
Income Curve
Working Capital (WC) at project level
» feeds into organisation WC
» WC at project level is the requirement for cash to finance day-to-day operations
» strain on WC when gaps between income and expenditure due to:
– Late invoicing
– Delayed payment approvals
– Escalation
– Retention
-15
-10
-5
0
5
10
15
20
Jan Feb Mar Apr May June July Aug Sep Oct/Jan Feb
Working Capital Curve
Bank Borrowing Capacity
Improve your WC» At planning stage:
Re-schedule activities
Loading rates (eg. front end loading/back end loading)
Strategic financial planning at company level
» During construction:– Early invoicing
– Avoid delayed payment approvals
– Stock materials
– Release retention through a bond
– Back to back payments to sub-contractors
– Negotiate favorable trade credits
Jan Feb Mar Apr May June July Aug DLP
1 Planning & design 5 5 52 Mobilization 43 Relocation of
services 12 204 Groundwork 30 15 15
5Sub-base & basecourse 28 22 20
6Finishing course & drainage 6 6
7Ancillaries & handover 7
TOTAL 9 17 25 30 43 37 26 139 17 25 30 43 37 26 13
Retention 0.9 1.7 2.5 3 1.9
INCOME 8.1 15.3 22.5 27 41.1 37 26 18 5
Re-schedule activities
Jan Feb Mar Apr May June July Aug DLP
1 Planning & design 5 5 52 Mobilization 43 Relocation of
services 12 204 Groundwork 35 13 12
5Sub-base & basecourse 28 22 20
6Finishing course & drainage 6 6
7Ancillaries & handover 7
TOTAL 9 17 25 35 41 34 26 139 17 25 35 41 34 26 13
Retention 0.9 1.7 2.5 3.5 1.4
INCOME 8.1 15.3 22.5 31.5 39.6 34 26 18 5
Revised Program
Revised Working Capital Curve
Bank Borrowing Capacity-10
-5
0
5
10
15
20
Jan Feb Mar Apr May June July Aug Sep Oct/Jan Feb
Jan Feb Mar Apr May June July Aug DLP
1 Planning & design 5 5 52 Mobilization 43 Relocation of
services 12 204 Groundwork 30 15 15
5Sub-base & basecourse 28 22 20
6Finishing course & drainage 6 6
7Ancillaries & handover 7
TOTAL 9 17 25 30 43 37 26 139 17 25 30 43 37 26 13
Retention 0.9 1.7 2.5 3 1.9
INCOME 8.1 15.3 22.5 27 41.1 37 26 18 5
Loading of Unit Rates
Increase rates of these activities
TOTAL 200 Constant
Working Capital (WC) at company level
» WC essential for an organisation to operate» projects must fit long term strategic plan for WC» high risk, high return projects can affect short-term
liquidity before profits are realised» overtrading more likely to occur when:
– Time of rapid growth– Expansion of an organisation
» causes of overtrading– Deterioration in promptness of payments– Sudden increase in rate of work carried out– Rapid increase in cost of resources
Company Working Capital
Aggregate forecast fororganisation’s WC needs
Decision to tender Tender adjudication
WC Deficit
Improve your WC» At planning stage:
Re-schedule activities
Loading rates (eg. front end loading/back end loading)
Strategic financial planning at company level
» During construction:– Early invoicing
– Avoid delayed payment approvals
– Stock materials
– Release retention through a bond
– Back to back payments to sub-contractors
– Negotiate favorable trade credits
MINOTOR YOUR PROGRESS TRACKING CURVES
Planned vs Actual
How your project performance is monitored by the Engineer
– Earned Value Analysis (EVA)
– EVA is a technique for integrating time and costperformance in a project
– evaluates project’s cost performance by:» comparing planned value of work against earned value of
work accomplished; and» comparing this earned value against actual costs incurred .
EARNED VALUE CRITERIA– Uses three criteria
Planned Value (PV) (or BCWS) = what is planned to be doneEarned Value (EV) (or BCWP) = budget of work actually doneActual Cost (AC) (or ACWP) = what was paid for work done
– End of the projectPV = EV = Budget at Completion (BAC)
– Can be applied to performance of: overall project and/or separate work packages or tasks each cost period and/or on cumulative basis .
EXAMPLE
– Project of one month has budget of 10,000.– End of month, 8,000 of work completed.– Actual cost to complete this work is 8,500.
PV = what is planned to be done (10,000)
EV = budget of work actually done (8000)
AC = what was paid for work done (8,500) .
COST VARIANCECost variance is difference between budget and actual costs
– Cost variance (CV)
= EV - AC (+ve means actual is less than budgeted)
– Cost Performance Index (CPI)
= EV / AC (>1 means actual is less than budgeted)
Example:CV = 8,000 - 8,500 = - 500 ie. cost overrun,
CPI = 8,000 / 8,500 = 0.94 ie. cost overrun
Can be calculated cumulatively or for a specific period .
SCHEDULE VARIANCESchedule variance is difference between budget for work achieved and
work planned
– Schedule variance (SV)
= EV - PV (+ve means actual is more than scheduled)
– Schedule Performance Index (SPI)
= EV / PV (+ve means actual is more than budgeted)
Example:SV = 8,000 - 10,000 = - 2000 ie. time overrun,
SPI = 8,000 / 10,000 = 0.80 ie. time overrun
Relationship between PV, EV, AC, SV and CV
FORECASTING FINAL COSTEstimate at Completion (EAC)
EAC = Cost to-date + estimate to complete– many EAC formulas – benefit of EAC forecasting
» indicates effects if no action is taken.» "often requested of PMs by anxious senior management, vital
to project cash flow, viability of project & sometimes whether to cancel project after it has started"
– 2 kinds of cost overruns:» Current overrun (ie. cost variance)» Overrun at completion (ie. shown by EAC) …. See diagram .
Current overrun
Overrun at completion
END OF PROJECT• EV = PV • CV = final overrun
FORECASTING FINAL COSTEAC = AC + (BAC – EV)
CPI(CPI = Cumulative Cost Performance Index to date)
Details» the remainder of work to be done (BAC-EV),» is adjusted by cost performance (CPI)» and the result added to the actual cost to date (AC)
Example (CPI = 8,000 / 8,500 = 0.94)
EAC = 8,500 + (10,000 - $8,000) = 10,6280.94
Example EV
Cost Variance Analysis– WP1 EV - AC = 8,000 - 8,000 = 0– WP 2: EV - AC = 9,600 - 9,000 = + 600– WP 3: EV - AC = 19,200 - 22,000 = - 2,800
– Project: EV- AC = 36,800 - 39,000 = - 2,200
» WP1 on budget, » WP2 under budget » WP3 is over budget.» Project over budget
Example EV
Schedule Variance Analysis– WP1: EV - PV = 8,000 - 8,000 = 0– WP2: EV - PV = 9,600 - 12,000 = - 2,400– WP3: EV - PV = 19,200 - 18,000 = +1,200
– Project: EV - PV = 3 6800 - 38,000 = - 1,200
» WP1 on schedule» WP2 behind schedule» WP3 ahead of schedule» Project behind schedule
CostCode
Item Budget$
Complete%
Earnedvalue
Actualcost
Variance%
Variance$
Estimatecost to
complete
Estimatecost at
completion
100 General 48000 50 24000 20000 20% 4000 24000 44000200 Site work 400000 95 380000 370000 2.7% 10000 20000 390000300 Concrete 800000 75 600000 660000 -10% -60000 200000 860000400 Masonry 600000 25 150000 152000 -1.3% -2000 450000 602000500 Metals 387000 0 0 0 0 0 0 0
TOTAL
COST REPORTSTypical cost report:
End of session – Questions?
