Real estate business learning (07)-Dynamic Cost Process Control Based on contract Planning

In recent years, as the national macro-control is intensifying, competition in the real estate development industry is also intensifying, which has a serious impact on the profitability of real estate projects. To maintain a normal development profit level, real estate enterprises must start with project cost control. In the industry, it is generally believed that the cost objective setting in the project decision-making and planning and design phases is the key to achieving the enterprise's established profit objectives. But how to effectively control the entire project development process, but it is difficult and complex. For real estate projects, the implementation of all major economic activities starts from contract signing. Therefore, in a sense, "contract management is good, and the cost is naturally controllable ". The following describes how to use the "contract planning" approach to control the target cost process. (Note: The goal of cost management is not only to reduce costs, but to rationally allocate costs and maximize the utilization of funds. Saving money is not the final principle .)

1. How to prepare a contract plan?

Contract planning refers to dividing the target cost into contract categories by "top-down, step-by-step decomposition, this is a management and control method that guides Contract Signing and change from bidding to final project settlement. "Contract planning" converts a specific cost control task into strict contract control, which effectively controls "dynamic project costs.

Who will compile the contract plan? This is a problem that must be clarified first. The contract plan is intended for all business departments of the enterprise. Therefore, it should be a full participation process, which is led by the project cost manager and organized by relevant personnel of various professional functional departments to break down the target cost.

When to compile the contract plan? This mainly depends on the maturity of enterprise management. If the enterprise's billing items and contract planning systems are relatively stable, you can compile and approve the target cost during the project startup phase, prepare the contract plan. If the management fineness has not reached this step, it should be prepared at least after the final determination of the target cost.

Most of the Contract decomposition methods for target costs are "price principle" and "Experience Value". Combined with project conditions and investment income indicators, formulate the contract and estimated amount that may occur for various control items of the project, and push the performance of each contract payment condition, which is divided into the contract payment plan to form the overall project funding plan.

In addition, if the target cost cannot be refined to a specific contract, the target cost can be divided into contract categories. As the project progresses, these contract categories will be gradually refined.. (Note: If you manage more reliable enterprises, you should make contract plans for different versions at this stage)

It must be emphasized that some of the fees are unclear during contract planning. Therefore, the concept of planning margin is introduced to indicate the fees that cannot be specified for the time being, as the "reservoir" of the charge item, it changes with the change of the contract actually signed. The total planning margin reflects the tightness of the target cost control. You can set an alert and strong control range for each billing item for the planning allowance, which can be used as the basis for subsequent project cost control.. (Note: How much is the value of the planning margin reasonable? What contract does the planning balance come from ?)

Ii. How to guide Contract Signing and execution in contract planning?

1. Contract Signing Stage

When the contract is signed, the professional department will draw up the contract based on the actual situation of the project, clarify the contract amount, payment time, payment method, and form a project cost payment plan. At the same time, the contract payment and the work items or work results in the Project Plan are bound to ensure that the contract payment will not be inconsistent with the actual project completion, to avoid the problem of overpayment of the contract amount.

In the contract signing and approval process, you must compare the contract plan, check the balance of the Plan, and control the balance through early warnings and strong control indicators. Other contracts cannot be selected repeatedly, this prevents Repeated Computation costs and solves the problems of high costs.

There are two situations during contract signing approval:

1) contract amount

The relevant department should elaborate on the reason for the amount gap and determine the subsequent use method of the GAP amount: contract cost saving, the corresponding amount enters the balance of the Plan, and can be allocated to other contracts with the same amount, and issues cost savings orders. If the contract scope is changed and additional contracts still need to be signed in the future, the corresponding amount is set as another contract plan. Contract Amount compression and risk avoidance will lead to corresponding changes in subsequent contracts, the expected changes need to be prepared for the contract.

2) contract amount> planned amount

The Department also needs to elaborate on the reason for the amount gap and find a solution to the amount gap: if the scope of the contract changes, adjust the relevant contract planning amount and supplement the planned amount for this contract; if the original contract cost increases due to insufficient budget or changes in the external environment, you need to find the planning margin, allocate the amount from the Planning margin as a supplement, and issue a project cost overspending ticket.

2. Contract Execution

During the execution of the contract, the change amount (design change and on-site visa) needs to be previewed when a change declaration is made, and corresponds to the expected change in the signing process to ensure that the change is within the controllable scope, the amount exceeding the limit is determined by the Plan balance.

After the implementation of the change, the construction confirmation phase will be carried out to determine whether or not the change is completed and the actual amount of work completed will be included in the project cost.

Finally, analyze the cause of the change and the distribution of the cost caused by the change, that is, analyze the effective cost and invalid cost.

3. contract payment

First, according to the progress of the project image, the project quantities in the "completed" section are verified to reflect the actual "output value" of the project, and serve as an important basis for formulating payment applications. Second, sort out withholding and other deductions to provide a basis for payment; thirdly, revise the payment plan based on the contract payment conditions and actual finished output values to form a project-level payment plan; finally, complete the payment application within the scope of the payment plan and complete the payment.

Iii. Dynamic Monitoring of contract Planning

1. Periodic Optimization of contract Planning

1) optimization and adjustment of contract Planning

For unsigned contracts, due to changes in actual business, the project contract may not be signed according to the original plan, so the project cost manager needs to adjust the contract plan on a regular basis. At this time, there are two main work conditions:

◆ Break down the originally packaged contract planning into more detailed contract planning;

◆ As the actual situation of the project changes, the subsequent scope of the contract will be crossed. You need to adjust multiple contract plans to clarify the amount and time of each plan.

2) contract change arrangement

As the execution of the contract goes on, there may be some "the supplier has proposed the change and the change amount, but we have not confirmed it yet, or the increase in the contract amount not proposed by the sub-supplier and we expect to happen ". At this time, we need to prepare estimated changes for the contract to better reflect the dynamic cost of the project.

2. Dynamic Project Cost monitoring

Real estate enterprises all expect that "the final full cost at the end of the project can be predicted during the project implementation process, so as to monitor the process of the 'project baseline income Index ", generally, the project cost manager completes the project dynamic cost summary table, prepares the cost dynamic review report, compares it with the benchmark target cost, issues an analysis report, and reports it to the company's management. During analysis, the following objects are investigated:

1) dynamic project cost

Reflects the project cost status, compares the dynamic cost with the target cost reference value from the total amount, and compares the indicators mainly use the company-level "warning" and "strong control" indicators. After the idea of contract planning is introduced, the dynamic cost of the project will be converted into the following formula:

Dynamic Cost composition =Contract Signing amount + confirmed contract change amount + estimated contract change amount + planned contract amount to be executed (Note: Should there be an ongoing cost ?)

2) Planning margin

The planning margin is the reservoir and "barometer" for project cost control ", the comparison with the item-level "warning" and "strong control" indicators can reflect the effectiveness of cost control and future cost usage trends.

3) cost adjustment

After analyzing the project cost structure by the project cost manager and professional functional departments and judging the project progress, we will find that:

◆ There is a surplus in the "Planning margin" of some billing items, and the excess planning margin can be allocated to other items for use. This is called "cost carry-over ". In this case, only the internal cost allocation of the Project is involved, and the overall cost of the project is not affected.

◆ Due to insufficient planning margin for some of the fee items, the contract under the subject cannot be signed in the future and the project cost needs to be added. In this case, the project overall cost will be affected and the additional cost approval process must be followed.

Iv. Conclusion

The cost control of real estate development projects is a full-process control and a comprehensive management discipline integrating management, economics, and technology. In real estate development projects, different stages have different requirements for cost management. For the cost management in the construction stage, the emphasis is on controlling the costs, use appropriate methods to control costs according to the predefined objectives. Otherwise, it is likely to cause waste and increase costs, resulting in project benefits failing to meet the predefined indicators.

(Note: Similarly, such a complicated cost management system must be controlled through the ERP system. Otherwise, the dynamic cost is enough for the cost manager of a real estate enterprise to make up for it. This article only mentions Dynamic Cost Process Control. In fact, if you want to talk about cost management, there are many other more detailed content, such: how to do contract planning, how to do monthly reviews, and how to do contract changes can be further studied in the future .)