How can this be avoided? Good cash and project management is key and will ultimately be the difference between success and failure. Here are some practical ways to manage your financial processes:
1 Allocate a cost…. for everything! Each and every job and process needs to be costed and a budget plan drawn up. Use historic expenditure patterns and check for appropriate benchmarks that may have been identified for budgeting purposes. Look forward and use your commercial knowledge to identify future changes which might impact on costs, such as legislative changes or exchange rates. 2 Allow for change If the past eighteen months have taught us anything it is that there will always be variances in costs, so don’t be tempted to draw up a budget fixed on the lowest figures. For example, labour costs need to take into account holidays and sickness pay, and overhead costs soon mount up. Bear in mind that a job may at first appear to have a healthy profit margin, but that may quickly erode once all the overhead costs have been incurred. 3 Set up control mechanisms Define who will control your project finances, how frequently they will report, and to whom. Ensure that your finance manager has access to the appropriate systems to allow them to collect timely and relevant information, and minimise the need for duplication of input.
4 Don’t overstretch your cash resources When preparing and implementing a project, look at the working capital you have and ensure you have enough to keep the project moving. Be honest about what expenditure will turn into cash promptly, and which costs will take longer to recoup, and negotiate with financiers if necessary. 5 Capture your costs Set up a regular review system to capture costs and separate recoverable costs from non-recoverable costs. Make sure you know how the costs are made up and question what they include. For example: do the labour rates include a percentage for overheads and profit? 6 Keep your lines of communication open Communication is essential to every phase of a project. Positive and negative news are equally important, so you need to establish a flow of communication with everyone involved. This transparency will make the process smoother and reduce stress whenever a problem arises. 7 Check your work in progress As costs build up in work in progress make sure they are subject to regular review and can be supported. Identify work in progress which is represented by irrecoverable costs and make sure it is accounted for correctly and understood by all those involved in the project.
8 Ask questions Every good financial project manager becomes an integral part of the project, working alongside others on the project and sense checking their figures. Financial project management on construction jobs requires particular care, because field elements can drastically affect the workflow of projects. It’s a good idea to develop a system of people who review others’ work in progress and who can challenge the data when required. For example, how are costs shared between projects dealt with? 9 Use tools to monitor costs and budgets Good financial project management requires all direct and indirect costs to be recorded. Even relatively small construction projects contain hundreds of individual costs, so to remain effective you need to use software that can track and monitor all costs, and alleviate the need to coordinate with every member of the team in order to allocate them against budgets. 10 Be honest about the profitability of the project Most of us are optimists, so make sure you build in contingencies for extra costs and time. Work-in-progress can distort figures especially on large projects covering a number of months. If you haven’t dealt with it before, your accountant will be able to advise you on how to factor it in. If you are embarking on a construction or property project, or need some help with your financial project management please get in touch with one of our business advisers for an initial chat.
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