As each month ends the project prepare the dreaded cost report. This report is reviewed by management and information extracted to be consolidated into the overall business reporting regime. But what value are these reports and what benefit do they provide?
The responsibility for the report lies with the project manager but it is usually prepared by the contracts manager/administrator and due to time constraints often the project manager has little input into the report even though he is responsible for it. The report can be quite long and detailed and all too often the only number the project manager looks at is any movement to the project margin.
The following points are all to often encountered in the preparation of the cost report:
The reports may include forecast revenue for head contract variations which have been submitted but not approved. The forecast cost of these must be include but not any margin uptake. However, in the world of design and construct how accurate are the forecast cost when design has not been finalized and the revenue/cost is not based on subcontract pricing but on elements of the cost plan.
The reports may not include all of the true project costs. Such as head office charges, late submission of subcontractor’s variations, late suppliers invoices, costs incorrectly costed to another project and incorrect cost coding.
Revenue may also be overstated by including the most recent client progress claim which is yet to be certified and is over claimed..
The cash flow report may show a large cash positive position. This may be due to subcontractors not submitting accurate claims
If there is over claiming it simply means the costs have not been incurred and the cost to complete are disproportionate to the physical progress on site. If this is not considered the margin position of the project is spurious.
They take too much time to prepare because:
- The information is outdated often by a minimum of one month.
- The report has simply too much information and detail.
- Several people have input including Health and safety, programming, procurement, pictures and the person preparing it ends up chasing individuals who submit their “section” at the last minute not giving enough time for analysis prior to the report being tabled.
How to tighten up cost reporting (and control costs before they are incurred)
- On a design and construct project It is essential that all decisions taken regarding design changes or trade lettings are based on a forecast of the cost implications of the alternatives being considered, and that no decisions are taken whose cost implications would cause the total budget to be exceeded.
- The project leader must be involved in the preparation of the cost report, not simply reviewing what a junior contract administrator has prepared.
- Accurate cash flow reporting is a function of accurate programming and an analysis of the programme status at the month end of the cost report period. Cash flow is not independent of the programme.
- Only project members who have the authority to spend, commit expenditure or approve variations should do so. And should be carried out in accordance withe the head contract and the subcontract..
- Most projects include a contingency for risk for items not included in the cost plan. However, before the contingency is accessed involvement by the cost planner is essential