End of the month can be a time consuming, labour intensive and frustrating time. It’s hard to define a repeatable process when education, business process and clear objectives are lacking, or even worse; a combination of each.
Corporate and client reports rely on Earned Value Management (EVM) to bring together scopes of work to report completion of a project. For businesses achieving completion rates in accordance with a plan, being on schedule is not their only concern. There’s no point in being on time but over budget. What’s worse is estimating cashflow for larger projects, where cashflow significantly affects company performance on the stock market.
Not being able to pay contractors, suppliers and creditors on time, can cause irreparable damage to reputation and can invoke negative consumer sentiment.
Poor monthly forecasting practices at the project level can often cause significant issues for corporate and public entities in estimating revenue and profit year to year. The bigger the portfolio, the bigger the risk if such practices are widespread, not centralised and not easy to undertake.
When we breakdown the requirements for forecasting, the end state should be clear:
- Estimate the amount of work left to go (both scope and quantities);
- Estimate the resources required (labour, plant and materials, etc);
- Estimate the time required when taking into account resource and material availability;
- Estimate contingency and shore up risk by ensuring adequate emergency funds or courses of action;
- Determine the format and the requirements for the individual company;
However, something that is often forgotten is estimating the revenue of the work to be achieved. By understanding this, scope owners can look at more creative ways of achieving the end product, through continuous improvement in streamlining expenditures; including more logical planning of work, piggybacking on similar scopes of work and looking at cost savings in every facet of their work. This in turn can be absorbed and adapted back into the plan to re-forecast logic-based activities and rebase quantity, cost and labour.
Just like personal finances, you set out a budget, you determine your income and expenses and you proactively look for a way to juggle need and wants.
Proper education of young engineers, quantity surveyors and contract administrators from mentors and senior members of the team is critical, whereby junior members develop financial acuity in day to day works and operations. Through this they can professionally develop an understanding of the following:
- Earned Value Management;
- Estimation practices;
- Construction practices (and creative alternatives);
- Contractual requirements;
- Financial management practices and company constraints;
- Management of subcontractors, suppliers and others;
There are many courses available for young professionals to develop skills across the board.
The bottom line? Invest in your team and the return on investment will be greater than any short term investment can achieve.