BUDGET & COMMERCIAL MANAGEMENT

Budget and
Commercial
Management

Table of Contents
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Critical examination of the case and necessary requirements for providing funding for a
project along with benefits and pitfall of Special Purpose Vehicles...........................................1
Evaluation of the financial and commercial viability of such projects.......................................4
Discussion of development of buyer and supplier relationship in an increasingly competitive
and sophisticated commercial environment.................................................................................5
Current and future business trends illustrating the discussion with relevant examples..............5
Critical review on the contracting or tendering framework.........................................................6
Critical review of key aspects of the negotiation process in organisations or sector..................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Budget can be defined as a financial plan which is formulated by all the organisations for
the purpose of carrying out all the future projects. Commercial management can be described as
the process of managing all the activities that are performed by business entities for the purpose
of completing all the commercial projects (Cleve, B., 2017). In order to attain success in future it
is very important for companies to focus upon these two elements. Present report is based upon
infrastructure commercial projects for which Transpennine route upgrade – Leeds, West
Yorkshire project is selected. It is one of the largest projects of development of United Kingdom.
This assignment covers various topics such as analysis of the project, requirements for providing
funding, benefits ad pitfall of SPV, financial and commercial viability of project etc. Apart from
this, development of buyer supplier relation, current and future business trends along with
critical review of contracting framework and key aspects of negotiation are also covered in this
report.
MAIN BODY
Critical examination of the case and necessary requirements for providing funding for a project
along with benefits and pitfall of Special Purpose Vehicles
Transpennine route upgrade – Leeds, West Yorkshire: It is project which was
commissioned for the upgradation of rail line between York and Manchester Victoria which also
covers Leeds towards Selby of Works West. Main purpose of this project was to improve and
enhance capacity, reliability and journey time along with electrification of the rail lines and
improvement in the interchanges at the railway stations. The contractors for the project was
BAM Nuttal and the consultant for this was Arup and Amey Group who headed up the whole
work of improvements. The route which was required to be upgraded was around 76 miles long
track. There were total 25 stations, 8 tunnels and 13 viaducts on the whole route. It was started in
mid of year 2019 and the estimated completion year is 2028. The value which is estimated for it
is around 2250000000 pounds (Transpennine route upgrade – Leeds, West Yorkshire, 2019).
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(Illustration: Transpennine route upgrade – Leeds, West Yorkshire, 2019)
(Source: Transpennine route upgrade – Leeds, West Yorkshire, 2019)
With the help of the upgradation of the rail line route the government is planning to
reduce the struggle which is faced by local travellers. With the help of this project they will be
able to travel without any issues that are currently faced by them. It is the most effective and
powerful decision which was taken by the legal authorities so that they ca improve the
infrastructure of United Kingdom.
Necessary requirements for providing funding to such project: All the concerned
parties that are handling such projects needs various information so that they can provide funding
to the contractors so that they can execute all the planned activities. If the organisation which
will be working on the project is not able to provide detailed information to financers then it is
not possible to get finance from them (Goosen, Pelzer and du Plessis, 2015). Some of the key
aspects that are taken in to consideration by the fund providers for such types or projects:
Actual cost: It is one of the main elements which is analysed by the financers when they
providing funding projects like Transpennine route upgrade – Leeds, West Yorkshire. If they
think that the cost is very high and the whole project does not worth it then they do not take
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interest in it and provide funds. In order to get funds from them the contractors are required to
make sure that they deliver data of actual and accurate expenses that may take place while
completing the project. If the financers think that the cost is accurate then they provide funds for
such types of commercial projects.
Necessity of the project for society: It is another factor which is focused by the
financers of the projects such as Transpennine route upgrade – Leeds, West Yorkshire because
they are mainly used for improving standard of living of citizens. For example, this project will
result in decreased struggle and time of travellers traveling at 25 stations of the route therefore it
is a need for society. There are various other factors which are focused by fund providers of this
type of projects. If the contractors are not able to aware them about the benefits of them to the
society then it will be very difficult for them to acquire funding for the project.
Total duration: It is also a requirement which is considered by the financers of such
projects when they make decisions regarding providing funding to the projects. If the project is
for social cause but it is taking too much time to get completed then it will affect daily routine of
the citizens therefore in this situation financers do not provide funds. When they assess that the
duration is appropriate and the think that it will be completed in predetermined time limit then
they provide finance to the organisation which will be working on the project (Sheppard,
Bittman and Ominski, 2018).
Impacts of the projects upon infrastructure: It is the last major element which is taken
in to consideration while providing funding to project such as Transpennine route upgrade –
Leeds, West Yorkshire. If they are for societal development then they will also improve the
infrastructure. It is the main reason for which tis factor is focused by fund providers while
financing projects. If they assess that they project which will be undertaken in upcoming years
will not improve the infrastructure of the country then they ignore to provide funds in them.
From the above discussion it has been determined that there are various types or
components which are focused by financers of projects such as Transpennine route upgrade –
Leeds, West Yorkshire as they need to analyse that their funds will be utilised properly or not. If
they find that any one of the elements is not right for the project the it leads to confusion to them
that they should provides funds or not for the completion of it.
Specific Purpose Vehicles: It can be defined as a legal entity which is created for
specific purposes. It is mainly used to raise capital for projects such as Transpennine route
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upgrade – Leeds, West Yorkshire. In case of this type of projects SPV is used as a funding
structure which will help the investors to determine the way in which funds will be utilised for
whole project. There are various benefits and pitfalls of SPV which are as follows:
Benefits: All the benefits of special purpose vehicles are as follows:
 Each and every investor in special purpose vehicle are showed as single investor
 If it is used by organisations then the SPV manager will file the applicable Blue Sky
Notice for the investors who are involved in it. There is no specific obligation for this
such types of notices.
Pitfalls: Some of the specific pitfalls of SPV could be assessed by analysing following
points:
 The cost which is involved in it is very high and the maintenance fee for the life of SPV
is also very high and if it is not applied by the contractors then no additional cost is
required to be faced.
 While implementing SPV the companies are required to change the existing obligations
for all the investors which may affect their interest in the projects.
Evaluation of the financial and commercial viability of such projects
All the projects like Transpennine route upgrade – Leeds, West Yorkshire are financially
and commercially viable because when the are completed on time then it results in higher cash
inflow. As BAM Nuttall is the contractor of this project so, if this will be completed successfully
then it will help the organisation to take more contracts like this. It will be beneficial to establish
a positive market image so that the parties that are planning to work of such projects in future
will ask it to work on it. When the upgradation of the route will eb completed then the foot fall of
travellers at the railway station will be increased they will start using trains rather than other
mode of transportation because they can reach early at a destination with the help of it. Higher
number of passengers will allow the rail department of generate good revenues and profits which
shows that this type of project is financially viable (Potts and Ankrah, 2014).
Commercial viability of the projects could be determined with the help of results of
completions. When one of the is completed successfully and it is benefitting the society then the
contractors, consultants and other parties which were involved in it are contacted by government
for other such types of projects. It results in enhancement in business for the parties which have
worked on it which reflects that these projects are commercially viable.
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Discussion of development of buyer and supplier relationship in an increasingly competitive and
sophisticated commercial environment
Commercial environment is highly competitive and sophisticated and the level of it is
increasing continuously. In order to survive in it, it is very important for buyers to make sure that
they are having good relations with suppliers. If they will have good relationship then it will be
very easy to get required resources to start and complete the whole project. It is very important
for both of them to have good relations because it will provide benefits to both the parties in the
highly competitive and sophisticated environment. For example, if buyer will have good relation
with the supplier and a sudden project like Transpennine route upgrade – Leeds, West Yorkshire
will be undertaken then the relationship will help to get all the material which is required on a
low cost. It can also help to buy goods on credit when there is no liquid asset within the entity.
On the other hand, if the buyer will not have a good relation with the supplier it will be very
difficult to buy material to complete the project (Ogunjuyigbe, Ayodele and Akinola, 2017).
If the suppliers will have good relation with the buyer then it will help them to get
contacted by the buyers whenever a new project will be undertaken by them. With the help of it,
they will be able to generate higher revenues for their business and enhance performance in the
market. On the other hand, if the buyer is not satisfied with the services of supplier then it will
result in bad relations of them and when a new and large project will be undertaken then new
suppliers will be contacted to accomplish the project successfully (Mangano, Giacoletti and Sarà,
2019)
The above discussion shows that for both buyer as well as supplier it is very important to
develop good relations with each other so that they can acquire benefits in monetary and non-
monetary terms.
Current and future business trends illustrating the discussion with relevant examples
Some of the major current and future business trends that are required to be focused by all
the organisations in contracting industry are described below. By paying attention towards them
the entities will be able to attain success for business. Description of all of them is as follows:
Modern and prefab construction: It is the current trend in the construction industry
which has enjoyed movement over past few years. It helps to complete the projects on time and
meet all the goals successfully. This trend consists some of the factory-made units that are
transported from the factories and assembles at the location for creating a complete building. For
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example, if an organisation is working on the project of building a new mall then different units
could be made far away and could be transported at the site so that the struggle which could be
faced by individuals living nearly could be ignored.
Robotics: It is the future trend which will be facilitating the contract industry in upcoming
period. With the help of it, the contractors can complete the projects in minimum time period
because robots can work for 24 hours without getting tired. It will be facilitating all the
organisations in future to finish projects in less time with higher level of productivity. For
example, the project of Transpennine route upgrade – Leeds, West Yorkshire is related to
improvement of track and it will be complete till 2028. In order to complete in less time, the
contractor can use robots so that they can work more and help the entity to complete the project
faster (Singkran, 2017).
Critical review on the contracting or tendering framework
Contracting framework can be defined as an agreement which is formulated by the buyer
for supplier to establish all the terms that are required to be followed to govern the contract. It
could be awarded during the life of agreement. Main purpose of it is to make sure that both the
parties that are involved in the tender are aware of all the terms and conditions that are required
to be followed by them while working for the project.
In UK it is designed to provide unrivalled capability, certainty and capacity to all the
public bodies of the region. There are five major services that are being developed in it for the
purpose of making sure that all the projects could eb completed effectively and efficiently with
by embedding all the desired values. By following it all the public organisations that are working
in infrastructure projects will be able to determine the scale, scope, complexity, location, etc.
regarding them which will help them to formulate effective decisions for future. It will be
beneficial to be prepare to deal with all the issues that may take place in upcoming period
(Weidong, Jie and Yuzhu, 2017).
According to the tendering framework each and every task of the undertaken project
should be completed by paying attention towards performance management (Keramati,
Esmaeilian and Rabieh, 2015). It is required to meet the deadlines and the complete all the
activities properly. It also demonstrates the strict standards that are related to fair payment,
training to the employees working on the sights, community engagement, waste diversion,
apprenticeships etc. When the project will be commenced then the main responsibility of the
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manager according to the contracting framework is to make sure that budget and social values
are planned properly. It can help to make sure that the planned objective that are related to the
tasks will be accomplished successfully or not.
Critical review of key aspects of the negotiation process in organisations or sector
Negotiation can be defined as the process interpersonal decision making which if focused
when one party is not able to achieve the objective single handedly. There are various aspects
that are related to the negotiation process in contract or tendering industry. Description of all of
them is as follows:
 Interests: These are considered as the fundamental drivers of the negotiation procedure.
In contract industry all the interest of the contractor controls the wordings of the
individuals who is negotiation with other one. Experienced negotiators keep their
interested first in the interpersonal decision making.
 Options: It is the second element of negotiation process which is based upon the interests
of contractors. For example, if they are able to understand all their interests then they find
available options according to them so that they can form effective decisions for business.
Different alternatives can help the buyer to enhance power of conciliation against the
supplier (Hudson, 2015).
 Commitments: It can be defined as an agreement, offer, promise and demand in the
negotiation process which is made by one or more parties involved in the project of
contracting. In contracting industry, it is beneficial for both buyer and supplier because it
can help to assure the time and date of delivery of goods (Wisneski, Shen and Yee,
2017).
 Communication: It is one of the main elements of negotiation because the way in which
negotiator interacts with another party leaves impact upon the whole procedure. The
success of negotiation in contracting industry depends on communication choices like
brain storming jointly, making silent assumptions etc.
 Relationships: It is also an important element of negotiation because when both the
parties in contract industry will have good relations then it will help to attain success.
When relationship between the buyer and supplier is not good then they will not agree to
a decision which will result in delay for formulation of effective strategies (Harelimana,
2018).
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CONCLUSION
From the above project report it has been concluded that budget and commercial
management are two main factors which should be focused by all the organisations that are
working on infrastructure improvement projects. The financers analyse different elements when
they make decision of providing funding to the contractors for the projects. Some of them are
total cost, duration, impact upon infrastructure, necessity to the society etc. All such types of
projects are financially and commercially viable because they result in higher revenues and
business opportunities that are involved in it. In order to complete them it is very important to
develop buyer and supplier relationship in the increasingly competitive and sophisticated
commercial environment. There are various current and future business trends such as
……………. that are required to be focused by contractors while undertaking projects. Some of
the major elements that are also required to be focused by contracting framework and key
aspects of negotiation process.
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REFERENCES
Books and Journals:
Cleve, B., 2017. Film Production Management: How to Budget, Organize and Successfully
Shoot Your Film. Taylor & Francis.
Goosen, P., Pelzer, R. and du Plessis, H. J., 2015, August. A method for accurate electricity
budget cost calculations for a deep mine. In 2015 International Conference on the
Industrial and Commercial Use of Energy (ICUE) (pp. 155-160). IEEE.
Harelimana, J. B., 2018. The Effect of Internal Audit on Budget Management of Local
Government of Rwanda. Global Journal of Management And Business Research.
Hudson, M. E., 2015. Preparing for budget-based payment methodologies: global payment and
episode-based payment. Current opinion in anaesthesiology. 28(5). pp.610-614.
Keramati, A., Esmaeilian, M. and Rabieh, M., 2015. Developing a Model for Project Scheduling
with Limited resources and Budget with Considering Discounted Cash Flows through
Fixed Prioritization Method. Asian Journal of Research in Business Economics and
Management. 5(1). pp.212-220.
Mangano, M. C., Giacoletti, A. and Sarà, G., 2019. Dynamic Energy Budget provides
mechanistic derived quantities to implement the ecosystem based management
approach. Journal of sea research. 143. pp.272-279.
Ogunjuyigbe, A. S. O., Ayodele, T. R. and Akinola, O. A., 2017. User satisfaction-induced
demand side load management in residential buildings with user budget
constraint. Applied Energy. 187. pp.352-366.
Potts, K. and Ankrah, N., 2014. Construction cost management: learning from case studies.
Routledge.
Sheppard, S. C., Bittman, S. and Ominski, K. H., 2018. Nitrogen budget estimated for 908 cow-
calf, backgrounding and finishing beef operations across Canada. Nutrient cycling in
agroecosystems. 110(1). pp.7-24.
Singkran, N., 2017. Water budget analysis and management for Bangkok Metropolis,
Thailand. Water Science and Technology. 76(6). pp.1545-1554.
Weidong, J., Jie, L. and Yuzhu, L., 2017. Review on Comprehensive Budget
Management. Communication of Finance and Accounting. (11). p.15.
Wisneski, R., Shen, Y. and Yee, Y. M., 2017. CORAL to the Rescue: An E-Resource
Management Solution for Small-Staffed, Budget-Challenged Academic Libraries.
Online
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