02 Mar Balancing Front Loading and Back Loading
The cost / payment Front loading and back loading has been a favorite discussion for many clients and contractors especially at the inception stage of the Project.
- The client tries to pay as late as possible to gather higher certainty that the contractor would be on the project to its completion (and perhaps finish it on time).
- The contractor, wants to get more invoice value as early as possible and have positive cash flow
Obviously, miss-implementation of the concept and pushing it too far to the left or too far to the right could have catastrophic consequences to the project and both parties. Therefore, before making any hasty decisions, parties should evaluate different scenarios and analyse the pros and cons of each scenario including risk and cost benefit analysis then take the most appropriate decision.
When a project payment is heavily front loaded then the contractor would not have much of interest to finish the project with the remaining budget. They would try to not to get into the pre-commissioning and commissioning stages where the all the construction issues (quality) have to be resolved without any payment from client.
If it is heavily back loaded then the contractor could be in constant negative cash flow as a result, he might not be able to mobilize adequate number of resources to minimize the negative cash flow or will not mobilize additional resources to catch up with the delays. Even, it is possible that the contractor could get bankrupted then the client either has to pay to save the project or contractor will declare he will not be able to finish the project.
Either way, miss-implementation of this concept could easily lead to the Project failure which could ultimately cost the Client more money to finish the Project.
Although this topic is well known to many project managers, planners, cost engineers and etc. but some mix the Cost/Payment with Work Front Loading and Back loading. If any project manager and planner cannot differentiate between these two, then most certainly the Project will fail. For example, if a project uses the chart below for Payment and Work because most the work is shifted towards the end then the project wouldn’t be able to achieve them all in a short period of time.
The above issue could be the result of “Incorrect Resource Loading” and/or miss-calculation or allocation of the Weight Value.
So, as stated, although many professionals are familiar with the concept but there are small fine lines that if get ignored, they could easily lead the project to the now infamous familiar territory.
Do you have a balanced Front Loading and Back Load project?
Do you know your project works are front loaded or back loaded and what is the relationship with the invoice/cost loading?
Do you have correctly resource loaded schedule ?
Do you have Progress Measurement system that supports your invoices?
As a contractor, do you invoice correct amount?
As a client, so you validate your contractor invoices correctly?
Contact us now to discuss about the above items in detail: info@khonopc.com
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