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www.diverseaccountant.co.uk Understanding the Fundamental Financial Principles for Quantity Surveyors Jonathan Lamptey 1
www.diverseaccountant.co.uk
Understanding the Fundamental
Financial Principles for Quantity
Surveyors
Jonathan Lamptey
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www.diverseaccountant.co.uk
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 [email protected] @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 [email protected]
Professional Development & Membership Manager Paul Brown +44 (0) 161 972 3114 [email protected]
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