PMIS 331: PMIS for Capital Projects Finance
Capital project owners, in the private as well as public sectors, are always in need to secure project finance before they can proceed with their planned project investments. This explains why public-private partnerships (PPPs) are increasingly being used as a platform to encourage more private-sector engagement in different sectors including real estate. A key motivation for governments considering public-private partnerships (PPPs) is the possibility of bringing in new sources of financing for funding public infrastructure needs through project finance. Project finance as defined by International Project Finance Association (IFPA) is the financing of long-term infrastructure, industrial projects and public services based upon a non-recourse or limited recourse financial structure where project debt and equity used to finance the project are paid back from the cash-flow generated by the project.
Therefore, it is of great importance that the funds allocated to finance the project construction are not exceeded as well as the completed project to be delivered on time and in accordance with the agreed quality standard to ensure timely payments of periodic lease rentals. Project management information system (PMIS) like PMWeb will provide the institutions providing the project finance with a real-time solution to monitor, evaluate and report a single version of the truth of project’s performance and status. For those organizations, what matters for them most is to have the insight on project’s risks, issues, financial matters and relevant project documents.
Project Risk Management
Risks are part of every capital project delivery. Risks identification, analysis, response, monitoring and control should be an on-going process until the conclusion of the project. Not only this will help in mitigating the negative impacts of risks on project’s budget and completion date but will also help in creating knowledge database of all those unknowns uncovered during the capital project delivery. PMWeb will be used to enforce a formal process to capture, analyze, respond to and report project risks. The risk register will be the output of this process and will provide a real-time report to monitor, evaluate and report the project’s risk exposure.
In addition, issues management will be implemented to respond to those risks that were accepted as is without a formal response action. This will help in limiting the negative impacts of those risks. Each capital project should have a documented process for managing issues details who does what, the detailed procedures, forms, workflow, etc., protocols for levels of authority and how to communicate and promote the process and its importance to all participants. PMWeb custom form builder will be used to create the customized issue form along with the workflow to submit, review, close or escalate an issue. This will enable having a real-time visualization of all issues that are impacting the project to drive the actions to get those issues resolved.
Performance Budget Management
One of the most critical objectives in project finance is to ensure that there will be no cost overrun for the approved budget to be financed. Actually, failing to adhere to the project’s approved budget baseline would have drastic impact on the project’s viability and the target internal return on investment (IRR). It is therefore a must to have detailed cost estimate that covers direct and indirect cost as well as contingency or reserve to cover for the unknowns. The detailed cost estimate which is usually done or get verified by a third-party cost consultant needs to be imported into PMWeb to maintain track of all cost estimate versions and those involved in reviewing and approving the cost estimate along with all the documents used to come with the cost estimate.
The project budget will be generated from the approved cost estimate using the cost breakdown structure (CBS) levels which will become the basis for controlling the project cost. Some organizations might opt to have the CBS to be the same as the WBS levels used to define the project scope. Since PMWeb allows multi-currency at line item level, budget line items could have different currency than others when needed. PMWeb has an automated currency exchange module to update the exchange rates at the desired frequency. The next step is to provide the financial projection for each budget line item taking into consideration the relevant project schedule activity’s start and finish dates and the expected budget spending for each project period. Although there are pre-defined projection curves to expedite the projection allocation process, nevertheless, this can be manually adjusted to improve the planned budget value for each period.
All adjustments to the approved baseline budget including budget additions and omissions due to approved change orders as well as transferring funds between cost centers will be governed using the budget request process. This will also include any usage and transfers of the approved project contingency to other cost centers of the project. Workflow can be assigned to the budget request adjustments to formalize the steps to submit, review and approve those adjustments before they adjust the approved baseline budget.
This will enable having real-time report on the project budget performance which could include comparison between the different budget versions, budget planned spending projection which is the same as planned loan drawdown, list of all budget adjustments along with the reasons for those adjustments, drawdown of project contingency among others.
Project Funding
PMWeb project funding module will be used to capture the details of all fund sources that are available to the project including debit, equity or any other source. It will also include all funding requests issued against those fund sources and the authorization to release those funds. The fund authorization allows breaking down the authorized funds against each Work Breakdown Structure (WBS) levels of the project to keep track of how the funds were dispersed.
Commitments
Although the project performance budget should be accurate, nevertheless the degree of accuracy can be only verified when the actual contracts, purchase orders, subcontracts and other commitments to deliver the project asset are formally awarded. PMWeb will be used to capture all those commitments including their payment terms and conditions. PMWeb procurement and online bidding modules will be used to manage the procurement process and ensure that there is documented technical and commercial evaluation for all awarded commitments. In addition, PMWeb pre-qualification module can be used to ensure that all awarded contracts where only to pre-qualified suppliers and subcontractors.
Actual Cost Against Commitments and Others
All invoices received for completed work in place for each commitment contract as well as all miscellaneous invoices will be captured in PMWeb. All those invoices will be assigned a workflow to formalize the submit, review and approve process. PMWeb will be also used to capture the actual payments made against the approved progress invoices.
Change Orders
Changes to the approved commitments could have drastic impact on the project’s approved performance budget as well as project’s completion date. PMWeb potential change order module will be the early warning notification process of all possible changes that could impact the project. Based on the formal review of each potential change order, change orders will be created for all those viable changes. To enforce transparency and accountability, workflow will be assigned to the change order process with conditions to escalate the change order to right individuals based on the approval authorities’ levels assigned to them.
Loan Recovery
For a capital project, the revenue to be generated from the project asset is what makes the project viable or not. The revenue could be based on long term commitment form organizations, public or private that will be using the project assets. For example, for an affordable housing project, the government, semi-government and private sector organizations might commit to long term lease of those houses. The same approach could be applicable for residential and commercial buildings, hospitals, hotels among other type of capital projects. PMWeb revenue contract document will be used to capture the details of all those agreements and the due payment dates for those periodic lease rentals. In addition, the revenue module will be used to capture any changes to those lease or revenue agreements. Further, the revenue module will be used to issue the invoices for those leases and the actual payments received against those invoices.
If the project finance was provided for the contractor rather the project owner, the revenue contract module will be used to capture the contract details between the contractor and the project owner. The contract change order module will be used to capture change orders issued to the contractor by the project owner including all other changes that are either pending approval or disputed. The requisition module will be used to capture the details of the monthly progress invoice issues by the contractor for completed work in place.
Consolidated Financial Report
All of the financial transactions captured above will be consolidated by PMWeb in a single table called the cost ledger. This real-time cost ledger is linked to each financial transaction to provide immediate transparency on the source of the transaction. The cost ledger will become the data source to create what is known as the Cost Worksheet which looks like a spreadsheet with the option to save as a MS XLS file. PMWeb allows creating unlimited number of cost worksheet including new columns and formulas to provide the needed financial analysis.
Reporting Financial Performance
The real-time data captured from the performance budget, budget adjustments, awarded commitments, potential, pending, disputed and approved change orders, progress invoices, actual funds payments, lease and other revenue sources among others will become available to report on in different forms and formats depending on the project stakeholders’ requirement. What is important is that regardless of what is being displayed, the data source for all the financial transactions is the same.
Project Document Management
Delivering capital projects will result in massive volume of project documents including drawings, specifications, operations and maintenance manuals, catalogues among many others. PMWeb document management repository enables the project team members to map the filing structure into folders and subfolders to upload and store an electronic copy of all those documents. Attributes and other important details of each document need to be added to those uploaded documents to improve the search and location of those documents when needed. The document management repository allows keeping versions of all documents, markup and add comments as well as view those documents.
