Construction Management Engineering

Cash Flow Analysis In Construction Projects

Project Cash Flow Explained (S-Curve)

-Cash flow analysis: In Cash flow forecasting is the forecast of both cash in & cash out of the construction project.

Cash Flow Forecasting

  • To be able to make a workable project schedule, the resources needed for the project & their availability must be checked.
  • Money is the most important resources.
  • Cash flow forecasting is the forecasting of both cash in & cash-out for all construction projects.

Cash In

-Project engineering agreements typically provide that as the work progresses, the client will make progress payments of the contract amount to the main contractor.

Components of cash in

Value of work: actually performed in the site. The total value of work done on-site to date is obtained in different ways, depending on the type of contract.

Material on site: but not yet incorporated into work, as well as any prefabrication or pre-assembly work that the contractor may have done at some location other than the job site.

Contract Provision that Impact Cash In

Retention:

1-It’s An percentage (%) of each progress payment is usually retained by the owner in accordance with the terms of the contract.

2-The retention may be held by the client until the work receives final certification by the authorities, the client/owner accepts the project.

3-Final payment is then made to the contractor, including cumulative retention.

Final Payment:

1-After the work has been done & all deficiencies remedied, the client makes formal written acceptance of the project & the contractor presents his application for final payment.

2-Under a lump-sum contract, the final payment is the final contract price less the total of all previous payment invoice made.

3-In all cases, final payment by the client includes all retention that has been held by him.


Cash Out

Components of cash out:

1-Upfront costs = initial expenses = start-up costs are costs necessary to start the project such as costs of moving in workers and equipment; erecting field offices, storage sheds, fences; job layout; installation of temporary electrical, telephone, water, sanitary, and other services; bonds; permits and project insurance.

2-Payment of direct job costs. These include costs associated with payrolls, materials, equipment and subcontractor payments

3-Payments for filed overhead expenses.

Cash Flow in Construction Projects

  • Cash flow refers to a contractor’s cash in and cash-out.
  • The net cash flow: It is the difference between cash-out and income at any point in time. A negative net flow means expense are exceeding income, a normal situation on even a highly profitable project during the greater part of its duration.

See Also

S-Curve Excel Template
Template for S-Curve in Excel 
Monthly Cash Flow Template Excel

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