This course introduces the types of cost estimation from the conceptual design phase through the more detailed design phase of a construction project. In addition, the course highlights the importance of controlling costs and how to monitor project cash flow. Students will work on a break-even analysis of construction tasks in a project.
Schedule of Value
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來自 Columbia University 的課程
Construction Cost Estimating and Cost Control
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從本節課中
Project Cash Flow
Ben Miller, Project Manager at Gilbane Building Company, discusses contracts and cash flows. Revenues, expenses and how they impact projects as a whole will be covered.
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Ibrahim Odeh, Ph.D., MBAInstructor, Department of Civil Engineering and Engineering Mechanics, Columbia University
Director of Research and Founder, Global Leaders in Construction Management
All right.
Hi everybody, we're going to go ahead and
start our second half of the discussion today.
But first let's just get some
items that we reviewed during our first half up on the board here.
So the main thing we talked about was this small equation, right.
Revenues.
Minus expense.
Equals capital.
And we use that equation to help ourselves create a couple graphs.
The first one was this Showing our earned revenue,
Our project expenses Our payment.
Now, I'm not going to take a ton of time to recreate all the charts that we went
over today.
Instead we're going to focus on how we improve this chart.
What can we do to improve cash flow.
Because as you remember we took the chart, and we took this difference right here.
This is our capital.
Actually let's be more accurate, right?
That's right between expenses and actual payment.
And we looked at that, and we created another chart
that showed us over time, how our capital changes.
So our costs, and then payments and costs, and
payments, costs and payments, all right.
Until eventually maybe our project finally makes money and
we receive our retention payment somewhere around here.
So, we want to talk about how we improve this.
How do we draw this line closer to zero,
closer to breaking even earlier in the project or even just reducing, right?
Because this area right here is financed by a contractor.
If you're a contractor that leverages your company and put you at risk.
That's what we're going to talk about today.
But first we're going to establish a case.
A very simple case study that we're going to look at.
Our case study is going to involve a $12,000 heating contract.
Again, we're going to assume that they make 20% profit on their
$10,000 of expense.
We're going to run with an eight month duration again.
And the work we're going to consider is an existing building.
It's going to have new pumps, risers,
distribution loops around the perimeter of the building.
New heating fixtures and new trim at the end of the project.
So what we need to think about here.
Well, what we really need to think about is the schedule of values.
So we talked about these billings before, right.
We talked about about every month the contractor earns some value and every
month they submit a bill and they get paid, but what's the mechanism for that?
How is that billing cycle get driven?
And, the real way it gets driven is scheduled values.
What the contractor does, is creates a list of activities for the project.
As a general contractor or construction manager or client, what you're looking for
is really distinct and discreet activities that you can measure and monitor.
As the contractor, what you're looking to do is
give to the client a way that they can agree that work was completed.
For everybody involved it's a means to allow payment.
Which as we talked about is the key in driving a project forward.
So you create this list of activities, you assign a value to each of them,
and you submit a bill each month saying, hey, this is how much we've done.
So, how is that done though?
How does a contractor do that?
What's the consideration here?
The main consideration is cost, right?
So we have our curves here, we know our expense.
We know our earned revenue and what we're trying to figure out is our billings.
So, we looked at this project, right?
If we were the contractor,
we would probably have looked at this set of drawings and done an estimate,
created a estimated cost for this project, what we believed it was worth.
And you can see right over here we have a list of the activities.
These are all the activities we need to do.
We're going to drill openings in the slab so we can run our new piping.
We have a new pump that we need to set in place.
From that pump we're going to run risers and
install distribution loops like we talked about.
Install the fixtures, start up the pump, trim out and get everything pretty well
complete, and that's our whole project, it seems relatively simple, right?
It's a good number of steps but nothing too crazy.
So, if we're the contractor we're going to figure out how much labor and
how material we have.
It doesn't matter right now but for
the future we're going to consider our start up, right?
Right here, this $583 activity, to be a contract activity, in other words,
we're subcontracting that to somebody else.
So we know about what our cost is but that doesn't really get us to $12,000, right?
Our cost is right here.
Our revenues are right here.
And we want our final billings right there.
Like we said, the schedule of values drives the billings.
So, what do we do?
Well, we aren't going to show our direct cost to the client and
to the general contractor.
What we're going to do is put our mark up on this.
And so we talked about we're going to assume a 20% markup of the direct cost.
So really the revenue side of this table right over here,
right here, becomes our schedule of values.
So we're going to tell the contractor, the general contractor, how much labor we
have, how much material cost we have, and then finally, a total cost.
That last column profit isn't for the general contractor or for
the client's consideration.
This is purely internal so that we can see how this changes.
During the rest of this presentation you'll see this chart again and
you'll see how we shift things around to improve these two charts.
So that's great, we have a schedule of values that's a good first step, right.
But how do we understand our charts here.
How do we make these charts make sense out of the schedule of values.
We talked about we could just assume an S curve and that would be a good first step.
And it would, it's a pretty decent approximation.
But it's not exact, right.
If you're a contractor looking to figure out exactly how much cash
you have in hand.
The S-curve is going to get you started but
it's not going to give you an exact number.
So how do we do that?
Well we're going to talk about that right now.
So we need to talk about earned revenue, all right?
This curve here, and cost, and how we establish those.
And the easiest way to establish those is by using a schedule.
So let me step out of my own way here.
What we'll see, right, is we had each of our activities, and we distributed them.
We have our base cost here, right?
The very basic cost that we have, that we incur completing this work.
If you add up these numbers,
you're going to have to trust me that they come out to $10,000 dollars.
So, if we take these costs each week,
we're going to assume then that we also have the same earned revenue.
The 20% markup straight on top.
Now, if we plot these costs, and there's some each week,
what we end up with is a cost curve and a revenue curve.
You can see our total expenses and our total earned value for every week.
Now, this is a case study, we kind of idealized this a little bit.
It does follow a pretty close S curve, but it works fine.
Because we'll see how this can be impacted and
how this can be influenced by a contractor.
So if we follow this S curve,
we're going to wind up with a cash flow chart that looks a little like this.
In fact, it looks exactly like this.
Really if you're thinking about this, we can't influence too much here,
like we talked about, right?
This is a three variable equation,
really it's only two that we can worry about.
The capital at the end of the day is the capital at the end of the day.
For our sake we're going to say that increasing our profits to 40% really isn't
a viable strategy, right?
If we say, hey we're going to make 40% at the end of the day, hey, that's great.
But that doesn't really strategically deal with how we shift our cash flow.
So what can we do here?
Well, we can try to influence the earned revenue.
We can try and influence the expense.
And we can try to increase billings, right?
Actual money coming in and
we're going to talk about each of those things a little bit more today.
So, again, just establishing a baseline, we talked about our actual capital, right?
Graphing the real cash in hand here and
this is the chart that we're going to start with.
This is our baseline capital.
So, this is pretty tough, right?
On a project where the total cost is $10,000, there's a point in time where
the contractor is financing almost half of that cost, right around month five.
They're financing close to $5,000.
Now if you're a contractor, that's a lot of money, 50% basically financed,
50% that you're borrowing from other people so that you can complete a project.
Like we talked about, right?
There's that principle of conservatism.
You don't want to count your revenues before they come in, and
before they're in your account.
And at this point, you'd be saying wow that's a lot of money lost on a project.
So how do we deal with that and how do we improve it?
Well we're going to talk about that a little more.
