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Accurately forecasting a project’s construction time and cost is critical to the development process as the anticipated time and cost forms a basis for financing, planning and monitoring a project. It can mean the success or failure of a project and is therefore in the financier’s and developer’s best interest to forecast accurately.
Generally speaking, construction projects tend to use funds slowly at first, then as additional trades commence on site, expenditure tends to increase sharply and then tail off towards the end of the project as major trades finish up.
This pattern of expenditure is illustrated by an S-curve, as represented in Figure 1. This forecasting model generated by the CSIRO, and referred to as the Bromilow 20/20 curve, provides a good tool to monitor a project’s progress and rate of expenditure against time and budget.
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When actual monthly expenditures are applied against the forecast curve, progress can be assessed against the forecasted cash flows. Generally speaking, projects tracking below the line indicate they are expending funds faster than anticipated and are perceived to be ahead of schedule and those below the line are falling behind expected expenditure.
Combined with other forecasting methods as well as manual assessments, the cashflow forecast and actual expenditure graph can give an early indication of a project’s progress and forecast anticipated completion dates well in advance.
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Figure 2 is an actual expenditure graph taken from one of our current projects, with the blue line indicating the forecast expenditure, and the yellow line indicating the actual expenditure.
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Analysis of the above graph indicates a number of potential issues:
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It has taken longer than anticipated to get the project out of the ground (foundations completed) which is shown by the gradual increase in the gap between the anticipated and actual cash flows.
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Sharp falls away from the anticipated cashflow can show heavy rainfall months, slowing progress as shown in month 13 above.
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The contractors have not been able to catch up although insisting they could. Short of completing significant acceleration works, the development will not generally be completed in the anticipated timeframe.
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A constant inability to catch up may indicate that additional works or variations will have to take place, not anticipated by the contractor or indicated to the QS.
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Utilising the cash flow diagram, the financier can foresee the loan period may well be extended, increasing interest on the loan facility.
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The Consequences of Poor Cash Flow Forecasts
Consequences of poor forecasting can include:
Windy conditions, whether wet or dry, involving additional risk factors:
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Delays in planning and construction due to lack of funds;
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Exhausting funds before the end of the project – leaving the project unfinished and with no money to complete it; and
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Reduced quality of workmanship due to having to cut corners to make cash go further than expected.
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BMT & ASSOC and Cash Flow Forecasting
The BMT & ASSOC pre-finance report provides a forecast cash flow for a development using manual assessments and the CSIRO-Bromilow 20/20. The curve used is based on the same principles as the standard s-curve. It shows the graphic representation of cumulative costs plotted against time. After construction has commenced, BMT & ASSOC Progress Payment Valuation Reports inform the financier and developer on how the project is proceeding against the forecasted cash flow. This is a good tool for the financier and developer alike, enabling them to revise costs if necessary and generally keep an eye on how the development is proceeding.
Having audited many construction projects for financiers, BMT & ASSOC have the necessary expertise in providing thorough, accurate reports – both before construction commences and during construction. It is vital that financiers obtain a QS report that contains all necessary information about the development in regards to cash flow, as it is a crucial part in ensuring a project runs smoothly – on time and on budget.
Please contact Tom Plenty, Brendan Farrugia or Bradley Beer at the office if you would like further information.
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Recently Completed Projects
Location: Rose Bay, NSW
Project type: 11 residential units
Approx. Construction Cost Per Square Metre: $2,450/m2
Location: Warners Bay, NSW
Project type: 13 mixed use units
Approx. Construction Cost Per Square Metre: $1,100/m2
Location: Corlette, NSW
Project type: 2 residential units
Approx. Construction Cost Per Square Metre: $1,700/m2
Location: Redland Bay, QLD
Project type: 2 commercial units
Approx. Construction Cost Per Square Metre: $1,020/m2
Location: Montmorency, VIC
Project type: 5 residential units
Approx. Construction Cost Per Square Metre: $1,500/m2
Location: Booker Bay, NSW
Project type: 7 residential units
Approx. Construction Cost Per Square Metre: $2,150/m2
Location: Murrumba Downs, QLD
Project type: 19 townhouses
Approx. Construction Cost Per Square Metre: $1,800/m2
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Disclaimer: This information should be read subject to the following conditions:
• Information is published as a matter of interest only and is not intended to be relied upon by readers. In any
situations which may be similar to matters herein readers should exercise and rely upon their own judgement.
• Neither BMT & ASSOC Pty Ltd nor any of its officers or employees bear any responsibility for any error in the
material published in this publication or in any previous publication, or for any damage or loss resulting from any reliance on any material published in this publication or in any previous publication.
• This newsletter is issued as a helpful guide and is not intended to, and does not cover all aspects of the topics discussed. Professional advice should be sought before any action upon these topics is undertaken.
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