Financial Knowledge In Construction Project Management in Post-COVID Era
Vinit Dungarwal

The COVID-19 pandemic is going to have extensive consequences, well beyond the range of the disease and quarantine struggles. As the pandemic has spread around the globe, its long-term economic impact is inevitable. In the current scenario, global economic parameters are shifting at such a rapid pace that it is difficult to predict the changes that it will bring about in various sectors.

The most affected industry in any economic crisis is generally the construction sector. It is also the last one to recover. This will hold true for the current crisis as well, as the construction industry is channelled by multiple parameters. Tangible parameters, such as the fiscal policy, bank lending rates, and financial stimulus to revive the GDP, and intangible parameters like human sentiments will lead to liquidity crunch for the projects.

This pandemic has put every sector in crisis. In the present scenario, when uncertainty is reigning, and there are high chances that every plan or prediction might fail, the need of the hour is to focus on an agile execution approach to be more responsive and inclusive.

In this scenario, project managers must initiate a strategic approach toward project execution. The world will not be the same post COVID-19 and neither will be the industry expectations from project management teams.

The current economy demands project managers to be financially savvy. Traditionally, a project manager’s focus has been on the iron triangle, which is a combination of time, cost, and quality, with scope at the center. Now, project managers would be expected to contribute to the stakeholder’s value and the long-term financial success of the project.

Hence, it is imperative for project management professionals to have an in-depth knowledge of financial management and understanding of its impact and control on the different stages of the project lifecycle.

The following points will help project managers get ready for the future:

Procurement Strategy
The procurement strategy must follow a two-pronged approach which focuses on minimizing both the cost as well as the risk. Local insights can be used to balance these two contradictory purposes. The risk and cost cannot be minimized at the same time. Here the project

manager plays a crucial role to strike the right balance in identifying the appropriate value in order to minimize the risk.

There are many possible approaches to procurement strategies which will, in turn, result in different outcomes. Strategic procurement is all about the choices made in determining what is to be delivered through a particular contract.

Cost Contingency
Planning for contingency, which means exposure to an unanticipated condition with an uncertain probability of occurrence, should account for random errors and unforeseen events to mitigate risks.

It involves specific allocation of funds, in addition to the base estimate, to cover risk and uncertainties. Contingency planning is a significant part of a project manager’s function for risk mitigation.

Establishing effective governance, comprising skilful scrutiny and decision-making, is imperative to ensure that the contingency spend remains within approved limits and for its intended purposes.

It is the responsibility of the project manager to increase the collaboration with contractors during the bidding process through meticulous pre-bid and post-bid meetings. This helps to minimize the hidden contingencies factored by contractors to accommodate certain risks. The hidden contingency may be the reason for contractors to raise their bid price, for instance, they may add a hidden cost contingency to the base case in order to hedge threats.

Several key Indian sectors are experiencing acute consumption slowdown and liquidity crunch. Companies like Infrastructure Leasing & Financial Services Limited (IL&FS) struggled to pay back loans taken from banks. The COVID-19 pandemic will worsen this crisis.

In the coming financial year, businesses will watch for regulatory changes, economic shifts, and other swings that could affect their operations. Trust within the ecosystem is at stake, and this will add to the stress on the financial parameters.

Project managers should be instrumental in building trust with internal and external project stakeholders. A project is largely driven by everyday choices made by the project manager. Efficient personnel with strong decision-making capabilities are required in such situations. They have to make a number of decisions on a daily basis, ranging from small matters to huge decisions that can carry a project from ideation to realization. Every decision can have a positive or negative impact on the project environment and ecosystem. A single issue, if not discussed on time, can create confusion and risk project delivery.

The project manager is the client’s representative on site. He is responsible for defining the project meticulously through its objectives, goals, and constraints.

One of the major resources required for every project activity is cost, which is determined by the duration. The project manager should develop the optimal project schedule which delivers the lowest possible cost and the associated optimum time for project delivery.

Clients often request for projects to be hastened. It is imperative for the project manager to furnish a crash analysis report. This includes re-planning advice based on the functional relationship between time and cost.

Value Engineering
Value engineering can sometimes be used as a tool for cost cutting. The project manager should scrutinize the proposal carefully to minimize or nullify the impact on quality. Value engineering must be utilized as a discipline and skill to synchronize cost and benefits.

It is essential for the project manager to drive the development of an optimum product with minimum cost, keeping the end user’s requirement in mind. Value engineering needs to create the right balance between scope, schedule, and budget.

Construction projects include over 20 discipline experts, engineers, and clients. The responsibility lies with the project manager to explore these capabilities to increase the performance and get maximum output to generate value.

The challenge for the project manager lies in aligning the stakeholders on the objectives of value engineering.

The Procure-to-Pay Cycle
In the current scenario of liquidity crunch, timely and accurate payments to contractors are critical for the success of a construction project. This enables them to pay their employees, lower-tier contractors, material suppliers, and other vendors. This helps to avoid disruptions to the project schedule and also builds loyalty, which is extremely important in the present environment.

Delay in payments is discouraging and can hamper the project delivery schedule. It can negatively impact the productivity of the contractor. The contracting firm could face the risk of insolvency if it fails to pay subcontractors for the work executed.

The client should consider the cost of finance while mana ging cash flows. Often, clients get funds at a very aggressive rate when compared to the cost of finance to the vendor or supplier. This can have a major impact on project cost and other parameters. The project manager plays a critical role in striking the right balance between operational payment and strategic payment drivers.

Vinit Dungarwal is an entrepreneur and a business turnaround specialist, with over a decade of experience in the field of construction an d project management. He has led a team of over 100 through his organization, AMs Project Consultants.