Financial Planning and Project Cost Control Techniques Applied to Building Management

Abstract

The study first examined the extent of the use of financial planning techniques by a representative group of building companies. While general support for such procedures in principle was found, evidence of their application seemed restricted to the larger firms. Guided by such results the means of introducing a system of financial planning into a modest sized building company was devised. The system was limited initially, to the forecasting of turnover, developed from an extension of existing control procedures. Following an evaluation of the system in this embryo form recommendations were made for its extension in order to take account of inflation, taxation and the importance of maintaining an adequate level of liquidity. Due regard was also given to achieving an appropriate measure of profitability relative to turnover achievement and investment during trading activities. In formulating such recommendations, consideration was given to the value of Cash Flow Analysis and the computation of Internal Rate of Return, and the manner in which variations in performance,as indicated by these criteria, may influence company policy. An examination was made of the existing conditions in a larger company (at present capable of undertaking such procedures) to see whether they were conducive to staff readily undertaking the additional processes of Cash Flow Analysis and the evaluation of Internal Rate of Return at the tender stage; and whether the opportunities were available to assess and compare individual projects on the basis of their working capital requirements and internal rate of return prior to tender submission. Such findings support proposals concerning the adoption of financial planning procedures by the first mentioned company.