PCM-Lecture36-Project-Cash-Flow

PCM-Lecture36-Project-Cash-Flow - Project Project and...

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Project Project and Construction Management and Construction Management Lecture 36 Project Cash Flow 1) Cash Flow Projections 2) The Cash Flow to the Contractor 3) Overdraft Requirements 4) Comparison of Payment Schemes Luis A. Prieto-Portar 2010
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1. Cash Flow Projections. The purpose of a cash flow projection is to determine the income and the expenses during the life of a project. There are several time-scheduling aids that are used by contractors to determine their Cash Flow Projections. The sophistication of the method adopted usually depends on the complexity of the project. The simplest, and most common method is the S-Curve . The S-curve is a simple bar chart of the project, assigning costs to the bars, and smoothly connecting the projected amounts of expenditures over time. S-Curves are mostly used in public contracts such as those used by state agencies and lending institutions (banks, etc).
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Consider a simple project that takes place during a four month period, and involves building four activities A , B , C and D (notice they are not necessarily finish-to-start). $30,000 $100,000 $180,000 $200,000
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The horizontal bars represent the activities, and are positioned along a time scale indicating the start and finish times. The direct costs associated with each activity are shown above each bar. It is assumed that the monthly cost of indirect charges (that is, the site office costs, telephone, electrical power, supervisory salaries, etc, which cannot be charged directly to a specific activity) is $5,000. Assume for simplicity that the direct costs are evenly distributed across the duration of the activity. The monthly direct costs can be readily calculated. The direct charge is simply calculated based on the portion of the activity scheduled in each month. For example, for the second month: Activity A: 0.50 x 50,000 = $25,000 Activity B: 0.50 x 40,000 = $20,000 Activity C: 0.33 x 60,000 = $20,000 $65,000 The figure shows the total monthly and cumulative monthly expenditures across the life of the project.
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Developing the S-Curve from the data, $30,000 $100,000 $180,000 $200,000
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Therefore, the features of the S-Curve are, 1) The S-curve is nothing more than a graphical presentation of the cumulative expenditures over time . 2) As activities come on-line, the level of expenditures increases and the curve has a steeper middle section.
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