lecture 6- project costing and cash flow
TRANSCRIPT
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Project Costing and CashProject Costing and Cash
FlowFlow
Dr Anis Rahman
G09 1.19
mailto:[email protected]:[email protected] -
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!jecti"es!jecti"es
To develop an understanding on
project cost and different levels andtechniques of cost estimation;
cash flow forecasting and cash flowdiagram and
cost control.
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#m$ortant %erminologies#m$ortant %erminologies
Cost& directl' related to an element of wor( including direct o"erheads such assu$er"ision.
%hree t'$es&) *uantit' related +material,
) %ime related +la!our,) Fi-ed costs +$a'ment of su! contractor fi-ed o"erhead etc,
Price& tagged "alue or assigned "alue of goods/ser"ice) eual to the cost $lus mar(2u$3 4 e-$ense 5 $rofit insurance ta-6
) in economics and !usiness the$rice is the$rice is the assigned numericalassigned numericalmonitor' "aluemonitor' "alueof a good ser"ice or assetof a good ser"ice or asset.
7alue& the degree of im$ortance2the mar(et worth or estimated worth of
commodities ser"ices assets or wor(2
8orth& the indi"idual3s su!jecti"e $erce$tion of the "alue for goods and ser"ices
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Pur$oses of stimatesPur$oses of stimates
Project economic a$$raisal
:tudies of the o$timisation of design
im$lementation and o$erationAssessment of ris(s changes and alternati"e
courses of action
sta!lishing !udgets for $roject funding
Pro"iding a !asis for cost control duringim$lementation
Pro"iding the !asis for final cost of $rojections
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#nformation ;eeded For stimating
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=e"els of stimates=e"els of stimates
A$$ro-imate or rder of magnitude +5/2 >0?,
Preliminar' +5/2 0?,
Definiti"e +5/2 10?,
Detailed estimates +5/2 ?,
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A$$ro-imate or rder of BagnitudeA$$ro-imate or rder of Bagnitude
Reuires when it is desired to assess the magnitudeof a $roject $rior to its design
Produced with minimum of $re$aration se unit rates +E/m@, i.e. Commercial construction
costs E000 $er m@
:ound intelligent guess !ased on e-$erience
judgements and the total costs of similar t'$estructures
Accurac' should !e within 2>0?
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Order of Magnitude Estimates
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Preliminar' or lementar' stimatPreliminar' or lementar' stimatee
sed forassessing financial feasi!ilit' of the $ro$osed$roject
assessing and com$aring the relati"e costs ofalternate designs in economic studies
o!taining a more accurate estimation
Gross uantities +m>concrete m>e-ca"ation tons of
reinforcement etc., Accurac' should !e 1020?
Bust !e com$iled with some care since the' form the!asis u$on which the $roceed is made
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Definiti"e stimatDefiniti"e stimatee
& 'efinitive (stimateis prepared from well defineddata, specifications, drawings, etc. and
)sed for *id proposals, *id evaluations, contractchanges, e#tra wor+s, legal claims, permits andgovernment approvals.
%ther terms associated with a 'efinitive (stimateinclude chec+, lump sum, tender, post contractchanges. etc.
&ccuracy- to /
http://www.maxwideman.com/pmglossary/PMG_D01.htmhttp://www.maxwideman.com/pmglossary/PMG_D01.htm -
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Detailed stimatesDetailed stimates
0rovides the final assessment of the cost ofproject and compiled with
1or+ing drawings plus specifications andmar+et price)nit rate$ item *y item include the cost of
la*our, material, plant, indirect cost
overheads;2esource cost$ material, la*our etc.&ccuracy within /
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Detailed Estimates: Concrete in Pier Shaft
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Detailed EstimateSummary
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stimating %echniuesstimating %echniues
Glo!al&) Bostl' used in the $reliminar' stages since it does not reuire the detailed
info) rder of magnitude/ rule of thum!/ !all $ar( estimating.
) Relies on the historical data ta(ing into account inflation and mar(etinfluence
) Dangers include different definitions of what costs are included ofmeasurement not com$aring with li(e $roject inflation and mar(et factors
Factorial&) Bainl' used for $rocess $lant not relia!le for site wor() ased on current $rices o!tained from the su$$lier) Doesn3t count for the time limit of $roject) :uccess relies on the accurac' of the estimate for main $lant historical data
relia!ilit' factors used and e-$erience of the estimator
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Ban2hours&) :uita!le for la!our intensi"e wor( where relia!ilit' and $roducti"it'
records are a"aila!le e-am$le design wor(
nit rates&) :uita!le for !uilding re$etiti"e wor(s !ut not for entire ci"il $roject
) Relies on historical data and uotes2 most relia!le !ut time consuming.
) #t is most freuentl' used techniue )
) nit rates are listed in ill of uantities
$erational cost +resource cost,&) %otal cost 4 sum of costs of constituent acti"ities of a $roject de"elo$ed
from a detailed $roject $rogram
) ased on current rates ) most relia!le for ci"il engineering $rojects.
) %ime and resource consuming
stimating %echniuesstimating %echniues
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stimation Processstimation Process
. Study program
3. (stimate 0roject
4. "onstruction method5. 6aterial and su*-contract costs
. !a*our7plant costs
8. 'irect costs9. Indirect costs
:. 2eport
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stimating rrorsstimating rrors
'imensional errors
Transposed figures, decimal points
Time estimates 1age rates on costs
1aste
)nsta*le material prices
Transport rates 1eather, stri+es etc.
0lant charges
Incorrect units of measurement etc.
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Cash Flow asicsCash Flow asics
& cash flow is the transfer of money into or out of a project or acompany.
A cash flow is a financial modelof a project or contract that
provides vital info. to the managers forplanning and controlling ofproject cost.
"ash flow models present the forecasts of all future cash inflowsand outflows in a 0roject7contract
There will *e a time lag or e#ample$ In the Standard >orm of ?uilding "ontract, there is aclause that the (mployer shall effect payment to the "ontractorwithin 5 days upon presentation of the &rchitect@s certificate of
payment.
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Cash FlowCash Flow
:imilarl' there will !e a time lag
!etween !eing committed and ma(ing
a $a'ment and actuall' $a'ing it.
%hese time lags are the credit
arrangements that Contractors ha"e
with their creditors.
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%he #m$ortance of Cash Flow%he #m$ortance of Cash Flow
"er' 'ear man' Contractors go into
!an(ru$tcies. ne of the causes and
$erha$s the most often cause for
!an(ru$tcies is due to inadeuate cashto
meet the $a'ments committed to ma(e
and failure to con"ince the creditors or themone' lenders that this inadeuac' is onl'
tem$orar'.
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8h' Bodel Cash Flow
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Bajor Com$onents of Cash FlowBajor Com$onents of Cash Flow
%here are two major com$onents&
2 Cash recei"ed +re"enue,
2 ut2going cash +e-$enditure,
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Re"enueRe"enue
%he re"enue of a $roject can !e arri"ing from&
a, #nterim $a'ments of wor( done
!, Release of retentionc, Return of o"er2charged accounts
d, Reim!ursements from su!contractors
e, Administration costs for ser"ice $ro"ided tosu!contractors
f, alanced $a'ment u$on agreeing of final account
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-$enditure-$enditure
& "ontractor has a large num*er of payments tomeet, for e#amples$
a= 0ay-roll for staff and wor+ers*= Su*contractors@ payment
c= 0ayments to suppliers
d= Ta# and other Aovernment charges
e= Interest
f= >ees for supporting service e.g. rent, legaladvice, and consulting service from e#perts
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Cash Flow asicsCash Flow asics
#ncome +$ositi"e cash flow, and e-$enditure +negati"ecash flow,
;et income 4 income) expenditure
Cumulati"e cash flow diagramsare commonl' used !' themanagers to estimate and monitor the $roject cash flow
Cash flow defined as one of the following&
) Fi-ed charges
) *uantit' $ro$ortional charges
) %ime2related charges
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:te$s to Formulate a Cash Flow Bodel:te$s to Formulate a Cash Flow Bodel
1. Com$ile !ase2case cash flow2adding costsand re"enues to
each acti"it' on !ar2chart $rogram
. Refine the !ase2case cash flowto account for dela's in
$a'ment/rece$tion
>. Calculate the resultingcost !enefits and in"estment
reuired
. Consider im$acts of ris(s and uncertainties2 ris( anal'sis
should !e made on larger $rojects and sufficient
contingencies allocated in the estimate and the $rogramme.
. -amine im$acts of inflation
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Cash Flow ForecastingCash Flow Forecasting
In compiling the cash flow of a project, thefollowing data is required$
a= & graph of cumulative value versus time*= The measurement and certification
interval
c= The payment delay *etween certificationand the "ontractor receiving the cash
d= The retention conditions and retentionrepayment arrangements
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Cash Flow ForecastingCash Flow Forecasting
e= & graph of cumulative cost versus time
f= The project costs *ro+en down into the
items such as la*our, material, plantsu*contractor payments etc.
g= The delay *etween incurring a costlia*ility under each cost heading and
meeting that lia*ility
l i
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7alue "ersus time7alue "ersus time
C h fl f i l l iC h fl f ti l l ti
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Cash flow forecasting calculationsCash flow forecasting calculations
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Cash2out and cash2in cur"esCash2out and cash2in cur"es
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Sewer Main Extension Utility Data
Activity Path Time (ays! "osts #
Move in $ %& &' $$$
Excavation in shaft ' % &' &$)$
Excavation in tunnel * % & &)) +&$$ait & %&* &+ nil
"lean u- an move out &* %&) inirect
Excavation in shaft %&& $ )'$$
Pi-elayin/ an cncrete in tunnel && %&' &$ &)$$
Excavation in trench & % ) &$ '0$$
Excavation in trench ) %&$ &*$ )$$
ait 1%&$ &+ nil
Metal wor2 %0 &*) ))$
Pi-elayin/ an cncrete in trench %+ &*) &11$$
Indirect cost B8 perday
Bonitoring Cash FlowBonitoring Cash Flow
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Bonitoring Cash FlowBonitoring Cash Flow
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A& -$enditure
& #ncome
Profit
"erdraft
You must have cash reserves or
bank overdraft to meet this
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Ca$ital =oc(2u$Ca$ital =oc(2u$
%he negati"e cash flows e-$erienced in
the earl' stages of $rojects re$resentloc(ed u$ ca$ital that is su$$lied from
the com$an'3s cash reser"es or
!orrowed.
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Difficulties in Pre$aring Cash Flow ForecastingDifficulties in Pre$aring Cash Flow Forecasting
%he $roduction of cumulati"e "alue "ersus time
and cost "ersus time figures !ased on $roject
$lans is time-consuming!ecause it reuires e"er'
$roject in the forecast to !e re$resented !' a
networ( or !ar chart.
#t is $ossi!le to use standardcumulati"e "alue"ersus time and cost "ersus time cur"es that
adeuatel' re$resent each $roject t'$e.+Data can be obtained from records of past projects.,
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asic Assum$tionsasic Assum$tions
Cash flow forecasting is the result of
calculations!ased on the information
a"aila!le at the time +time of $re$aration,and assum$tions as to what will ha$$en.
#f the data contained in the information
changes or the assum$tionsalter the forecastwill !e in error and a new forecast is
reuired.
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Forecasting at =e"elsForecasting at =e"els
Contractors who underta(e cash flowforecasting do so at two le"els.
1.at the $roject le"el.for the com$an' as a whole.
Forecasting cash flows at com$an' le"el
in"ol"es aggregating cash flows for all acti"e$rojects and then added to the com$an'3s headoffice cash flows this e-ercise is doneregularl' e"er' uarter or e"er' month.
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Factors Affecting Cash Flow PositionFactors Affecting Cash Flow Position
1, Bargin
, Retentions
>, Claims, "er2measurement
, Dela' in recei"ing $a'ment from client
H, Dela' in $a'ing creditorsI, %he timing of contract starts
J, Front2end rate loading
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-ercise& Cash Flow Diagram-ercise& Cash Flow Diagram
Draw the cash flow diagram for the
following $roject&
Act. Direct Cost #ndirect Cost Duration Pa'ment1 E0000 E10000 1 month EH000
E0000 E10000 1 month E000
> E1J0000 E0000 1 month E00000
EH0000 E0000 1 month E>0000
E0000 E10000 1 month E0000H EH0000 E10000 1 month EJ0000
Pa'ment is made 1 month after com$letion
of the wor( in a lum$ sum
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-ercise +continued,-ercise +continued,
Determine the following&
)-$enditure and income cur"es
)Profit e-$ressed as a E and ? $rofit
)Ba-imum o"erdraft
)A"erage o"erdraft
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-ercise& cash flow diagram-ercise& cash flow diagram
1
Bonth
0 > H I
100
H00
I00
J00
00
>00
00
00
I0H90
#ncome
-$enditure
Profit Bargin4 I0 ) H90 4 I.?
H90
Ba- o"erdraft
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Project Cost ControlProject Cost Control
Cost control forms$art of the $rocess of
managing in"estmentin the $roject
ta(ing actions to a"oid cost "ariance%his management $rocess must ta(e into
account !oth theo!jecti"es and
reuirementsof the $rojectA cost control s'stem must !e sim$le
andmust not reuire e-cessi"e resources
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8hat #ndirect Costs8hat #ndirect Costs
Insurances pu*lic lia*ility
"osts incurred from your supervision
staff >oreman and project manager%verheads office, car etc.
"ontingency for ris+ and uncertainty
Safety induction%thersCCCCCC
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ase2case Cash Flowase2case Cash Flow
Cost and re"enues assigned to !ase3 orreference3 date
suall' date of first cash flow
#gnoreother factors such as inflation etc. fornow
A$$ro$riate time $eriods for adding of Cashflows at different stages of $roject
) Annual cash flow ) $roject e"aluation
) Bonthl' cash flow ) throughout $roject
) 8ee(l' cash flow ) short duration contracts