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Managing the Project: The Supervisor’s Role Session 7: Understanding Finances

Managing the Project: The Supervisor’s Role Session 7: Understanding Finances. Session 7 Topics. Punctuality of owner payment Reduced interest expense Increased corporate profitability Historical cost records Competitive bid success. Contract terms Owner financing constraints

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Managing the Project: The Supervisor’s Role Session 7: Understanding Finances

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  1. Managing the Project: The Supervisor’s RoleSession 7: Understanding Finances An AGC Construction Learning Tool

  2. Session 7 Topics • Punctuality of owner payment • Reduced interest expense • Increased corporate profitability • Historical cost records • Competitive bid success • Contract terms • Owner financing constraints • Contractor financial strength • Surety influence • Banking relationships 4 9 10 1 3 SESSION 2 TOPICS 8 6 6 7 2 5 1 An AGC Construction Learning Tool

  3. Upstream Contract terms Owner financing constraints Contractor financial strength Surety influence Banking relationships Downstream Punctuality of owner payment Reduced interest expense Increased corporate profitability Historical cost records Competitive bid success Understanding Finances An AGC Construction Learning Tool

  4. Cost Information Cycle • Measures • Estimate to budget • Estimate used to prepare the bid or proposal becomes the budget used for field controls • Budget to actual • Field supt. records actual costs and labor hours for comparison to budget • Actual to historical • At end of project, actual costs are reconciled to historical cost archive • Historical to estimate • Archive is used as a reference source when putting together future bids and proposals An AGC Construction Learning Tool

  5. Cost Information Cycle • Information flows • Field to office • Actual productivity; material delivery slips, daily logs • Subcontractor/Supplier to office • Invoices, change orders, RFIs • Office to A/E/Owner • Request for payment, RFIs • Office to field (feedback) • Budgets, design clarifications An AGC Construction Learning Tool

  6. Cost Coding Accuracy • Understanding cost codes • Level of detail • Direct work vs. indirect work • Asking for more cost codes when necessary • Accurate assignment of work to code(s) • Assessing impact of change An AGC Construction Learning Tool

  7. Cost Coding Accuracy estimate • Bidding accuracy is highly dependent upon timesheet accuracy • If you don’t like the budgets you are getting, do a better job of tracking field costs historical budget actual Garbage out Garbage in An AGC Construction Learning Tool

  8. Schedule of Payments/Project Cash Flow • Contractor self-finances first portion of work • Monthly progress pay application • Project S curve • Aggressive billing • Cost-loaded schedules • Cost-plus/Unit-price/Lump-sum An AGC Construction Learning Tool

  9. Schedule of Payments/Project Cash Flow Contract percentage billed for Time Expenditures exceed revenues during the early part of the project because of the time lag between invoicing and payment. The situation is worsened if accurate work-in-place estimates are not available. Inaccurate percentage-complete estimates can make cash flow planning difficult. An AGC Construction Learning Tool

  10. Schedule of Payments/Project Cash Flow • Retainage • On jobs bid at thin margins, retainage can represent most of the profit on a project • Getting retainage released (finishing the punch list) has important corporate financial impacts • Reduction in retainage • “Pay when paid” clauses • Can be financially crippling for small subcontractors An AGC Construction Learning Tool

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