Inside a construction project There are many different areas, and some of them have little or nothing to do with engineering—such as financing. Therefore, even though these may not be an engineer’s primary responsibilities, it is advisable to have some knowledge of them.
As soon as a construction company is awarded a contract for a project—especially if it is a major one—it is essential to secure the necessary funds to carry it out. This can be achieved in various ways, such as through a public grant, project finance, a bank loan, or bonds.
Once funding has been secured, we need to think about how we are going to control project expenses so that everything goes according to plan. In particular, care must be taken to avoid cost overruns, which are common in the construction industry and result in an increase in the total project budget.
In this regard, the goal of any company undertaking a project is to generate revenue that exceeds its costs, which is why it is very important to maintain a sound financial management.
Methods for Financial Control of a Project
Consequently, given the importance of financing in engineering projects and their subsequent inspection, we would like to present some methods that help control expenses during the construction phase:
1. Value-Added Analysis
To monitor the progress of a construction project, we need a tool that allows us to determine its approximate actual status. We can achieve this through a process of simple and logical arithmetic calculations, which is known as the Earned Value Method. With it, we can track a project's progress based on the planned budgets and timelines.
To do this, we would need to calculate the expenses incurred, the actual progress against the schedule, and the budgeted cost of the work performed. These three concepts form the basis of the Earned Value method.
By "Earned Value," we mean the budgeted cost of the work completed as of a specific date; it is usually abbreviated as BCWP. On the other hand, to determine the schedule variance, we must subtract the BCWS—which is the estimated cost of the scheduled work—from the earned value.
2. Progress Reports
Another complementary alternative to the previous method for keeping track of finances is the Progress Reports. These help us compare actual values with initial estimates, and to do so, we need periodic reports as the project progresses.
A progress report must include the start and completion dates of construction, the cost of resources consumed as of the report date, the revenue generated, and any variances from the allocated budget.
The purpose is to obtain accurate information on how the project is progressing and to be able to quickly identify any significant deviations from the budget.
3. The Control Cycle in PERT/Cost
Project evaluation and review techniques (PERT) are a administration and management model which began to be used in 1957. Currently, in the construction industry, the PERT/cost method is used, which allows us to schedule, evaluate, and review both the time and costs of a construction project.
The frequency with which the reports are prepared must be specified by the project manager, and it will depend on the type and complexity of the project; it may be conducted weekly, monthly, etc.
Dossiers are generally prepared based on five key considerations: labor, project cost, schedule, critical path, and the summary report to management. Preparing this documentation is a highly effective way to minimize expenses throughout the construction process.
In short, the funding for engineering projects and its subsequent monitoring is a very important topic that engineers need to understand. If the general explanation we’ve provided in the previous points hasn’t been enough for you, and you’d like to deepen your knowledge on this subject, learn more about our related graduate programs.
