In the previous blog post in this series, we talked about how the risk of delayed conditional payments can be minimized with better documentation management.

Here we will focus on how an early-warning system can help manage the risk of delayed project overheads and prelims.

First let’s break down the jargon.

In the Indian context of a typical construction project, ‘overhead’ refers to the costs associated with running the project’s head office administration (as per the terms in the contract), plus the interest incurred on the project’s working capital. This can include the cost of running the estimation department, the costs associated with the finance department at the head office who are processing the invoices with vendors, the payment certificates from the client, etc. In some countries, it includes property costs, finance charges on loans, insurances, staff, taxes, external advisors, and marketing and tendering activities. Sometimes, the contracting organizations calculate a percentage against project costs to be set against each project, typically somewhere between 2.5% and 10% to cover head office services.

Project Preliminary costs or Prelims are site-specific costs. They are the costs directly related to the running of the project, but not accounted under the package of works required by the contract. It includes site management, site staff, site operating expenses, temporary services involving site maintenance like security and environmental protection control etc. So ‘prelims’ and ‘work sections’ together lay out everything required to complete the works specified in the contract. For that reason, ‘costs attached to preliminaries’ are referred to as just ‘preliminaries‘ or ‘prelims‘, or as ‘site overheads‘, or general cost items or expenses. The preliminaries may also list items the main contractor is to provide on behalf of the Employer such as client’s offices, site vehicles, PPE etc.

Simply put, prelims are costs specific to a particular project whereas overheads are head office costs associated with transactions conducted for that project. Obviously, delaying either would be detrimental to not only the project’s progress but to the relationships between project parties.

How SmartProject can streamline the management of overhead and prelims costs.

Overhead and prelim costs are borne on a monthly basis and typically paid during the duration of the contract. So if cash flows tighten up, managing these monthly costs can become very challenging. This is where an integrated system like SmartProject comes in handy. It keeps meticulous track of work progress and makes sure that managers never get caught by surprise.

In SmartProject, managers can monitor the project’s progress in real time so effectively that if it seems unlikely that the contract will get completed on schedule, as often happens, they have an early heads-up and can take action pre-emptively rather than fire-fighting or damage control later.

For example, if you know ahead of time that early progress towards the scheduled milestone is slow, instead of waiting until the milestone is actually missed, you can act preemptively. You could negotiate proactively with the client instead of waiting for the last minute; you could call him early on and discuss the possibility of extending the prelims payment period. If the client refuses, you could make a provision from your contingency budget, so you have the money required to pay for the prelims. And so on.

Moreover, SmartProject also has the provision to forecast completion periods of delayed tasks and provides expected cash flows. This will greatly aid top management to take necessary pre-emptive control measures as necessary to reduce the financial burden on the project and company’s bottom line.

Projects are a constant juggling act with very little margin for error, and that is unlikely to change, but having an integrated information management system could give managers a bit more control when it comes to managing tight cashflow situations. That little bit of control could make all the difference, and keep work going even in unfavorable circumstances.