6.9. Budgets as part of the Gateway (Stage B)

Rule 6.19

1. A typical construction budget is a combination of two primary data viz. quantity and rate.
2. Sources of Quantity are (a) Concept design with coefficients, (b) DBR, (c) BOQ based on design and (d) Actual quantity implemented.
3. Similarly, sources of Rates are (a) Past projects of similar size & complexity, (b) QS estimates, (c) quotes from the market, (d) Contracted rate and (e) Actual incurred rate.
4. The following table indicates the various stages of Budget and how the same shall be arrived at;
5. Variance analysis needs to be done from Stage 2 (Ver. 2) onwards compared to the previous stages and the same need to be approved through the R&R process except for Variance analysis for stage 2 to be presented to CDD. All the R&R for budget variations need to be approved by the Finance Committee, Director Projects and Head of CDD. The Pre-Contract and QS team of respective Project shall be responsible for preparing variation statements (depending on stages) and through CDD& GM office respectively, presenting the same to the management for approval (Refer R&R approval process in the later section).
6. Variance in Budget context is the delta/difference between the original estimate and current estimate (between 2 stages of Budget). The Variance could occur due to many factors such as design, inefficiency, higher contracted rates, price escalations, NT items, higher quantity than contracted etc. Analysing and finding the cause of the Variance is the core of "budgeting exercise" and it is not just finding out how much it would cost or how much it costed more. Such insight would help us address the issue at the core and prevent a financial mishap.
7. The variance analysis in the above context is done as under; Each increase in cost needs to be bifurcated into quantity variance and rate variance.
8. Quantity Variance = (Current estimated Qty- Previous budget Qty) X Previous budget estimated rate.
9. Price Variance = (Current estimated Rate- previous Budget estimated Rate) X Current estimated Qty.

Rule 6.20

Version 1 Base Budget (Used for Initial Business Plan)

1. As the first step, Standard budget document needs to be re-established once the lessons learnt document is signed off formally, incorporating the below
   • 100% glazing with unitised system
   • Slipform with added concrete walls
   • Non-structural walls to avoid block work and plastering
   • The side and central cores to stand to full height
2. The base budget is prepared in the Development Plan's initial stages to derive the Initial Business Plan. On the requirement of the base budget, CDD will inform the Pre-Contract to initiate the exercise and share the Master plan, block plan, provisional area statement and Project Development Guidelines to Pre-Contract.
3. Pre-Contract team shall use the coefficients from standardisation & Project Development guidelines and apply them to the Master plan, block planning and area statement to arrive at the work quantum under each package. The quantities so arrived shall be at the macro level and on a gross basis, for each package. Where quantities cannot be derived based on coefficients, the cost will be calculated on an area basis.
4. The coefficients (relation between area and quantum of Work) for each package shall be prepared and maintained by TISS as part of the ERP repository. The co-efficient will be updated periodically based on lessons learnt and completion of projects.
5. Then, quantities so arrived above will be multiplied by the Phoenix standard base rates, to arrive at the Base budget.
6. Phoenix base rates are rates of various works (weighted average) derived from earlier completed projects minus abnormalities and usually are updated once a year. The Pre-contract team maintains this as part of the repository in ERP.
7. The Budget so derived shall be shared with CDD who in turn share the same with Commercial department for creating the Initial Business Plan.

Version 2 Budget (Used for Gateway closure)

1. Post design closure by the LDC, LDC shall prepare BOQ with Quantity along with floor wise split in excel and share the same of CDD who in turn share the same with Pre-Contract
2. Pre-Contract team shall validate the BOQ (description of items and not quantity validation) and make sure the same is in line with Standardised BOQ. To introduce any new items, a request shall be sent by Pre-Contract to TISS for amending the Master BOQ which is uploaded in the ERP.
3. In case of any changes/amendment in the language compared to the Standardised BOQ line item, the same shall be escalated to CDD for approval. Consultants should be instructed to attach a ‘Memorandum of Changes’ along with the BOQ highlighting all those line items having changes/amendment in the language compared to the Standardised BOQ line item, by the consultants.
4. The quantities as received from the consultants shall be used as basis and rates already available with Pre-contract team (based on recently concluded contracts for other projects) shall be used to arrive at Stage 2 Budget. Wherever the procurement team has already done rate negotiation for the current package, the same me be used as the basis.
5. The Pre-Contract Team shall undertake a variance analysis of Stage 2 Budget with Stage 1 budget and share the same with CDD.
6. At this moment, in case if stage 2 Budget is very high compared to Stage 1 Budget, CDD has the option to revisit some of the design and get the BOQ amended with the changes in design.
7. Kindly note that as the quantity validation is not done at this stage, there cannot any amendment to design Post Gateway due to increase in Budget due to mistakes in quantities provided by the LDC. CDD to make sure that the variance in quantities (validation by Pre-Contract post Gateway) cannot be more than 1%, failure of which will be considered as breach of performance by LDC.
8. The steps given above will be repeated till CDD formally accepts the Budget as final for inclusion in the Gateway.
9. The final approved Budget as above will be included in the Gateway document closure.

Version 3 Budget (Post closure of packages)

1. Since the Gateway budget is drawn before awarding of Contract, and Budget is required for future evaluation of cost including funding requirement, it is essential to update the Gateway Budget with variances if any, post Gateway.
2. The variances in Budget could be due to (a) Change in quantities post-re-measurement by Pre-Contract compared to the Tender quantities provided by the Consultant and/or (b) Rate of award of Contract is higher compared to the rate assumed in Gateway budget.
3. It is the responsibility of the Procurement department to make sure there are no price variance while awarding the contract and should there be one, the same shall be presented to the CMD’s office for approval prior to conclusion of the price negotiation.
4. On Completion of award of all packages (or closure of some of the packages if requested) and completion of shop drawings, Pre-Contract team on their own shall initiate the exercise of recasting the Budget based on revised estimated quantities and actual contracted rate.
5. Towards this, Post Gateway and before Tender (with in sixty days from Gateway closure), Pre-contract shall conclude the exercise of validation of all the quantities as presented by the Consultants/LDC based on tender drawings. As mentioned earlier, the LDC should be instructed to present the calculations sheet/floor wise quantities behind each package BOQ estimation.
6. The endeavour in future should be to complete the quantity validation before the gateway by adopting BIM and making sure the LDC provide the floor wise quantity break up behind every BOQ quantities such that the quantity validation can be completed in two weeks.
7. It is clarified that the quantities of structural steel and rebar shall be as per the calculations to be provided by the Structural Consultant (no re-measurement except cross checking the details) and Pre-Contract shall re-measure the rest of the packages with the tender drawings.
8. The variance analysis shall be done comparing the Version 2 Budget with the new estimation, and the same shall be presented by way of an R&R to be signed off by the CDD Head and Director Projects who in turn shall present the same to Finance Committee for formal approval.
9. The revised Budget shall be formally issued to the PMO and GM teams as an amendment to the Gateway.
10. While the preference is to carry out this exercise after completion of award of all the packages, it can be done in parts should the decision be to defer some of the packages to a later date.

Version 4 Budget (Used for the midterm review of project cost)

1. Approximately when 2/3 ^rd of the Project is completed, it is recommended to undertake an exercise to update the Budget with a realistic estimation.
2. The QS of the GM office shall initiate this exercise at the request of the GM.
3. On receiving the request from GM, the QS shall undertake an exercise where they shall liaise with the GC and NSC and arrive at the quantum of Work pending to be completed based on actual progress at the site and not initial estimation as per BOQ. So, the total quantum of Work will be equal to the quantum of Work already executed as per RA bill and quantum of Work to be done to complete the Project based on Physical progress multiplied by the contracted rate.
4. Adjustments to be Budget shall be made for VO/NT items, Material escalation, Price escalations as per Contract, special claims and the likelihood of any further claims/NT items, EOC etc.
5. Variance analysis shall be carried out comparing the Version 3 Budget. The revised Budget and the outcome of this exercise shall be communicated by the GM's by way of R&R and send for approval to Director Projects and CDD. Copy of the same shall be shared with the Pre-contract team for uploading in the repository and to the finance department to bridge the funding gap.
6. Once the R&R is approved, the same shall be used as the revised Budget for future evaluation.
7. However, as part of good practice, the QS shall present the Monthly cost report capturing the Version 3 budget as the basis and adding all the incremental costs approved by way of VO, EOC etc. This report shall be presented by the QS to PMO, GMs and Commercial department. The commercial department shall present the summary report to the Finance Committee every month.

Version 5 Budget (After completion of the Project)

1. Version 5 budget is prepared after completion of the Project, and HOTO is concluded.
2. In this stage, the Budget is estimated by way of actual cost incurred for the Project, which shall be derived from the cost reports and validated with Finance.
3. One of the preconditions for this Budget is the closure of all contractors account with the full and final settlement.
4. On completion of the HOTO, the QS team shall, without waiting for a formal request, Work on the budget closure report capturing all the stages of budgets from Gateway till completion of the Project and also prepare variance analysis between the stages.
5. Lessons learnt if any need to be highlighted clearly in the report.
6. This report shall be signed off by the GM and sent to Finance, CDD, Director Projects, TISS and Pre-contract. Pre-Contract shall make sure the same is preserved in the repository in ERP.
7. Inputs from this report shall be used for updating the coefficients and updating the Phoenix standard budget rates.

While the first three versions are created as part of the Development Plan and the last two versions are created as part of Construction Management.

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