Project Finance - Level 1

Question 1

How do you ensure effective cost control of construction projects during the construction phase?

Answer 1

Regular cost reporting (RICS “Cost Reporting)
Valuation of variations (RICS “Change Control and Management”)
RICS “Valuing Change”

Question 2

What are the differences between cost reporting & cost management?

Answer 2

Cost Management encompasses process of planning, estimating, budgeting, financing, funding, managing and controlling cost to make sure project is within approved budget
Cost Reporting: to inform the client of likely outturn cost of the project - may be expressed as a variance against budget amount or expressed in abolute terms. Prepared at regular and frequent basis to inform client and project team and enable them to control outturn cost.

Question 3

What are the advantages the employer gets through cost reporting at the end of a project?

Answer 3

Confidence in outturn cost

Question 4

Are cost monitoring and cost control the same thing?

Answer 4

Cost Management encompasses process of planning, estimating, budgeting, financing, funding, managing and controlling cost to make sure project is within approved budget
Cost control: frequent, regular and accurate cost reports provide clients and prof team best available data on which to base future project decisions.
Each cost report should be in context of project brief and should provide poss. courses of action to address any cost deviation away from the brief.
Possible course of action:
- omit elements of remaining work
- reduce scale of elements of remaining work without diminishing functionality of building
- reduce specification of elements of remaining construction work

Question 5

What is being controlled in cost control?

Answer 5

In cost control the QS is providing information to allow client to make decisions - what is being controlled is spending on remaining construction work

Question 6

What items should be included in the cost report of a single stage traditional procurement route project?

Answer 6

(RICS: Cost Reporting)
Lump sum contract:
- contract sum
- adjustment of variable costs
- adjustment of variations
- adjustment of fluctuations
- claims for loss and expense
- adjustment for risk allowances

Question 7

How will you establish a change control strategy in a project?

Answer 7

RICS Change Control and Management defines change control as the process or processes that can lead to the alteration of the timescale, cost or scope of project. Change management in turn involves the management of control process so that these changes to the timescale, cost and scope are effectively implemented.
Look at change control procedures in the contract.
Follow guidance in RICS Change Control Section 4.3.3

Question 8

What are the sources of information in preparing a CVR?

Answer 8

Cost / Value reconciliation (or comparison)
The projects profit and loss statement comparing the internal valuation with costs incurred, including the liabilities and accruals for goods and services consumed in the works that have not yet been paid for.
Cost and value elements need to go into CVR calculation.
Cost info from cost reporting
Value from interim valuations

Question 9

How is the cash flow for a client calculated?

Answer 9

By reviewing BQ/ Tender docs against construction programme

Question 10

How is the pre-tender cash flow forecast for the contractor prepared?

Answer 10

Using the elemental cost plan and benchmark programme from previous projects

Question 11

How would you establish a cost reporting protocol?

Answer 11

RICS Cost Reporting:
Discuss with client and project team and assess their requirements against resources and what is feasible

Question 12

Explain your understanding of cash flow forecasting and monitoring?

Question 13

How would you implement change control procedures within a contract?

Question 14

How would you establish reporting regimes / protocol?

Question 15

How would you use risk management and analysis techniques while preparing a budget?

Question 16

How would you control cost effectively during the construction phase of the project?

Question 17

What is meant by design risk?

Answer 17

NRM1 : design development risk is an allowance for use during the design process to provide for the risks associated with design development, changes in estimating data, third party risks (eg planning requirements, legal agreements, covenants, environmental issues and pressure groups), statutory requirements, procurement methods and delays in tendering.

Question 18

What are the principles of contingencies and risk allowances?

Question 19

How would you use cash flow in financial management?

Question 20

What are the change control procedures in a contract?

Question 21

What are the key principles of controlling and reporting costs on any construction project?

Question 22

What legal and contractual constraints are you aware of?

Question 23

How do time and quality affect the cost of a project?

Answer 23

Time - if important to client to reduce timeframe for construction may cost more due to increased labour. May restrict method of construction - may select methods that are quicker but more expensive.
Quality - higher quality specification may be more expensive

Question 24

What building legislation affects cost control?

Question 25

How can design risk be allocated?

Answer 25

- risk avoidance - risk reduction - risk transfer - risk sharing - risk retention

Question 26

Tell me about your understanding of reporting and forecasting of costs during the construction phase.

Question 27

What are the principles of risk allowances?

Answer 27

Quantitative allowance set aside or a plan as a precaution against future need, linked to the risk register

Question 28

What is the importance of project financial controls during a construction project?

Question 29

Give two techniques that can be used in project control.

Question 30

What is your understanding of earned value management?

Question 31

What is your understanding of cost value reconciliation?

Question 32

Explain the concept of forecast cost to complete.

Answer 32

The remaining cost that has not been included in interim valuations - the estimated ongoing costs

Question 33

What is your understanding of outturn cost?

Answer 33

The outturn cost is the final cost of the construction project and includes: - fixed costs - variable costs (provisional sums - defined and undefined; provisional quantities; prime cost sums; daywork allowances) - Variations (contract instructions; anticipated instructions/early warnings; loss and expense; fluctuations; risk allowances)

Question 34

Explain the importance of cost estimate in project financial reporting.

Question 35

What is your understanding of contingencies?

Answer 35

An allowance included in project cost to allow for any changes that occur whether explicitly predicted in the cost report or not.

Question 36

What is your understanding of risk allowance?

Answer 36

NRM1 defines risk allowance as "a quantitative allowance set aside as a precaution against risks and future requirements to allow for uncertainty of outcome. See residual risk.

Question 37

What is the purpose of cost value reconciliation to a company?

Question 38

How often CVR is usually carried out?

Question 39

What is your understanding value during the CVR process?

Question 40

What is your understanding of the accrual principle during financial reporting?

Question 41

Explain whether cost and value should be taken at the same time. If yes why is this? If no why is this?

Question 42

What do you understand by subcontract liability?

Answer 42

Monies owed to the subcontractor

Question 43

What are contra charges?

Answer 43

RICS "Final Account Procedures" Set-off / Contra charging: where employer recovers costs from contractor that the contractor has caused the employer to incur. This could apply in main contractor/ sub contractor relationship. Construction Act 2011 makes it clear that contra charging must comply with pay less mechanisms of contract. If withholding money need to explain in payless notice what is being withheld and reasons. - Therefore in final account it is employer's responsibility to deduct amount that is being contra-charged from the final account settlement.

Question 44

What is your understanding of the term ‘value’ during financial reporting?

Question 45

What is your understanding of the term earned value?

Question 46

What is your understanding of the term certified value?

Question 47

What do you understand by an over-measure during financial reporting?

Answer 47

An over measure is over valuing a work element or variation in report

Question 48

What do you understand by under-measure during financial reporting?

Answer 48

An under measure is not including sufficient value for a work element or variations

Question 49

What is your understanding of a cash flow forecast?

Answer 49

It is a projection of when liabilities will need to be paid and when income will be earned. In relation to a construction project is an indication of when work will be completed and payment due by client.

Question 50

What are the key components that are needed to develop a cash flow forecast for a construction project?

Answer 50

Cost of work element Construction programme giving indication of when work element will be completed

Question 51

What RICS guidance relates to change control and management? When was it last updated & what changes were made?

Answer 51

RICS Change Control and Management was first issued in Jan 2021 Updated in Feb 2024

Question 52

What are the key principles of the Professional Standard "Change Control and management"?

Answer 52

1) Contractual changes and their implications 2) Change management principles 3) Types of and reasons for change 4) Who carries the risk 5) Pre-contract and post-contract stages 6) How standard forms deal with change

Question 53

What is the role of a cost report in managing project financials?

Answer 53

The cost report gives a snapshot of predicted outturn cost at the date of the cost report - enables all parties to monitor impact of change and manage cashflow and understand the impact of changes on final costs

Question 54

What is the importance of a cashflow?

Answer 54

Cashflow - important from contractor perspective to enable it to pay for liabilities - important from client perspective to ensure that cash is available at appropriate time and to ensure that contractor stays solvent, pays its subcontractors and suppliers and completes project

Question 55

What allowances are required for changes to the building safety regulations?

Answer 55

Design development risks include allowance for risks associated with design development Changes in estimating data Third party risks (eg planning reqs, legal agreements, covenants, environmental issues and pressure groups) Statutory requirements Procurement methodology Delays in tendering

Question 56

How are contingencies developed? - How are these managed through the stages of a project?

Answer 56

Risks are identified and risk register created. Allowances for risk which can't be avoided, transferred are included in cost plan and reduced as the potential for risk passes or is eliminated. Risk in four categories: 1) Design development risk 2) Construction risk 3) Employer change risk 4) Employer other risk