Financial Control Of Projects

Financial Control Of Projects
By The Office of Government Commerce – OGC, UK

Purpose

Established and effective cost control systems and procedures, understood and adopted by all members of the project team, entail less effort than ‘crisis management’ and will release management effort to other areas of the project.

Fitness for purpose checklist

• The prime objective of the government’s procurement policy is to achieve best VFM.
• To exercise financial/cost control, project sponsors need to review and act on the best and most appropriate cost information. This means that they should receive regular, consistent and accurate cost reports that are both comprehensive in detail and presented in a manner that permits easy understanding of both status and trends. Reports need to be tailored to suit the individual needs of each project and should always be presented to give a comparison of the present position with the control estimate.
• Reports to project sponsors normally give only the status of the project overall. But sponsors will on occasion need to monitor costs against a specific cost centre in more detail. The typical contents of a cost report are given in Annex A.
• Tables of figures are essential, but for rapid understanding and analysis of trends some graphs are helpful.

Suggested content

The following aspects should be addressed in a financial report (rather than repeating detailed information available in earlier reports, later reports can summarise the key points and cross refer to the relevant earlier reports):

• development of budget
• original authorised budget
• new budget authorisations (giving justification for changes)
• current authorised budget
• expenditure to date

(Each section on budgets and expenditure should address the original base estimates and risk allowances for each element)

• commitments
• agreed variations (giving justification for variations)
• potential/expected claims or disputes awaiting resolution (if the project is going well, this area should be small)
• commitments required to complete
• orders yet to be placed
• variations pending
• future changes anticipated.

Each of the following cost elements should be covered:

• in-house costs and expenses (including all central support services, administration, overheads etc)
• consultancy fees and expenses (design, feasibility, client advice, legal, construction management, site supervision etc)
• land costs
• way leaves and compensation
• demolition and diversion of existing facilities
• new construction or refurbishment costs
• operating costs
• maintenance costs
• disposal costs
• insurance costs
• all other costs relating to the project not listed above.
• All prices need to be discounted to a common base.
• Example of a cost summary report

Source information

• Project Plan / Project Execution Plan

Notes

Budgets at all project stages (for each element of the project) should be calculated on the sum of the base estimate and the risk allowance for that element of the project. Ideally budgets should be based on a confidence limit cost profile with the budget set at the 50% confidence limit.

Accounting Officers should ensure that:

• the resources available to their department are organised to deliver departmental objectives in the most economic, efficient and effective way, with full regard to regularity and propriety.

An Accounting Officer should ensure that effective management systems appropriate for the achievement of the organisation’s objectives, including financial monitoring and control systems, have been put in place. You should also ensure that managers at all levels:

• have a clear view of their objectives, and the means to assess and, wherever possible, measure outputs or performance in relation to those objectives;
• are assigned well defined responsibilities for making the best use of resources (both those consumed by their own commands and any made available to organisations or individuals outside the department), including a critical scrutiny of output and value for money; and
• have the information (particularly about costs), training and access to the expert advice which they need to exercise their responsibilities effectively.

Accounting Officers should ensure that expenditure and payments are made in a way which represents value for money. They should assess the risk to regularity and propriety associated with such expenditure and payments and construct systems which are appropriate to those levels of risks.

Particular care should be taken on the timing of payments; departments should not try to circumvent spending limits by delaying payments or making them before they are due.

The Office of Government Commerce – © Crown Copyright 2009