Building a basic cost plan and cash-flow forecast
Build a small-project budget, make the allowances and exclusions clear, and map the forecast into monthly cash requirements.
by Jack Butler-Kettle · 60–90 min course · About 19 min readShare
Your course at a glance
Start here: Clients, project coordinators and junior commercial staff preparing a first small-project budget. No cost-planning background is needed; use a calculator and the supplied facts.
Your finished output: Build a simple cost plan and time-phased cash forecast, with scope, allowances, exclusions and uncertainty clearly stated.
Plan for 60–90 minutes. The suggested activities total about 75 minutes: 5 to prepare, 42 for lessons and practice, 8 for the knowledge check and 20 for the final task. This is a planning estimate, not a timed or accredited course. Pause or repeat any stage.
You need a calculator and somewhere to write. All project facts and figures are fictional learning examples. Use them for the exercises; keep confidential project information out of these practice fields.
- Separate budget, estimate, contract value and cash flow.
- Build a cost plan with explicit allowance bases.
- Test a change and compare the forecast with available funding.
- Translate a simplified expenditure plan into cash timing without changing the total.
For support with this work on a live project, see Construction cash-flow forecasting for clients.
Before you begin · 5 minutes
A project is estimated at £100,000. Does that tell you how much funding is needed next month, or whether design fees, tax and uncertainty are included?
An uncertain answer is a useful starting point. Keep it and compare your reasoning after the course.
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1. Learn and practise
Work through the lessons in order. Read the explanation, attempt the task without the model, then compare your reasoning. Correct your work before ticking the lesson. Expand one lesson at a time or keep several open.
1. Understand the decisions a cost plan supports
About 7 minutesA budget is an authorised limit or funding provision. An estimate predicts cost on a stated scope and basis. A cost plan organises that prediction so the project team can control design and decisions. A cash-flow forecast predicts when money is expected to move. These are connected, but they answer different questions.
A project may be within its total budget yet need more cash in a particular month than is available. It may also have a precise-looking construction estimate that excludes design fees, surveys, client costs or tax. Define the cost boundary before comparing totals.
Begin with the client’s objective, scope, design stage, location, programme and quality requirements. Identify what has been decided and what is uncertain. An early estimate has less information than a detailed tender return; its level of detail should not imply certainty the design cannot support.
The RICS NRM overview introduces structured cost estimating and planning. This course uses a small simplified plan to teach the control method. It is not a complete elemental cost plan for a real building or a source of current market rates.
Your turn
Write one sentence defining budget, estimate and cash flow. A £120,000 funding limit is compared with a £110,000 works estimate excluding £15,000 fees. Explain whether the project is within that limit before considering any other exclusions.
Compare your reasoning
Budget is the limit; estimate is the predicted cost on a stated basis; cash flow is timing. Works plus fees are £125,000, already £5,000 over the £120,000 limit on those facts. Further exclusions could increase the gap. Do not report a £10,000 saving by comparing an incomplete works estimate with an all-in funding limit.
If your answer differs, identify why, revisit the relevant explanation and correct your response. Equivalent wording is fine when the reasoning and checks are sound.
2. Define the scope and build a basis-of-estimate note
About 7 minutesRecord the project description, design information and revisions, measurement basis, price date, location assumptions and programme. List inclusions and exclusions. Identify which costs sit inside the construction estimate and which sit elsewhere in the client’s overall budget.
Organise the estimate into useful elements or packages so a design decision can be traced to its cost effect. A small refurbishment might separate building work, services and finishes. The grouping must avoid gaps and duplication. If a supplier price includes an item, do not also add it as a separate allowance without explanation.
Rate sources need context: project type, quantity, specification, timing and location. An old benchmark or unrelated quote may need adjustment and carries uncertainty. Record the source and assumptions rather than treating a rate as universally applicable.
Create a query and risk list alongside the plan. Distinguish missing scope information from an identified event that could change cost. Assign an owner and action for each. A contingency allowance can provide budget provision, but it does not resolve the underlying unknown or guarantee that the provision is adequate.
Your turn
Prepare a basis note for a fictional small refurbishment with building work, services and finishes. List at least six fields and three possible exclusions to confirm. Explain why “everything included” is not a useful substitute for the list.
Compare your reasoning
Include project/scope, drawing revisions, price date, programme, quantity/rate sources, allowance bases and tax treatment. Confirm items such as professional fees, surveys, statutory charges, furniture or client equipment. “Everything included” gives no boundary to check and can hide different assumptions between team members. Record each exclusion and who will confirm whether it needs budget provision.
If your answer differs, identify why, revisit the relevant explanation and correct your response. Equivalent wording is fine when the reasoning and checks are sound.
3. Build the estimate with visible allowance bases
About 7 minutesThe running example has direct works of £80,000. The exercise adds site preliminaries at 10% of direct works: £8,000. Preliminaries are project/site costs not allocated to the measured work in this simplified model. The subtotal is £88,000. A stated 5% contractor overhead-and-profit allowance on that subtotal adds £4,400, giving a base construction estimate of £92,400.
The exercise then adds risk provision at 10% of the £92,400 base: £9,240. Forecast construction provision is £101,640. Fees and other client costs of £8,360 give a total budget requirement of £110,000 excluding VAT. These percentages are fictional assumptions, not standard allowances to apply to a real project.
Write each base beside its percentage. Five per cent of direct works is different from five per cent of direct works plus preliminaries. Check whether quoted package prices already include allowances. Tax should be assessed for the actual project; excluding it from an exercise does not make it irrelevant to funding.
Keep the risk provision visible. If a defined risk later becomes a priced scope item, transfer or reconcile the provision rather than automatically retaining both amounts for the same exposure.
Your turn
Rebuild the £110,000 total in six lines. Then explain what would change if the £80,000 package price already included the £8,000 preliminaries assumed in this exercise. Do not simply add the allowance again.
Compare your reasoning
The six lines are £80,000 works, £8,000 preliminaries, £4,400 overhead/profit, £9,240 risk, £8,360 other costs, total £110,000. If preliminaries are already included in the package basis, identify and remove the duplicate allowance and recalculate all dependent percentages using the revised agreed basis. First confirm exactly what the quote includes; do not subtract a guessed amount from an unexplained lump sum.
If your answer differs, identify why, revisit the relevant explanation and correct your response. Equivalent wording is fine when the reasoning and checks are sound.
4. Test a change and report the budget effect
About 7 minutesCost planning is useful when it informs a choice before a commitment. Compare options against the same scope, price date and inclusions. Record performance, programme and maintenance consequences as well as initial cost where relevant. A cheaper item that fails the brief is not a saving that achieves the project objective.
In the running example, a design change adds £5,000 to direct works. On the stated allowance rules, works become £85,000; preliminaries £8,500; overhead/profit 5% of £93,500 = £4,675. Base construction estimate becomes £98,175. Risk at 10% becomes £9,817.50. With unchanged other costs of £8,360, total becomes £116,352.50.
The increase is £6,352.50, not merely £5,000, because the dependent allowances change. This arithmetic illustrates the assumed model; real preliminaries or fees may not move proportionately. Check the actual cost drivers rather than blindly applying percentages.
Compare the revised forecast to the authorised budget and record the decision needed. A forecast above budget should not be forced back down by reducing risk without evidence. Identify options, assumptions and approval responsibility.
Your turn
Calculate the budget gap if the authorised limit is £115,000 and the revised forecast is £116,352.50. Write a decision note explaining the change, the gap and two actions to consider. State one reason the percentage model might need replacing with a detailed calculation.
Compare your reasoning
The gap is £1,352.50. Explain the £5,000 direct-work change and its assumed dependent allowances. Options include reviewing the design against the brief or seeking an authorised budget change, supported by evidence. Site preliminaries may depend on time, resources or fixed setup costs rather than a constant percentage, so a programme change may require a detailed build-up.
If your answer differs, identify why, revisit the relevant explanation and correct your response. Equivalent wording is fine when the reasoning and checks are sound.
5. Turn expenditure into a separate cash forecast
About 7 minutesStart with a time-phased value or expenditure forecast, then apply the actual payment assumptions to estimate cash. Work carried out in one month may be paid later. Deposits, retention, milestones, tax and fee invoices can change timing. Keep those mechanisms explicit rather than moving numbers until the chart looks smooth.
For a deliberately simple exercise, phase the original £110,000 total at 20%, 30%, 30% and 20% over months 1–4. This gives £22,000, £33,000, £33,000 and £22,000. Assume all amounts are paid one month later, with no retention, deposits or tax. Cash then falls in months 2–5, with £0 in month 1. The total remains £110,000.
Show monthly and cumulative cash. Cumulative means the running sum: £0, £22,000, £55,000, £88,000 and £110,000. Compare those requirements with the timing of available funding, not just its eventual total. A one-month lag here is a scenario assumption, not a legal payment rule.
The RICS cash-flow guidance provides wider context. For a real forecast, build separate streams where construction, fees, tax or other payments follow different timing rules.
Worked fictional example
A one-month lag changes timing, not the total Month Monthly cash Cumulative cash 1 £0 £0 2 £22,000 £22,000 3 £33,000 £55,000 4 £33,000 £88,000 5 £22,000 £110,000 Your turn
Draw five monthly columns and enter the exercise cash forecast and cumulative totals. If only £50,000 funding is available cumulatively by month 3, identify the timing gap. Explain why moving an invoice to a later column without changing the payment assumption is not a valid solution.
Compare your reasoning
Monthly cash is £0, £22,000, £33,000, £33,000, £22,000. Cumulative cash is £0, £22,000, £55,000, £88,000, £110,000. Month 3 has a £5,000 funding timing gap. A valid response needs an evidenced change to funding, programme, procurement or agreed payment arrangements. Arbitrarily shifting a payable amount hides the problem rather than forecasting it.
If your answer differs, identify why, revisit the relevant explanation and correct your response. Equivalent wording is fine when the reasoning and checks are sound.
6. Update the forecast and explain what changed
About 7 minutesChoose a reporting cut-off and preserve the approved baseline. Update the forecast using current design, procurement, programme and risk information. Record each movement with a reason and owner. Keep actual expenditure or cash to date separate from the forecast remaining amounts.
Reconcile the new total to the previous report. A movement bridge might show design changes, tender differences, programme effects and revised risk provision. Avoid a single unexplained “adjustment” that prevents the reader from making a decision. Check that a risk becoming an actual cost has not been counted in both the base and the remaining risk allowance.
Update timing as well as value. A delayed start can shift cash without changing total cost; an extended duration may also change preliminaries and other costs. Explain which effect you have modelled. Keep assumptions and unresolved information visible so the forecast can be challenged.
Issue a concise report stating scope, basis, forecast total, budget variance, cash requirements, material risks and decisions needed. A cost plan is a controlled estimate that evolves with evidence, not a promise that the project cannot exceed the number.
Your turn
Write a report summary for the original £110,000 plan and the revised £116,352.50 option against a £115,000 budget. Include the main movement, the budget gap, the cash assumption and one unresolved risk. Describe the records you would keep when issuing the revision.
Compare your reasoning
Report the original and revised totals, £6,352.50 increase and £1,352.50 budget gap. State that the cash exercise assumes one-month payment lag and needs rephasing for the actual programme and mechanisms. Identify an unresolved scope/rate/programme issue with an owner. Preserve the baseline, revised plan, change log, rate sources, risk register and approval record.
If your answer differs, identify why, revisit the relevant explanation and correct your response. Equivalent wording is fine when the reasoning and checks are sound.
2. Check your understanding
Check your understanding
Allow 8 minutes. Close the lesson notes, answer each question and explain your choice to yourself. Read the feedback, revisit any weak point and try again. These checks support learning; they do not certify professional competence.
Answer notes
- No; the full funding boundary and exclusions need checking. Detail does not make an incomplete boundary complete. Confirm fees, client costs, risk, tax and other relevant items before comparing with an overall funding limit.
- The timing of cash, while the total remains £110,000. Under the stated no-retention/no-tax assumptions, the lag shifts cash into later months without changing the total. Real payment mechanisms may need separate treatment.
- Whether its existing risk provision now duplicates the priced item. Reconcile the specific risk provision with the new base cost and remaining exposure. Do not retain duplicate provision or remove unrelated risk without evidence.
3. Complete the independent task
Allow 20 minutes. Use the new facts below to produce the finished output. Try it before opening the model response, then revise your work against every checking criterion.
Your project brief
Prepare a simple budget and cash forecast for a new fictional project. Apply only the stated allowance and timing assumptions, and label the limitations.
- Direct works
- £50,000.
- Allowances
- Preliminaries 8% of direct works; overhead/profit 5% of works plus preliminaries; risk 10% of the resulting base construction estimate.
- Other project costs
- £5,630; unchanged in this exercise.
- Funding limit
- £70,000 excluding VAT.
- Timing
- Phase the total 25%, 50%, 25% in months 1–3. Assume payment exactly one month later, no retention/deposits/tax.
Compare with the model response
Preliminaries are £4,000; works plus preliminaries £54,000; overhead/profit £2,700; base construction £56,700; risk £5,670. Construction provision is £62,370; add £5,630 other costs to give £68,000. This leaves £2,000 against the £70,000 limit on the stated basis, not a guaranteed saving.
Phased value is £17,000, £34,000 and £17,000. With the assumed one-month lag, cash in months 1–4 is £0, £17,000, £34,000 and £17,000; cumulative £0, £17,000, £51,000 and £68,000. The totals must reconcile.
Verify scope and rates, allowance bases and duplication, actual tax treatment, programme, payment mechanisms and risk adequacy before real use. A useful sensitivity might test a delay’s effect on preliminaries and cash, or a specific unresolved design item.
Check your finished work
Tick a criterion only when your work demonstrates it. If a calculation, source or required check is missing, revisit the relevant lesson and revise the output before using the method on a project.
4. Review and use what you learned
Return to your starting response. Explain what you would now do differently and why. The aim is a reliable method you can repeat, including knowing when information or specialist review is needed.
- Tomorrow, explain why a cost estimate and a cash forecast answer different questions.
- In a week, rebuild the budget with a changed direct-work figure and check all dependent allowances.
- Before relying on a live plan, confirm the overall funding boundary and obtain a competent review of scope, rates and risk.
Use the blank templates below to practise the record format. Their completed examples have their own stated facts; keep those figures separate from your independent course task.
Project budget and cost plan
Replace the fictional allowances with quantities, quotations and local project information. Use one project scenario at a time and confirm VAT treatment separately.
Free blank template for your own project. The completed example is shown below. No email address required.
View the completed example
Completed fictional example
Westhaven refurbishment · 14 October 2026 · Version 1.0
Extension budget
Scroll across if needed to read the whole record. A dash means no value has been entered.
| Element | Quantity | Unit | Rate (£) | Allowance (£) | Basis / exclusion |
|---|---|---|---|---|---|
| Groundworks | 1 | allowance | £18,000.00 | £18,000.00 | Normal foundations assumed; ground risk separate |
| Structure and envelope | 40 | m² | £1,500.00 | £60,000.00 | Fictional 40 m² extension; no benchmark claim |
| Services and finishes | 40 | m² | £800.00 | £32,000.00 | Agreed domestic specification |
| Fees and approvals | 1 | allowance | £12,000.00 | £12,000.00 | Design and approvals estimate |
| Risk allowance | 1 | allowance | £12,000.00 | £12,000.00 | Client allowance; release by decision |
Other project scenarios
Scroll across if needed to read the whole record. A dash means no value has been entered.
| Scenario | Construction (£) | Fees (£) | Risk (£) | Budget before VAT (£) | Scope assumption |
|---|---|---|---|---|---|
| Renovation | £120,000.00 | £15,000.00 | £18,000.00 | £153,000.00 | Existing house; no major structural replacement |
| Office fit-out | £220,000.00 | £25,000.00 | £22,000.00 | £267,000.00 | Internal fit-out; lease and landlord works excluded |
These are invented teaching allowances, not current market rates or project quotations. Add the correct project-specific tax, land, finance and client costs before setting a funding requirement.
Construction cash-flow forecasting
Use bank cash and expected payment dates, not earned value. Carry each closing balance into the next opening balance and show any funding gap.
Free blank template for your own project. The completed example is shown below. No email address required.
View the completed example
Completed fictional example
Westhaven refurbishment · 14 October 2026 · Version 1.0
Construction cash-flow forecasting
Scroll across if needed to read the whole record. A dash means no value has been entered.
| Period / scenario | Opening cash (£) | Receipts (£) | Payments (£) | Closing cash (£) | Timing / action |
|---|---|---|---|---|---|
| October baseline | £20,000.00 | £60,000.00 | £70,000.00 | £10,000.00 | Includes £25,000 client receipt expected 16 Oct |
| October delayed receipt | £20,000.00 | £35,000.00 | £70,000.00 | -£15,000.00 | £25,000 moves to November; arrange £15,000 funding or reschedule outflows |
| November after delay | -£15,000.00 | £75,000.00 | £50,000.00 | £10,000.00 | Includes delayed £25,000; opening equals October delayed close |
The first two rows are alternative scenarios, not consecutive periods. The November row follows the delayed scenario. Include VAT in cash flows where actually payable or recoverable.
This is a foundation for the defined task, not a professional qualification or a substitute for checking the actual contract and project. Use the sources and related resources below to continue learning.