This chapter provides a detailed look at the systems and procedures for managing project costs. It builds on the estimating concepts from Chapter 3 and the time management concepts from Chapter 7 to present a comprehensive framework for cost control. The chapter explains how to establish a project cost system that tracks all costs against the original budget.
It covers the process of cost coding, where all project costs are categorized in a way that allows for easy tracking and analysis (e.g., by CSI MasterFormat). The chapter explains how to set up a system for commitment accounting, which tracks purchase orders and subcontracts to forecast future costs. It details the process of cost monitoring and forecasting, showing how to use tools like EVA to predict the final cost of the project. The chapter also addresses the management of change orders and their impact on the project budget. By the end of this chapter, readers will understand how to establish and maintain a robust cost system that provides early warning of budget overruns.
Chapter 12: Project Financial Management
The final chapter of the book elevates the discussion from cost control to comprehensive financial management. While cost control focuses on tracking expenses against a budget, financial management is concerned with the overall financial health and cash flow of the project. This chapter covers critical topics such as cash flow analysis, which involves forecasting when money will be received from the owner and when it must be paid out to suppliers and subcontractors.
It explains the concepts of progress payments and retainage, and how they impact a contractor's cash position. The chapter discusses the importance of managing working capital and the use of financing to cover cash flow gaps. It also covers the financial aspects of project closeout, including the final accounting, the release of retainage, and the settlement of any outstanding claims. By covering these topics, the chapter prepares project managers to think like business managers, understanding that the ultimate success of a project is measured not just by its timely completion, but by its financial profitability.
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