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  • Matthew Klinefelter

Cash Is King - How Well Do You Know Your Cashflow Profile?

Cash is important to any business and poor cashflow management has sent plenty of companies under. Most because of inaccurate forecasting not highlighting issues in a time frame for them to be resolved. Leave it too late and its game over!

Construction is a project based business and one bad project could have a massive impact on your cashflow.


Inaccurate forecasting wont bring more money in and it certainly wont make any problems go away.


If you can identify areas of cashflow problems in advance then temporary measures can be used to get you through a tough period.


Despite cashflow being important to so many companies they still use out of date and labour intensive methods to report the profile for each project. Many of these are disconnected from other information leaving open gaps for errors.


Most already have the information they need but don't use it to its full potential.


So how can you improve your cashflow forecasting using information you already have?


Well there a few options.


The most simple option is to use your programme. Programme software like P6, Asta Powerproject and TILOS are all much more powerful than most appreciate. These packages are full project management tools but often are only used to produce a Gantt chart programme.


Microsoft Excel is often the weapon of choice for cashflow forecasting but this isn't connected to the programme so further input is needed to update forecasting each time a programme or change is input.


So you should have a programme for your project. This programme should align with your estimate so hopefully you know your cost. You also know your value as its the price your charging for the works. Inputting this information into your programme will show your cashflow.


Three elements you already have

  1. Programme

  2. Cost

  3. Value

Combine them to produce a cashflow profile and here's the best bit. When you update your programme (which you have to do anyway) you automatically update your cashflow. Why have a QS and Planner working separate? Historically the planner would produce a revised programme which the QS would then use to update the cash flow. This is doubling up on prelims which is money down the drain.


Using the information and tools already to available.


The graph above shows nett cash flow (Top graph) and total cost (Bottom graph). Its possible to offset when money will actually go in and out if needed for added visibility of cashflow.


Having the information on an automatic update in line with the programme means the effects of programme change will automatically show the change to the projects cashflow and any effects this may have can be accounted for.


Now I said there were two options.


The second would be to use Earned Value Management.


For this to be possible you need a bottom up estimate of your project which is the most robust way to price works. For this you need to know the elements which make up each programme activity. Using this and comparing the budget against the actual can give performance index for Cost and Schedule.


Again EVM uses information most should have to hand anyway. Using this information can highlight overspend in relation to the programme and predict the final cost of a project from very early on.


So don't gamble with your cashflow.


Effective use of information in this way can reduce your overheads while improving your overall reporting and derisk your business from any cashflow issues. The implementation of EVM will reinforce your project reporting to highlight any early warning signs so problem projects can be turned around rather than leaving issues to fester too long.


If you want to discuss how we can help your business then contact us.

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