FeatureConstruction Cost Forecasting

Within any organization, cash is the ultimate metric. It is the lifeblood that lets companies operate, invest and grow.

Cost Forecasting, Schedule Management & Cash Flow

Managing cash resources takes time, lots of time. While operating expenses are normally predictable on a month-to-month basis, extraordinary expenses such as capital development or extensive refurbishment are more unpredictable, and risk-weighted contingencies are often added to the estimates. In today’s construction climate, the job of helping to provide accurate estimates has never been more vital.

Cash Profile – Determining Project Viability

The cost professional begins the process with a cash profile. As well as knowing the estimated cost of a project, the cash profile can help determine if and when the project will proceed. Multiple tasks within projects mean that costs need to be allocated against each task, and modern scheduling tools allow those costs to be profiled in different ways (front end loaded, simple distribution, etc.) to comprise the overall cash profile for the project.

...the growing trend is for project owners to take ownership of cost data.

A number of electronic tools are available to help project offices consolidate this information as well as track costs. Historically, cost data has been owned by the contractor, but today, the growing trend is for project owners to take ownership of cost data. From a financial as well as an efficiency standpoint, this shift in ownership makes sound business sense. 

Taking Ownership of the Data

As projects go live, owners provide access for the contractors into the owners system, rather than rely on a set of costs and schedules presented by the contractor (or multiple contractors) across multiple systems. By tying the schedules and the costs into a unified system, the project management office can have an overview of the cash forecasting for both actual and proposed projects on a portfolio basis. This unified data allows the project office to make well-informed decisions as to where cash resources are needed and should be allocated across their projects.

A well-configured, off-the-shelf system will also allow integration with an organization’s financial systems, allowing the actual project and proposed cash flows to be transparent to the finance department. This reduces the number of reports, allowing both the finance department and the project office to concentrate on their respective priorities, while providing complete transparency for stakeholders.

Extending Use Beyond Project Completion

As capital projects are completed, the same suite of tools should be used to manage the lifecycle of the projects. The maintenance and operational costs can be tracked and the data used to inform future planning efforts.

Through cost forecasting, schedule management, and cash flow, the value of the external cost professional becomes readily apparent in cost savings for the owner.

When new projects are being considered, the use of unified tools allows owners to employ actual cost data from existing projects to help in their planning processes. This aggregation of data decreases risk and permits owners to determine the actual viability of planned projects. Those projects which may have seemed non-viable from a simple cash flow evaluation may actually be viable once more sophisticated portfolio planning is undertaken. On the flip side, projects that were thought to be viable may be shelved when more accurate cost data is revealed.

Through cost forecasting, schedule management, and cash flow, the value of the external cost professional becomes readily apparent in cost savings for the owner. 

Author

Richard Tregaskes Senior Project ManagerContact me

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