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Understanding the Fundamental

Financial Principles for Quantity

Surveyors

Jonathan Lamptey

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Not trying to turn you into an

accountant

We have a lot in common..

• Multidisciplinary

• Professional Qualification

• Thorough Training Programme

• Rigorous Examination Process

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Also

• Use Professional Judgment

• Measuring and Control Costs

• Communicate Financial Information to

stakeholders

Don’t forget the Fun stuff!!

• Month End Process

• Detailed Reporting

• Journals!!

Aims

• Reframe: What you already know

• Remind: Key Finance Principles

• Review: Tips to be QS Rockstar!

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Rule of thumb principles

• Better management of finances

• Better implementation of best practice

• Recognise issues in advance

Drexler, Fischer, Schoar (2011)

Keep it Simple

• Focus on underlying business principles

• Simplify decision making

• Easily implement decision rules

• More effective, easier to understand

Why is this important?

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Reframe

Think like a CEO

You are running a business!

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You NEED Strategy & Tactics

Strategy Vs. Tactics

• Strategy is a defined and detailed plan to

achieve a long term goal

• Tactics are techniques or methods to achieve

an immediate or short term gain

•Successful CEO’s use both

Make your goals real

Need to know how to measure and monitor

your activity effectively.

Being able to transfer your goals and plans into

financial data.

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You normally use this

Project Sustainability

Is this under control?

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Tip 1: Your Strategic Goal

• Make sure that :

• All Projects are sustainable

• All Risk is being effectively managed

• All reporting must reflect this

This is a winning mindset

• Changes your attitude to reporting and the job

• Encourages you to take more initiative

• Keeps you interested

• Creative in your work

Tip 2: Balanced Scorecard

• A set of measurements that give top managers

a fast, but comprehensive view of the

business…

• Kaplan and Norton (1992)

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Scorecard Strategy

• Indicate Sustainability

• Risk Assessment

• Qualitative Description

Scorecard Tactics

• Focus on what is relevant

• Highlights weaknesses in existing knowledge

• Not just one set of measurements

• This is an evolving process

Scorecard Example

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Tip 3: Report Narrative

• Use Action Verbs to explain the narrative

• Make sure explanations are auditable

• Check in line with expectations

• Can a decision be made based on this?

3 Step Approach to Variances

1. Reason

2. Explanation

3. Action

Tip 4: Find a Picture for the frame

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Variance Chart 1

Variance Chart 2

Remind

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What you already know

• Debit Card

• Your Money

• You

• Credit Card

• Other Peoples Money

• Credit Card Company

Double Entry

•Debit and Credit

•Double-entry Bookkeeping

–For every accounting transaction there is a

minimum of one debit and one credit

–In every transaction, the sum of all the debits is

equal to the sum of all the credits

–Accounts MUST balance: Balance Sheet

Debit Credit

Tip 5: Enter the Matrix

Income Statement Balance Sheet

DR Expense

CR Income

Asset

Liability

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B/S v P&L

Tip 6:P&P

• Income Statement: Performance

• Balance Sheet: Position

Project Sustainability

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Cost Management

• Income Statement

• Invoices/Applications

• Cost of work done

• 3 Profit margins

• Race to the bottom

• Pain/Gain Share Mechanism

Tip 7: Look for problems

• Big Numbers

• Big Percentages

• Exactly right (Think of journals)

Liquidity

• Balance Sheet/Cash Flow

• Current Assets/Liabilities

• Current Ratio

• Acid Test Ratio (WIP, Value of work done)

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Tip 8: Double Check Contract

• Review Project Programme

• Look for timing issues

• Applications for payment to client or Payment

certificates to subcontractors etc.

Solvency

•Total Assets/Liabilities

•Includes Fixed Assets

•Includes Provisions/Liabilities

•Net Assets

Solvency

• Most overlooked principle

• Things to consider:

–Fixed Assets (Depreciation Policy)

–Impact of disputes on provisions

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Depreciation Process

Depreciation Example

Tip 8: Depreciation

• Fixed Assets: Asset Register

• Review Depreciation Policy for Asset register

• Each Class of Asset should have appropriate

policy

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Risk Strategy

• Potential Change in long term policy

• Impacts Provisions on Balance Sheet

• May impact on profit

Risk Tactics

• Risk Register: Updated Monthly

• Ongoing review of best practice

• More collaboration

• Consider more third party evidence

Summary

• Project Sustainability

• Risk Management

• Reframe

• Remind

• Reviewed some tips

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Questions

• Q&A

Jonathan Lamptey Jonathan@financefornonfinance.co.uk @diverseaca www.financefornonfinance.co.uk

Dominion House Sibson Road

Sale Cheshire M33 7PP

United Kingdom Tel: +44 (0) 161 972 3100 Fax: +44 (0) 161 972 3118

Web: www.cices.org

Professional Development Coordinator Serena Ronan +44 (0) 161 972 3103 development@cices.org

Professional Development & Membership Manager Paul Brown +44 (0) 161 972 3114 education@cices.org

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