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Project Finance Flashcards MRICS L3

Q: RR7: What does SPI < 1 indicate?

The project is behind schedule. Less value has been earned than was planned at this point in time. Schedule Variance (SV) = EV - PV is negative. Action needed: accelerate critical activities, add resources, or revise programme and report to client.

Q: RR8: What triggers an Undefined PS instruction under FIDIC?

The Engineer must give advance notice to the Contractor before instructing expenditure of an Undefined PS. This is because the Contractor could not have included time-related costs in the programme at tender. Without notice, the Contractor may claim EOT and delay costs.

Q: RR9: Name 3 common causes of cost overrun on construction projects.

1. Scope changes/variations not properly controlled or priced; 2. Provisional Sums exceeding budgeted amounts due to late or poorly defined instructions; 3. Unforeseen site conditions (ground conditions, hidden services) driving additional work beyond the contract allowance.

Q: RR10: What is a Final Account Statement and when is it issued?

A document summarising all financial adjustments to the Contract Sum — variations, PS expenditure, fluctuations, claims — arriving at the final agreed amount payable. Issued at practical completion or during the defects period. Must be agreed and signed by both parties to close the contract financially.

Q: K1: What is Project Finance (Cost Management)?

The financial management framework for controlling project costs, cash flow, and funding throughout the project lifecycle. Encompasses budgeting, cost control, financial reporting, and final account preparation. Enables the PM to maintain financial accountability to the client.

Q: K2: What is Cost Control on a construction project?

The process of monitoring and managing project expenditure against an approved budget. Involves tracking actuals, forecasting cost-to-complete (CTC), identifying variances, and taking corrective action. Reported to the client via cost reports, typically monthly.

Q: K3: What are Variable Costs and give examples?

Costs that change in proportion to project activity or scope. Unlike fixed costs, they fluctuate with scope changes, quantities, and labour hours. Examples: Provisional Sums, dayworks, fluctuation allowances, remeasured items in contracts with Bills of Quantities.

Q: K4: What is a Provisional Sum (PS) under FIDIC?

A sum included in the contract and designated in the BoQ for work, goods, or services that cannot be fully defined at tender. Can be Defined or Undefined. Expended only on the Engineer's instruction. Unspent PS amounts are omitted from the Final Account.

Q: K5: What is the difference between a Defined and Undefined Provisional Sum?

Defined PS: Sufficient scope information at tender for the Contractor to programme and include time-related costs. Undefined PS: Insufficient scope — the Contractor cannot plan for it. Engineer must give notice before instructing expenditure. Failure to do so may entitle the Contractor to EOT and additional cost.

15 important questions on Project Finance Flashcards MRICS L3

RR6: What is the formula for Earned Value (EV)?

EV = % Complete × Budget at Completion (BAC). Example: Activity worth £500,000 that is 40% complete has an EV of £200,000. Compare EV to AC to get Cost Variance; compare EV to PV to get Schedule Variance.

RR7: What does SPI < 1 indicate?

The project is behind schedule. Less value has been earned than was planned at this point in time. Schedule Variance (SV) = EV - PV is negative. Action needed: accelerate critical activities, add resources, or revise programme and report to client.

RR8: What triggers an Undefined PS instruction under FIDIC?

The Engineer must give advance notice to the Contractor before instructing expenditure of an Undefined PS. This is because the Contractor could not have included time-related costs in the programme at tender. Without notice, the Contractor may claim EOT and delay costs.

RR9: Name 3 common causes of cost overrun on construction projects.

1. Scope changes/variations not properly controlled or priced; 2. Provisional Sums exceeding budgeted amounts due to late or poorly defined instructions; 3. Unforeseen site conditions (ground conditions, hidden services) driving additional work beyond the contract allowance.

RR10: What is a Final Account Statement and when is it issued?

A document summarising all financial adjustments to the Contract Sum — variations, PS expenditure, fluctuations, claims — arriving at the final agreed amount payable. Issued at practical completion or during the defects period. Must be agreed and signed by both parties to close the contract financially.

K1: What is Project Finance (Cost Management)?

The financial management framework for controlling project costs, cash flow, and funding throughout the project lifecycle. Encompasses budgeting, cost control, financial reporting, and final account preparation. Enables the PM to maintain financial accountability to the client.

K2: What is Cost Control on a construction project?

The process of monitoring and managing project expenditure against an approved budget. Involves tracking actuals, forecasting cost-to-complete (CTC), identifying variances, and taking corrective action. Reported to the client via cost reports, typically monthly.

K3: What are Variable Costs and give examples?

Costs that change in proportion to project activity or scope. Unlike fixed costs, they fluctuate with scope changes, quantities, and labour hours. Examples: Provisional Sums, dayworks, fluctuation allowances, remeasured items in contracts with Bills of Quantities.

K4: What is a Provisional Sum (PS) under FIDIC?

A sum included in the contract and designated in the BoQ for work, goods, or services that cannot be fully defined at tender. Can be Defined or Undefined. Expended only on the Engineer's instruction. Unspent PS amounts are omitted from the Final Account.

K5: What is the difference between a Defined and Undefined Provisional Sum?

Defined PS: Sufficient scope information at tender for the Contractor to programme and include time-related costs. Undefined PS: Insufficient scope — the Contractor cannot plan for it. Engineer must give notice before instructing expenditure. Failure to do so may entitle the Contractor to EOT and additional cost.

K6: What are the NRM1 risk categories for cost planning?

NRM1 risk allowances are categorised as: (1) Employer's design development risk; (2) Construction risk; (3) Employer's change risk; (4) Employer's other risk; (5) Contractor's risks. Expressed as % of construction cost. Typically 5–15% depending on design stage and project complexity.

K7: Under FIDIC, what are the 4 conditions for adjusting contract rates?

Sub-Clause 12.3: Rate adjustment triggered if: (1) measured quantity differs from BoQ by >10%; (2) the change × rate exceeds 0.01% of Accepted Contract Amount; (3) the change directly alters the cost per unit; (4) the item is not specified as a fixed-rate item in the contract.

K8: What are NEC Compensation Events (CEs)?

Events under NEC contracts (Clause 60.1) entitling the Contractor to additional time and/or money. Include: PM instructions, late access, late drawings, Employer-caused delays, unforeseen physical conditions, prevention events. Must be notified within 8 weeks of becoming aware or entitlement may be lost.

K9: What is Earned Value Analysis (EVA)?

A project performance measurement technique integrating scope, schedule, and cost. Uses three values: Planned Value (PV) = budgeted cost of work scheduled; Earned Value (EV) = budgeted cost of work performed; Actual Cost (AC) = actual cost incurred. Enables objective performance forecasting.

K10: What do SPI and CPI mean in Earned Value Analysis?

SPI (Schedule Performance Index) = EV ÷ PV. SPI >1 = ahead of schedule; <1 = behind. CPI (Cost Performance Index) = EV ÷ AC. CPI >1 = under budget; <1 = over budget. EAC (Estimate at Completion) = BAC ÷ CPI. Used to forecast final cost and completion date.

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Project Finance Flashcards MRICS L3

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Project Finance Flashcards MRICS L3

15 important questions on Project Finance Flashcards MRICS L3

RR6: What is the formula for Earned Value (EV)?

RR7: What does SPI < 1 indicate?

RR8: What triggers an Undefined PS instruction under FIDIC?

RR9: Name 3 common causes of cost overrun on construction projects.

RR10: What is a Final Account Statement and when is it issued?

K1: What is Project Finance (Cost Management)?

K2: What is Cost Control on a construction project?

K3: What are Variable Costs and give examples?

K4: What is a Provisional Sum (PS) under FIDIC?

K5: What is the difference between a Defined and Undefined Provisional Sum?

K6: What are the NRM1 risk categories for cost planning?

K7: Under FIDIC, what are the 4 conditions for adjusting contract rates?

K8: What are NEC Compensation Events (CEs)?

K9: What is Earned Value Analysis (EVA)?

K10: What do SPI and CPI mean in Earned Value Analysis?

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