MAXIMIZE RETURN ON INVESTMENT by Utilizing a Capital Expenditure (Capex) / Construction Project Review for Optimization of Effectiveness and Efficiency
Many capex / construction projects result in overruns and overpayments. Unfortunately, the magnitude of these project overruns is often significant. From our experience, even in well-controlled environments it is not unusual to find recovery amounts from one to three percent of total construction costs. For companies or contractors with less than optimal controls, the amount of overruns can reach from five to ten percent.Cost overruns and overpayments often are the result of mistakes, misunderstandings, or both. Major construction and capital projects create significantly more billing and payment transactions that must be managed at a faster than normal pace. Factors, including the additional volume, complexity and urgency increase the risk of errors such as duplicate payments. Another common problem stems from inadequate purchase order procedures, which compromise internal procurement controls. Since this occurs at the beginning of the “purchase to payment” transaction cycle, it negatively impacts the entire process.
WARNING SIGNSThere are several key warning signs that a capex / construction project review is warranted. If you can answer “yes” to any of the questions below, a review will assist you in keeping the project properly managed and in identifying cost concerns.:
- Are there a large number of change orders on the project?
- Are project costs significantly greater than planned through certain percentage of completion amounts or critical milestones?
- Are there unexpected delays or increased costs on the project?
- Is there excess inventory and unused equipment on job sites?
- Is subcontracting taking place between a small group of suppliers?
- Is there an unusually close association between vendors and members of your organization?
- Is management receiving hotline tips about concerns of impropriety?
Sirius Helps Improve Capex/Construction Project Effectiveness and Efficiency Through Leading Practices
Our expertise is in helping clients establish effective management controls that prevent or provide early detection of cost overruns, and by performing project reviews across many different industries and geographic locations. As a result, our professionals are equipped with an up-to-date knowledge base of what to look for and where to look. Some of the ways clients benefit from this body of expertise includes:
- Increased assurance that project costs and plans are properly monitored and on track.
- Faster resolution of issues, including those requiring legal action.
- Higher chance of recovery for identified losses.
- Attractive return on investment.
- Stronger internal controls that prevent or detect future errors and losses.
- Improved contract and purchasing processes.
Through years of performing these reviews, we have developed a risk- based approach which decreases your exposure to overruns occurring before the project begins and maximizes dollar findings and recoveries if overruns do occur. We work with your management team to design and implement the internal controls necessary to improve process effectiveness and efficiency, while reducing the likelihood of errors in the approval, order and receipt stages of procurement. After the project begins, we analyze each cost area, such as labor, equipment and materials, identifying anomalies and determine where statistically valid testing can be performed to draw proper conclusions. Where applicable, we use automated data analysis tools to aggregate, sample and identify suspicious transactions to lessen the time involved in resolving cost overages.
Partner with Sirius to help maximize project ROI, learn and utilize leading practices, establish and maintain cost controls, and validate expenditures.
Sirius Solutions is able to work with you in specific areas, or in all areas, of a comprehensive capex or construction review:
Our methodology is applicable to construction and capital projects as well as for any agreement involving a vendor services contract (even when the contract is on a fixed cost basis). Our consultants have achieved numerous professional certifications and are experienced in contract compliance, internal controls, fraud examination, security reviews, data extraction and management reporting. Our work delivers opportunities for process improvement and a substantial return on investment that goes beyond a simple recovery of the cost of the review. In a previous review for an energy client, we identified $10 million (3% of a $350 million project) in recoveries and helped prevent significant future over-spending. By clarifying issues and concerns, we were able to help management strengthen their controls.