When someone thinks of the excitement of constructing a new building, financial reporting immediately comes to mind. We’re kidding of course. For a lot of people financial reporting is something they don’t enjoy. Nevertheless it an important part of any construction project.
Throughout my career I’ve been on projects with both good and bad reporting structures and methods. Keeping an owner, and your own company informed of the financial status of a project is just as important as quality and schedule.
In order to determine who your report will be distributed to you need to first determine who your audience will be, there are two main audiences for reporting:
Internal Reporting – is important for two reasons. The first and most obvious is knowing how much money you will be making. Contractors charge fee on a project, and that fee is intended to go into the business. Reports help to monitor that fee and make sure the company limits exposure. The second reason is for cash flow. A project that doubles in value will have a significantly different impact on the organization.
External Reporting – is equally if not more important than internal reporting. Ensuring your client is aware of their costs is important. These reports should summarize the overall budget, potential change orders, cash flow, risks and more. These reports get distributed to your client and consultants.Knowing your audience for your #construction #financial report is important as you'll want to tailor the information you'll be providing to the audience's needs Click To Tweet
How Often Should Construction Financial Reports Be Issued?
The contract is the first place to start when determining how frequently your construction financial reports should be issued. There may be information outlined in the specification or the contract itself which dictates both frequency and timing of the reports. Consider issuing your reports on a monthly basis if the contract doesn’t specifically outline it in detail. This will typically cover your from both a liability and due diligence standpoint.
What Should be Included In An Internal Financial Report?
There are a number of key items which need to be included in your internal financial report, below we’ll walk you through each and provide some examples.
Forecast – the forecast needs to at a bare minimum identify what your budget numbers are, costs or committed costs to date and anything left over or any over run. You should break this report down by division including soft costs from hard costs (your costs vs costs that are subcontracted out).
Staff Forecast – if you’re part of a larger company staff planning is important. Provide forecasts for the staff you have on your project including how long they have been on the project vs how long they have remaining. You can use this as a staff loading chart to tell you how much money you have to spend on staff.
Fee – we are all in business. Part of running any business is making money. Identify how much money your project will be bringing in for your company in a seperate report.
Schedule – Provide a schedule. Don’t know how to prepare a schedule sorted by WBS? Don’t worry we have you covered with this article on construction scheduling.
Forecast – depending on your contract type the reporting requirements here will vary. For example, if you have a lump sum contract the amount of information you’re required to provide is minimal. On a construction management contract you’ll need to be more transparent. Regardless, as a bare minimum you should outline all of your budget line items for each division.
Changes – identify changes by a reference number, status of them and the value. Identify if they have been issued by consultant, quoted or if a change order has been issued and fully executed.
Risk – this is one of our favourite parts. Identify any major risk items that are out on the project right now. For example, if there’s a chance you’ll find asbestos, identify what that cost could be. These are “might happens” but atleast you’re identifying it early rather than forcing your owner to make a last minute decision. As part of this report you should identify the likelihood of it happening again. For more on risk check out our managing risk in construction article.
Cashflow – ensuring an owner knows how much money they will need to spend at certain points in the project is important. Providing a cash flow graph should be mandatory in every report.
Schedule – your contract likely has a legal requirement to provide a monthly schedule update. This is a great way to easily satisfy that requirement. To take it a step further, provide a written summary.
Submittals and RFI’s – provide a log and summarize outstanding submittals and RFI’s from your trades.
Putting Your Construction Financial Report Together
This report will take time to put together. Be proud of the work that you’ve done and make sure other people are aware of your pride. Put a nice cover on it. Make sure there are headers on each of your pages, page numbers go a long way.
Just because we work in an industry that isn’t always the fanciest doesn’t mean we can’t prepare professional looking documents.
Take the time and prepare a professional looking report. It will go a long way to getting your client to appreciate the report.
Below are a few links to some additional resources to help you prepare your reports: