Cash Flow forecast

Rafael,
let’s make it simple as we do in many projects.
Just estimate one day of project delay and one day of project acceleration. Announce these costs to the project team. Set target budget.
Now you have perfect and single project success criterion that integrates both time and money. Now project team can estimate if additional expenses that are needed for work acceleration are worth it or not. Project decisions may be easily estimated and justified. Having several targets (time and budget) makes decision process comlicated and subjective.
The cost of the day is not too hard to estimate.
This approach can be used with any software.

I don’t understand why you cannot use Spider Project as our customers in 25 countries. You can wait too long. Later this month I will fly to Germany to train our customers there. The world is small.

Best Regards,
Vladimir

Vladimir,



Although we do not have such issues, for the moment, I understand the math therefore considering your needs your approach seems like the way to go in your country to the extent that using our approach not considering NPV would be a mistake.



It got to complicate the estimating of jobs.



There are so many good functionalities in your software not available in ours that I adopted some into the top of my wish list and hope our software developers do incorporate these. Sorry NPV is not included, as PP members we got to be honest so we can understand each other.



Best regards,

Rafael

Rafael,

my country has a history of high inflation. In particular case of zero inflation and zero discounting rate NPV is equal to profit or total expences forecast. It does not change an approach.

Project management decisions are estimated by their impact on the NPV. The delay costs money, acceleration saves money. So even minor actions may be estimated and justified by their impact on the project success criterion.

Expected cash flow we estimate by risk simulation described in my presentation - it is not early, late or average. Expected cash flow is probabilistic.

Best Regards,

Vladimir

Vladimir,



You can get early and late cash flow projections going into every activity to end up with a cash flow that should be somewhere in between but that usually slips, at times in unpredictable ways. So why use so much granularity or micro detail for cash flow purposes? Which projection you use early, late, an average?



Time and resource allocation of your activities is another issue; here you got to go to an appropriate activity detail a higher level of detail is in order.



Net present value is to be considered if a very long duration job or if your country has a history of high inflation so you got to reduce your cash flow to account for time value of money. For an average duration of 2 years and inflation rate of less than 5% per year, I would not consider net present value as if a long term real estate investment.



CPM is a tool being abused so much and so complicated to the view of accounting and top management that in order not to lose control they prefer the old spreadsheet approach, whether we like it or not.



Note that my sample was oversimplified just to create a document to communicate the idea, of course the level of detai is too little the same way at the activity level is too much. You got to realize we do not have issues with a high inflation rate.



Best regards,

Rafael

We do it on activity level.

I don’t understand why do you recommend to manage cash flow on a summary level.

Net Present Value is the usual criterion of project success and project management decisions shall be made basing on their impact on the project cash flow. I don’t understand your phrase that micro management means nothing, a waste of time.

I agree that exporting cost reports to Excel may be necessary for future use by accountants and other external people.

Look at http://www.spiderproject.ru/library/mps.ppt

Best Regards,

Vladimir

Yes Vladimir you got it right, essentially because it is easier to explain, to communicate.



This is a document you will forward to others not hooked on CPM scheduling, it will most probably be adjusted and merged into a master document that will include all jobs and general office income and expenses. The accountant as well as top management will review it most probably in a worksheet format; it can be Excel, lotus 123, Quattro Pro (if still available) or any other your company uses.



After a lot of manipulation you can mimic your cash flow into your CPM model but in reality the dynamics of the construction process will many times move your prediction out of early and late dates, so much that micro management means nothing, a waste of time.



I would recommend for this purposes to cost load your schedule at a summary level and not at the individual activity level, unless a combination is appropriate to model some peaks. Then the projected billings should be incorporated into a spreadsheet format.



I still prefer to use my scheduling software to project the timing of my summary activities and use a worksheet to generate my averaged cash flow, something in between ASAP and ALAP.



Best regards,

Rafael

Why Excel? Easier to explain?

Best Regards,

Vladimir

Cash Flow is not the same as Billings as these are just a component of the cash flow. Cash flow is determined from all your income as received (cash basis) and all your expenses as paid (cash basis).



The first thing for Job related Cash Flow is to determine your projected billings, then move your cash receipts as to account for lag on payments, these represent your Job income. In some cases you will have to account for the retainage. In the sample worksheet no retainage was considered for simplicity.



Then you will have to determine your payments for the expenses. Some will be paid as soon as incurred such as payroll and some purchasing to local suppliers. Other will be paid 30 days after purchasing while some special purchasing will be paid in advance or in a agreed pre-payment schedule such as equipment bought from overseas.



As a scheduler you most probably will be required to provide the Job Billings schedule only for your jobs. Then the Project Manager usually prepares the cash flow for the jobs considering the lag from billing date to payment received, the retainage, etc.



This is a projection and going into much granularity, micro detail or whatever at some point is not going to increase precision therefore at times a worksheet will do it without the need for a detailed CPM.



Then all the data will be collected by top management and assembled in coordination with accounting as to include main office overhead and any other relevant cash flow items. Usually this is a document required by your bank or your surety company.



Follow the link for a simplified sample worksheet for a single job.



Sample cash flow worksheet for a single job



This sample was prepared in response to your thread, if you find any error please understand it was prepared in an informal way to communicate the general ideas.



Best regards,

Rafael