Reduction and minimization of project financing costs

Professional project management is gaining popularity in modern realities.

Currently, almost every large company is trying to organize the management of investment projects at a professional level, including reducing the costs of project financing using innovative financial instruments.

IPMA recognizes a significant need for specialists in this field around the world.

It is increasingly important to ensure that the project is carried out properly in accordance with the approved budget, so planning is primarily focused on identifying the required resources, their rational allocation and accurate cost estimates.

Link Bridge Financial LTDA LBFL, an international financial and engineering company, offers a full range of services for large businesses, including minimizing investment costs and project management.

General concept of the investment project

The term “project” is defined in different ways by different groups of researchers, despite numerous attempts by the scientific community to find a single definition. In a broad sense, it is a set of interrelated actions aimed at achieving the company's stated goal.

These actions are limited in resources and time and represent a multi-step process with an exact start and end date.

To achieve the goal of the project, it is important for the financial team to optimize the process of its management and take all measures to reduce the costs of project financing. This implies numerous actions related to planning, organization, motivation and control, which ultimately will allow the company to implement the investment project in the most rational and cost-effective way.

The end result of any business project must be a product or service that satisfies a set of specific technical, legal, economic and consumer requirements.

Each investment project is unique, which stems from a specific problem to be solved.

This uniqueness is associated with environmental conditions, time and methods used to implement a particular project. To paraphrase the old adage, one cannot touch the exact same water twice, that is, you cannot implement two projects using the same actions every time.

Since the dynamic business environment is constantly changing, new market, macroeconomic, environmental and other requirements force the project initiators to adapt to new situations and choose appropriate ways to minimize the project cost. These measures will also depend on the specific team of employees who work on the project and formally or informally interact with it.

The choice of the optimal way to implement an investment project depends on its scale, structure, complexity and importance for business and the industry as a whole.

For example, experts identify strategic, tactical and operational projects, large and small projects, and simple and complex projects (consisting of several phases). These classifications are largely arbitrary, but they give an idea of ​​the complexity and variety of approaches to project management.

Often, the scale and importance of a particular project determines its priority for the business and, therefore, the size of the budget, the composition of the project team, and other important conditions. In this sense, project parameters such as timing, costs and quality are of particular importance.

Although there is a strong correlation between these parameters, in practice the investment costs are the most important as they determine the success of the project.

Investment project cost management

Cost management is an integral part of the planning and implementation of any investment project, requiring the following actions:

• Defining a specific goal and understanding of the final products of the project.
• Creation of a realistic list of tasks to be performed by the project team.
• Prioritization and formation of the optimal sequence of actions within the project.
• Estimation of the duration of individual tasks or stages of an investment project.
• Estimation of the planned cost of individual stages and additional costs.
• Allocation of resources for the most efficient execution of each task.

Thus, the path of the project team should include the definition of goals and requirements of the participants, careful distribution and assessment of the effectiveness of specific works, minimization of project financing costs and various forms of control over the implementation of the investment plan.

This process is often underestimated in the practice of project financing, therefore, too little time and resources are allocated for it.

However, at this stage, non-standard ideas and new, more advanced solutions for project implementation may appear, contributing to the most efficient use of project resources.

This is the moment when initiators can try to predict and describe all information about the project based on realistic assumptions and reliable diagnostics, including using a SWOT analysis of a specific project. A SWOT analysis helps to determine the chances of a project's success and to assess the relationship between investment costs and future cash flows that the facility will generate.

This analysis is carried out taking into account the risks that come with any investment.

In the planning process, purposefulness is also important, that is, a clear understanding by the participants of the strategic goal of the project in the activities of a particular company or organization. During the planning phase, the team determines which elements will dominate the project. This is where alternative scenarios arise, taking into account the different options for the investment costs incurred.

Establishing realistic completion dates for each stage of construction is also of the utmost importance in terms of minimizing costs.

With a clear schedule, participants can best plan their activities and attract the required resources on the most favorable terms.



Optimization of the project reflects the desire of the team to use human labor and financial resources as efficiently as possible, which is critical for the formation of the final cost of the project. As part of these activities, multilateral meetings, negotiations and other work are planned so that each member of the project team, in accordance with standards, skills and other factors, deals with the project area that he knows best.

The final planning element is bringing the plan in line with reality and giving it some flexibility.

The project team, despite having a well-developed professional plan, must be aware of the potential risks and unpredictability of abrupt changes in such a sensitive element as the cost of an investment project.

The project team must validate the plan and bring it into line with reality without losing control over costs. Since the beginning of the implementation of the plan, there is also a parallel control of all activities and costs provided for in the schedule. The purpose of this phase is to monitor the progress of the actual implementation of the project and identify deviations between actual performance and schedule, as well as assess the progress achieved.

Budgeting large projects

Budgeting is a multi-step process of developing and quantifying action plans to monitor a project by comparing projections and performance.

The peculiarity of large investment projects worth more than 10 million euros is that their implementation requires the involvement of a wide range of participants, including manufacturers and suppliers of equipment, contractors, experts, etc.

In a broad sense, budgeting for large projects is a management method aimed at increasing the efficiency of using a company's resources when making investments.

It is the primary tool used by the finance team to monitor any investment expenditure. Budgeting includes a sequence of actions that allows the project to be implemented in accordance with the financing plan.

Investment project cost management consists of the following stages:

• Resource planning. This stage is closely related to the determination of the requirements and costs required for the implementation of the project. An important element in this regard is the personal experience of financial consultants gained in the implementation of similar projects. Therefore, for the most complex projects, initiators usually need the help of highly qualified external specialists. The work performed at this stage will allow to determine the type and amount of costs assigned to individual tasks within a specific project.

• Estimation of costs. This set of measures consists in determining the costs of specific resources required for the implementation of the project. Currently, there are many tools for budgeting, but the fastest and cheapest way is to make an estimate by analogy with other investment projects. Also widely known is the so-called parametric modeling, which uses a flexible mathematical model to predict project costs. At this stage, increased attention is paid to minimizing project financing costs by reducing the cost of borrowed funds.

• Budgeting. This stage involves comparing the planned costs for individual tasks within the project in such a way as to form a complete picture and reliably predict the level of costs in subsequent stages and for the project as a whole. Drawing up an estimate of an investment project presents great difficulties, especially when the proposed project is characterized by a high degree of innovation or complexity.

• Control and minimization of project financing costs. Cost control and minimization activities are aimed at continuous monitoring and corrective actions that help to reduce costs, as well as ensure the targeted use of allocated resources without overspending. The latter presupposes a continuous check of the costs incurred, identification of the arising deviations and the search for the reasons between the actual and planned costs.

It should be noted that the accuracy of the assessment of investment costs directly depends on the breadth, depth and accuracy of the initial data for the project.

The most accurate and frequently used tool (especially for large investment projects financed from the host country's government budgets) is a detailed estimate of individual costs and summarizing them until the total cost is obtained.

When using this method, financial teams pay great attention to the reliability of the primary sources of information.

On the other hand, in the case of innovative projects, estimates are most often made from scratch. In this case, it makes no practical sense to collect information on the historical cost of similar projects. This method is especially effective in determining discretionary costs within established limits (total project management costs, training costs, or R&D department costs).

Only by following these steps resources can be allocated in the most rational way, and project participants can easily control financial aspects. In any case, each project is unique, so no financial team can estimate costs with 100% accuracy.

For this reason, it is important to allocate additional resources for contingencies to ensure the implementation of the project in adverse scenarios.

The cost monitoring of investment projects

Cost monitoring is an important element in managing the cost of an investment project.

Effective project cost management is possible only with the right choice of monitoring and control tools.

The costs incurred under the project must be monitored on an ongoing basis, with all costs incurred being reflected in the company's financial statements. In the case of simple projects, investment costs are monitored in a tabular format, which, despite its simplicity, allows the project team to efficiently and quickly identify any problems and solve them.

For complex projects, the Earned Value Method (EVM) is the most appropriate method for monitoring and controlling project progress.

In this method, the assessment of project implementation is usually based on the two most important parameters, cost and time.



This method helps to identify the differences between planned budgets, schedules and actual performance. Its essence lies in the use of a simple mathematical formula to compare the work done with the planned one and measure its cost.

The method also makes it possible to predict future variances in project costs based on actual results to date.

EVM introduces a mathematical relationship between three main parameters:

• Planned value (PV), which means the cost of planned activities in accordance with the preliminary budget, adopted by the initiator.

• Earned Value (EV), which refers to the cost of work actually performed at a given point in time in relation to planned costs.

• Actual Cost (AC), which determines the actual costs of the project from its start to the moment of analysis.

Based on the parameters listed above, the EVM method introduces a CPI (Cost Performance Index) that indicates whether the budget was exceeded at a particular point in time.

A value greater than one means that the project costs do not exceed the estimated budget, that is, project work is performed cheaper, and a value less than one indicates that the project financing costs were actually exceeded.

The closer the value of the coefficient approaches zero, the more problems the enterprise has with budgetary costs.

This method is based on the construction of cumulative cost curves and allows the project team to simultaneously monitor the timing and costs, as well as compare them with the resources allocated for the implementation of a specific investment project. Project cost management in this case is closely related to the control of schedules and resource use, therefore, the project analysis is based on a combined analysis of timing and costs.

However, it should be noted that this systematic approach to project budgeting and cost control is not always applicable.

This approach is difficult to apply in projects of an innovative nature in the early stages of research.

In such cases, attracting highly qualified specialists in a specific field and purchasing advanced technologies can be much more important than minimizing project financing costs.

As can be seen from the above considerations, the management of large investment projects in modern conditions is an extremely difficult task for business.

Although almost every large enterprise carries out some kind of project, it is impossible to underestimate the role of professional management accounting, which supports strategic decisions and minimizes project costs.

Thanks to careful planning and constant control of the project cost, the likelihood of its successful implementation increases dramatically. Of course, we must not forget about the human factor. However, the key factor is a well-designed project plan, which will subsequently be implemented consistently and in compliance with regulatory requirements.

The financial team of Link Bridge Financial LTDA LBFL is always ready to help your business with project financing, tax optimization and investment cost minimization.

We also offer a full range of engineering, technical, management and legal services required for the implementation of large-scale projects in the field of energy, infrastructure, industry and others.

Minimizing project financing costs: practical tips

Minimizing costs during the implementation of an investment project actually means the optimal use of resources and investments, which increases the chance of success for the entire project.

The practice of project finance (PF) in recent decades has contributed to the emergence of numerous strategies, processes and tools to minimize costs. These strategies are associated not only with reducing the cost of borrowed funds and attracting them, but also with ensuring high efficiency of design and construction work at the facility.

Even if the budget for an investment project was developed using advanced mechanisms and tools, it is impossible to predict and calculate with complete certainty all the costs that will arise in the process.



A qualified finance team will help to minimize the final cost of project financing, reducing the impact of risks and uncertainties on the final result.

Table: Methods for minimizing project financing costs used for large investment projects.

Best practices	Short description
Identification and analysis of initial costs	It is important to improve the accuracy of costing and thus reduce risk and uncertainty. To improve the efficiency of investments, companies must put more effort into the planning stage.
Project scheduling	A well-designed, realistic schedule contributes to more efficient use of resources, so the cost of project financing is reduced.
Periodic project audits	Stakeholders need to understand the state of the project in terms of costs at any given time. Through professional monitoring, the initiator and investors can analyze the causes of cost overruns in order to develop measures to prevent such problems.
Effective negotiation	As market conditions are constantly changing, project managers may renegotiate prices with partners, suppliers or customers. This requires effective communication, negotiation, leadership and persuasion skills, as well as a deep understanding of the market.
Professional project management	Analyzing financial aspects alone is not enough to identify problems affecting the budget. Bottlenecks in project management, misallocation of responsibilities, or poorly planned business processes lead to additional costs. To solve the problem, it is necessary to carry out complex work with various departments.
Distribution of risk	Strategies aimed at the rational distribution of risk help to reduce the cost of the project. This can be the involvement of government agencies to participate in the project or the use of government guarantees.
Ensuring long-term customer loyalty and commitment	The implementation of each investment project requires confidence in a stable and long-term demand for certain products or services. Applying mechanisms to ensure customer loyalty and commitment (for example, stimulating demand for liquefied natural gas for LNG projects) gives confidence and reduces the cost of funds.
Developing an effective debt repayment strategy	The initiators must take out loans at low interest rates and agree the term of the debt with the technical life of the facility. Adequate financial instruments can significantly reduce the cost of capital and reduce the debt burden in the long term.
Tax optimization	The right tax optimization measures can have a significant impact on the bottom line of project finance costs. This can be various accelerated depreciation schemes or investment tax deductions. It is important to correctly assess the possibility of minimizing taxes in the context of the legislation, economic and political situation.

Minimizing project financing costs gives businesses a great advantage in a competitive, dynamic international market.

Developing an effective cost reduction strategy implies the inclusion of all costs, continuous monitoring and adjustment of the technical, legal, organizational and financial aspects of the project. This is why companies need experienced project management professionals.

If you want to know more, please contact LBFL consultants.

We are ready to provide you with any assistance in the implementation of large business projects in Europe, USA, Latin America, North Africa, the Middle East and East Asia.