Budgets

Types of budget Organisational goals informed by the strategic plan and the organisations ability to meet its historic targets – Strategic Turnover Cash Overhead Profit and Loss Balance sheet – Project Turnover Cash Production Profit © 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd. 2

Strategic Budgets Turnover – Difficulties in prediction – Work at final account stage, in progress, secured but not started, tendered, enquiry – Work not won Definite (100%) Probable (70%) Possible (20%) Overheads – Prediction of costs based on historic data – Aligned with turnover budget to give a % recovery – Shortfall of turnover Reduction in overheads recovery Options – Increase contribution on existing projects=reduction of margin – Increase percentage on tendered projects=reduced competitiveness – Reduce costs=loss of importance resource – Need for monthly monitoring of turnover and overhead budgets © 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd. 3

Project level budgets Turnover projections – Based on information available Low level of information- s curve models High levels of information- price and programme analysis Production budgets – Procurement budgets Labour Materials Plant Subcontractors – Activity level budgets Used to monitor the productivity of the resources Labour outputs Materials wastage Plant utilisation Etc. © 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd. 4

Materials procurement budgets © 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd. 5

Subcontract procurement budgets Subcontract packaged send outs Quotations received and assessed for compliance Comparisons made Quote selected for inclusion Discount taken? Adjustment for commercial opportunity Budget and procurement programme established Resend outs E-procurement – Reverse auctions © 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd. 6

Activity level budgets © 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd. 7

Budgetary control Control- implies an ability to influence outcomes – Budgets established based on “theoretical“ conditions expressed within the documentation. – Often little relationship to actual conditions, can give rise to an argument for rerating however most “control” attempts to bring future events closer to those predicted. Resource allowances – From the net allowance bill – Adjustments for additional oncost to provide targets loosely based on estimators assumptions Basis principle – Disentangle procurement gains from production losses – e.g. if labour costs £10.00/hr and the allowance is £12.00/hr, this is a buying gain and should not mask losses which may be due to low productivity Control strategies – Labour Labour allocation sheets Bonus development – Materials Wastage Contra charge subcontractors for over-use – Subcontract Reconsider construction sequence/re-engineer design Seek new prices © 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd. 8

Earned Value Analysis EVA- compares the amount planned with that accomplished to determine if cost and programme are as planned. Projects subdivided into work breakdown structures (each with control plans) – BCWP Budgeted cost of work performed – BCWS Budgeted cost of work scheduled – ACWP Actual cost of work performed © 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd. 9

BCWS

BCWP/ACWP © 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd. 11

BCWS cf BCWP cfACWP Andrew Ross and Peter Williams 12

Derived metrics CPI-cost performance index – CPI=BCWP/ACWP SPI-Schedule performance index – CPI=BCWP/BCWS © 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd. 13

Summary © 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd. 14

EVA in construction practice? Challenges – Unique nature of projects – Difficulty in establishing work breakdown structures – Impossible to develop control plans Information – Historical benchmark data out of date v quickly New technologies Different approaches to activity that make comparison spurious Data collection and analysis costly Integration with CVR – Has been attempted but the systems are designed for distinctly different purposes CVR-accounting EVA-production Future – BIM possibilities.... © 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd. 15