# Financing Cost

The reliable determination of the financing cost of a work is crucial for the sustained performance of a Contractor Company.

An Industrial Construction and Assembly Company is an organization essentially assembled on three bases:
a) Its human capital.
b) The equipment and the rest of the auxiliary components.
c) Financing capital.

When the contractor faces works that exceed his economic possibilities, he must resort to private capital or credit institutions, which provide him with the economical means either through the payment of interest or through participation in the benefits of the Work.

From the foregoing, it may be deduced that it is essential to carry out, together with the budget or estimate of the work, an economic-financial study consisting of an Expenditure Budget or Investment Plan and a Budget of income or resources to be made available, as the work progresses, as a payment of the work executed or for the agreed advances.

The resultant between the two sets of values, investments or expenditures and receipts or incomes, will reflect the capital needs and in which period of the Work will be produced.

The financing cost itself includes the set of disbursements of money by interest, commissions and other expenses derived from obtaining loans from financial entities to cover the monetary needs of the Project.

The main component of the financing cost is the interest rate that arises from multiplying the financed capital by the time of the financing at the corresponding interest rate.
In order to determine, with certain precision, the Financing cost of a Work, we must first have an accurate Investment Plan.
Next we analyze how to arrive at an accurate Investment Plan.

Investment Plan | Calculate Man Hours

An Investment Plan or Expenditure Budget is elaborated from the Work Plan.
This Investment Plan is essentially a Budget of the expenditures or expenses that cover the monetary needs of the Work in the timeline.
Next, the steps to follow to develop the Work Plan and the corresponding Investment Plan are analyzed.

### Work Plan | Calculate Man Hours

The Work Plan is obtained from the planning of the Project or the Work, this involves quantifying the time and resources that the project will demand.
Planning is essential to draw up the action plan to be followed and to define the logical sequence of the activities or tasks to be developed.
The planning of a Work is materialized in a diagram where the following is examined:

The totality of the tasks to be executed and the supplies to be provided.
The choice of technologies to use to develop the Project.
The times of execution of each activity.

In order to establish the times of execution of each activity, it is necessary to determine the productivity of the workers and that of the related Equipment; to define the times of provision of the supplies, etc.
Definition of the logical sequence or chain in which the activities take place.

Once the previous steps have been completed, it is possible to create a preliminary schedule that must comply with the milestones set by the Client or by the Bidding Document.
Then proceed to estimate the consumption of resources for each activity and then total the cost of resources.
Once this has been done, the money needs can be distributed over time, in other words, formulate the Investment Plan.
This makes it possible for us to know the amount of the initial Capital necessary and that of the Capital that will have to be invested periodically during the course of the Construction.

After carrying out the Investment Plan it is necessary to define how the Project will be financed.
As indicated above, it is necessary to prepare an Income Budget in line with the progress of the work, in concept of collection of the executed works or for the agreed advances.
The resultant between the two tables of values, investments or expenditures and payments or income reflects the capital needs and at what time of the work are going to occur.

This need for capital is what generates the Financing cost.

Financing Cost | Calculate Man Hours