Projecting Cash Flow F18 PDF

Projecting Cash
Flow
Dr. Walid Thabet

Virginia Tech
1
Construction Phases
CONCEPTUAL PLANNING CONSTRUCION CONTROL CLOSE OUT
Construction Develop Project Develop Project Direct and Manage Monitor and Control Close Project
Management Character; Develop Management Plan Project Execution Project Work;
Areas Preliminary Project Integrated Change
Scope Control
SCOPE Scope Planning; Scope Verification;
Management Scope Definition; Scope Control
Create WBS
TIME Activity Definition; Schedule Control
Management Activity Sequencing;
Activity Resource
Estimation; Activity
Duration Estimating;
Schedule
Development
COST Cost Estimating, Cost Cost Control
Management Budgeting
QUALITY Quality Planning Perform Quality Perform Quality
Management Assurance Control
HUMAN RESOURCES Human Resource Develop Project
Planning; Staff Team; Manage
Acquisition Project Team
COMMUNINCATIONS Communication Information Performance Manage Stakeholders
Planning Distribution Reporting
RISK Risk Management; Risk Monitoring and
Management Risk Identification; Control
Qualitative Risk
Analysis; Quantitative
Risk Analysis; Risk
Response Planning
PROCUREMENT Plan Purchase and Request Builder Contract Closure
Management Acquisition; Plan Responses; Select
Contracting Builder; Contract
Administration
2
Construction Phases
CONCEPTUAL PLANNING CONSTRUCION CONTROL CLOSE OUT
Construction Develop Project Develop Project Direct and Manage Monitor and Control Close Project
Management Character; Develop Management Plan Project Execution Project Work;
Areas Preliminary Project Integrated Change
Scope Control
SCOPE Scope Planning; Scope Verification;
Management Scope Definition; Scope Control
Create WBS
TIME Activity Definition; Schedule Control
Management Activity Sequencing;
Activity Resource
Estimation; Activity
Duration Estimating;
Schedule
Development
COST Cost Estimating, Cost Cost Control
Management Budgeting
QUALITY Quality Planning Perform Quality Perform Quality
Management Assurance Control
HUMAN RESOURCES Human Resource Develop Project
Planning; Staff Team; Manage
Acquisition Project Team
COMMUNINCATIONS Communication Information Performance Manage Stakeholders
Planning Distribution Reporting
RISK Risk Management; Risk Monitoring and
Management Risk Identification; Control
Qualitative Risk
Analysis; Quantitative
Risk Analysis; Risk
Response Planning
PROCUREMENT Plan Purchase and Request Builder Contract Closure
Management Acquisition; Plan Responses; Select
Contracting Builder; Contract
Administration
3
OUTLINE
Cash Flow Introduction
Projecting Income and Expenditure

Cost-Loaded Schedules
Planned Value (PV)
Income Curve
Expenditure Curve
Cash Flow Analysis
Improving Cash Flow
4
Performing cash flow analysis requires projecting
Income and Expenditure
Projected Projected
Income Expenditure
(Cash Inflow) (Cash Outflow)
Net Cash Flow (+/-)
Negative cash flow requires determining other sources of funds
5
$ Cumulative Income vs Expenditure
Contract
Budget Profit
Positive
Cash Flow
Projected
Expenditure
(Cash Outflow)
Negative
Cash Flow Projected
Income
(Cash Inflow)
Completion Date Duration

6
Contractors need for cash flow analysis
 Contractors need to forecast or project very early

availability of funds necessary to carry out the work.
 Maintaining a positive cash flow for longer periods of

time is a good business practice and necessary to
survive and maximize profits.
 Negative cash flow will require planning ahead to

borrow funds or shift funds from other projects.
7
Owners need for cash flow analysis
 Owners need a projection of their periodic payments

(when and how much) in order to fulfill their financial
commitments to the project and get financing from
lending institutions if needed.
8
OUTLINE

Planned Value (PV)
Income Curve
Expenditure Curve
Cash Flow Analysis
Improving Cash Flow
9
Projecting Income and Expenditure requires

projecting how much work in $ will be completed
by the end of each period.
This is referred to as the Planned Value.

Planned value is determined from the integration of
the physical work scheduled and the approved
budget to accomplish the scheduled work.
Integrate
Budgeted Baseline
Cost Schedule
11
Planned Value (PV) can be looked at in two ways: current PV
and cumulative PV.
Current PV is the sum of the budget (or value) for

activities scheduled to be performed during a given
period.
Cumulative PV is the sum of the budget (or value) for

activities scheduled to be performed to date.
Planned Value is also known as Budgeted Cost of Work

Scheduled (BCWS).
12
By cost-loading the schedule, the Planned Value can be
calculated, and the Planned Value Curve can be generated.
Cumulative Planned Value (PV) Curve
$ Budgeted Cost of Work Scheduled (BCWS)
Contract
Budget $ $
$ $ $ $
Cost-Loaded Schedule
$ $
PV Curve can
be based on
$ $ $ $
Early or Late
$ $ Schedules
$ $ $
$ $
$ $ $
$ $
Completion Date Duration
The Planned Value (PV) curve is a graphical representation
of the cumulative value of planned work over time. 13
Planned Value (PV) Curve
The Planned Value (PV) curve is also known as

the S-Curve.
14
Example-1: Construct the Planned Value (PV) Curve
W1 W2 W3
3 Footings
Baseline 5 Footings Budget
Schedule 7 Footings $4000 per footing
Current PV $12,000 $20,000 $28,000

Cumulative PV $12,000 $32,000 $60,000
15
Example-1: Construct the Planned Value (PV) Curve
$
Contract $60,000
Budget $32,000
$28,000
$20,000
$12,000
$12,000
Duration

Budgeted Cost of Work Scheduled (BCWS)
16
Once the cumulative PV curve is generated, the Income and
Expenditure curves can be determined.
Planned Value
(PV) Curve
Expenditure
Cumulative PV at
end of period 4
4
17
Contractual Requirement for Cost Loaded Schedules
SECTION 01298
SCHEDULE OF VALUES / CONTRACT PRICE BREAKDOWN
1.1 THE REQUIREMENT
.
.
D. The CONTRACTOR shall use cost loaded construction activities from

the Construction Schedule as a Schedule of Values. Each construction
activity shall be encoded to its bid item and a sort provided for each bid
item totaling the cost loaded amount. The total of the Cost Loaded
amounts for each bid item shall equal the amount bid for that item. The
total of the Schedule of Values shall equal the current Contract value at
all times.
18
Example-2a: Construct the Planned Value (PV) Curve
Distribution of activity
value across its duration
could be non-linear
Duration (months)
Activity
Activity Value ($) 1 2 3 4 5 6 7 8 9 10 11
$100 $100 $100 $100 $100
Task A $500
$200 $800 $200 $800
Task B $1000
$1000 $1000
Task C $1000
$50 $50 $50 $50 $50 $50
Task D $300
Current PV ($) (early schedule) $100 $100 $100 $300 $900 $1050 $50 $50 $50 $50 $50
Current PV ($) (late schedule) $100 $100 $100 $100 $100 $50 $50 $1250 $850 $50 $50
Cumulative PV ($) (early schedule) $100 $200 $300 $600 $1500 $2550 $2600 $2650 $2700 $2750 $2800
Cumulative PV ($) (late schedule) $100 $200 $300 $400 $500 $550 $600 $1850 $2700 $2750 $2800
19
Example-2a: Construct the Planned Value (PV) Curve
Cumulative PV ($) (early) $100 $200 $300 $600 $1500 $2550 $2600 $2650 $2700 $2750 $2800
Cumulative PV ($) (late) $100 $200 $300 $400 $500 $550 $600 $1850 $2700 $2750 $2800
$2800
Contract Budget $2700 $2750 Contract Value
$2650
$2600
$2550
Cum PV (Early)
$1500 Cum PV (Late)
$600
$300
$200
$100
Completion Date Duration 20

Exercise-1 (PART-1): Construct the Planned Value (PV) Curve
The AON logic network shown below represents the construction
plan for a small project. The contract value is $8,000.00. Estimated
activity total costs are also given.
A B
1 3
$1,000 $1,500
C F
2 1
$2,000 D $500
1
E $1,000
2 Duration in months
$2,000
Part-1: Construct a cost-loaded schedule and plot the Planned

Value (PV) curve. Assume that activity total cost is evenly
distributed across its duration. Use template provided. 21
Challenges with Cost-Loaded Schedules
1- Demands more accountability and transparency

from the general contractor (and subs)
 GCs/Subs have to publish proprietary estimating

information
 Provides the owner greater control over the estimate
 GCs/Subs would rather not develop a cost-loaded

schedule.
22

2- Assigning value of work to schedule activities is
not a straight forward task.
 The level of detail of the schedule of values (budget) is different

(usually higher) than the schedule – number of budget items are at a
higher level of detail compared to schedule activities.
 GCs/Subs have to summarize and breakout an estimate to parse into

23
the schedule
3- Not all activities have a straight line relationship

with its value.
 For example, large material packages such as electrical

distribution or lighting packages, will not “earn” costs in a
straight line relationships with duration; the packages will
earn the majority of their cost the minute they are delivered
to site. 24
 Material costs for electrical distribution packages

could be placed in a delivery activity, and the
installation of the package in a separate installation
activity (covering labor and incidental materials).
In this case, the installation activity will “earn” an equal

proportion of the total installation costs across the
duration of installation.
25
4- The schedule must be updated with time and

costs separately.
 Time will be updated by Remaining Duration (RD) -
Superintendents think in terms of RD
 Costs will be updated by Percent Complete (PC)
 Accounting gives you a percent complete based on the total

billed costs from others (e.g. subs, suppliers, etc.)
26
5- Subcontractors should be informed and aware

from the beginning through the contract if they will
be billing by the schedule.
 This allows for developing the list of activities and sequences
(the PLAN) in more detail to be able to drive billing
27
Income Curve
The Income curve is projected from the cumulative
Planned Value (PV) curve.
$
Contract 6
Budget
4 5
Cumulative PV Curve Income Curve has

a stair-step
3
appearance since
the progress
Income
payments are
Curve transferred in
discrete amounts
2
1
Completion Date
1 2 3 4 5 6 Duration
28
Income Curve
Income curve projection from the cumulative Planned

Value (PV) curve is influenced by several factors
including:
• Contract type and payment schedule

• Retainage
• Mobilization
• Long-lead items (Material or Equipment)
29
Factors Influencing the Income Curve

1. Contract Type and Payment Schedule
The type of contract generally dictates the general
nature of payment schedule - how and when the
contractor is paid.
 Payments are common to be made on a monthly basis.
 The time lag between application for payment and

owner payment allows the owner to assess work
completed and validate the invoiced payment.
Could be based on rough evaluation of the percentage of total
contract completion, or more precise field measurements of
quantities placed – depends on contract type (e.g. lump sum,
unit-price, cost plus fee, etc.).
30
Payment Schedule Requirements - Example Contract Language
Owner’s approved payment is

delayed 10 days after invoicing to
allow for assessing work completed
and validate invoice submitted.
31

2. Retainage
An amount deducted from the contractor’s invoice and

held back by the owner
 Released after completion of work. Usually One to

three months after substantial completion
 Guarantees satisfactory completion of the work
(including punch-list).
 5-10% of invoiced amount - 10% is most common
 May be applied to all or part of progress payments
(read the contract). 32

3. Mobilization
 Mobilization can be a large cost item and the contract

wording for the payment of mobilization should be
closely examined.
 Contractors may request (or negotiate) front or

mobilization money from the owner.
33

4. Long-Lead Items (special material and equipment)
Long lead-time items may be purchased and delivered

early in order to ensure that they will be available when
needed.
The contract should be examined to determine

 Percentage (%) of cost that will be made for
materials that are procured and delivered to site or
offsite (on an agreed upon location), or if
 Payment will only be made upon procurement and

full installation.
34
Income Curve Final payment time lag
$
Contract 6
Budget
4 5
Cumulative Planned Value (PV)

Budgeted Cost of Work Scheduled (BCWS) 3
Income
Curve
Initial
mobilization 2
payment may be
offered or 1 Completion
negotiated Date
1 2 3 4 5 6 Duration
Payment delay (lag) Payment Amount = Invoice - Retainage

for owner review and 35
approval
Example-2b: Construct the Income Curve
Duration (months)
1 2 3 4 5 6 7 8 9 10 11
Current PV (early schedule) $100 $100 $100 $300 $900 $1050 $50 $50 $50 $50 $50
1 2 3 4 5 6 7 8 9 10 11 12 13 14
Contractor’s Invoice ($) $100 $100 $100 $300 $900 $1050 $50 $50 $50 $50 $50
Retainage (10%) $10 $10 $10 $30 $90 $105 $5 $5 $5 $5 $5
Monthly INCOME ($) $90 $90 $90 $270 $810 $945 $45 $45 $45 $45 $45 $280
Cumulative INCOME ($) $90 $180 $270 $540 $1350 $2295 $2340 $2385 $2430 $2475 $2520 $2800
Retainage amount paid back

after 3 periods from work
completion
36
Example-2b: Construct the Income Curve
1 2 3 4 5 6 7 8 9 10 11 12 13 14
Cumulative Income ($) $90 $180 $270 $540 $1350 $2295 $2340 $2385 $2430 $2475 $2520 $2800
$ $2800
$2700 $2750 $2800 Final
$2650 $2430 Payment
$2600 $2340 $2475
$2385
$2550 $2295
$1350
Cum PV(Early)
Income
$1500
Curve
$540
$600
$300 Completion
$270
$200
$180
Date
$100
$90
Duration
37
Example-2b: Early Mobilization Payment
Assume that the contractor will receive $200 before start of construction
for mobilization that will be deducted from the owner payments in four
(4) equal amounts
Duration (months)
1 2 3 4 5 6 7 8 9 10 11
Current PV (early schedule) $100 $100 $100 $300 $900 $1050 $50 $50 $50 $50 $50
1 2 3 4 5 6 7 8 9 10 11 12 13 14
Contractor’s Invoice ($) $100 $100 $100 $300 $900 $1050 $50 $50 $50 $50 $50
Retainage (10%) $10 $10 $10 $30 $90 $105 $5 $5 $5 $5 $5
Monthly INCOME ($) $200 $40 $40 $40 $220 $810 $945 $45 $45 $45 $45 $45 $280
Cumulative INCOME ($) $200 $240 $280 $320 $540 $1350 $2295 $2340 $2385 $2430 $2475 $2520 $2800
Initial mobilization payment is deducted from the first four (4) owner payments
1st Owner Payment = 100 – 10 – 50 = $40
2nd Owner Payment = 100 – 10 – 50 = $40
3rd Owner Payment = 100 – 10 - 50 = $40 38
4th Owner Payment = 300 – 30 – 50 = $220
Exercise-1 (PART-2): Construct the Income Curve
Assume the following:
i) Contractor’s invoices are submitted at the end of each month.
ii) Owner's approval of payment requires a month after invoicing to

allow for work progress assessment and payment processing.
iii) The owner retains 10% of all validated progress payment

claims. Full retainage is reimbursed one month after satisfactory
completion of the contract.
39
Expenditure Curve
The Expenditure or Expense curve is also projected
from the cumulative Planned Value (PV) curve.
$
Contract
6 Profit
Budget
4 5
Income
Budgeted Cost of Work Scheduled (BCWS) 3
Expenditure Curve
2
Completion
Mobilization 1 Date
Expenses
1 2 3 4 5 6 7
Duration
40
Expenditure Curve
Estimate of expenditure needs to account for the

amount of each expense and when these items are
paid across project duration.
Expense categories include:

• Cost of Work (Labor, Equipment material and
Subcontractors).
• General Conditions
• General Overhead
41
Value of Work Breakdown
Value of Work = Direct Cost + Indirect Cost + Profit
Contract Price
Value of Work
Direct Cost
Indirect Cost Profit
(Cost of Work)
Labor
Material General Conditions
(Project Overhead)
Equipment
Subcontractors
Overhead
(Home Office Overhead)
- Distribution of Overhead maybe broken
down further into district and corporate
District Overhead overhead
- Mainly for large organizations with a
Corporate Overhead corporate office and multiple
regional/district offices 42
Example-2c: Construct the Expenditure Curve
Duration (months)
1 2 3 4 5 6 7 8 9 10 11
Current PV (early) $100 $100 $100 $300 $900 $1050 $50 $50 $50 $50 $50
Assumptions
Labor 20% $20 Labor

$25 Material
Material 25%
$15 Equipment
Equipment 15%
$30 General Conditions
General Conditions 30% $5 General Overhead
Overhead 5% $5 Profit
Profit 5% $100 Value of Work in month 1
Assumption: Contractor’s costs incurred in a given period are expensed

at the end of the same period.
43
Various scenarios for applying

contractor’s expenses
1 2 3 4 5 6 7 8 9 10 11
Labor (20%) $20
Material (25%) $25
Equipment (15%) $15
General Conditions (30%) $30
Overhead (5%) $5
Monthly EXPENDITURE $95
Cumulative EXPENDITURE
44
Duration (months)
1 2 3 4 5 6 7 8 9 10 11
Current PV ($) (early) $100 $100 $100 $300 $900 $1050 $50 $50 $50 $50 $50
1 2 3 4 5 6 7 8 9 10 11
Labor (20%) $20 $20 $20 $60 $180 $210 $10 $10 $10 $10 $10
Material (25%) $25 $25 $25 $75 $225 $262.5 $12.5 $12.5 $12.5 $12.5 $12.5
Equipment (15%) $15 $15 $15 $45 $135 $157.5 $7.5 $7.5 $7.5 $7.5 $7.5
General Conditions (30%) $30 $30 $30 $90 $270 $315 $15 $15 $15 $15 $15
Overhead (5%) $5 $5 $5 $15 $45 $52.5 $2.5 $2.5 $2.5 $2.5 $2.5
Monthly EXPENDITURE $95 $95 $95 $285 $855 $997.5 $47.5 $47.5 $47.5 $47.5 $47.5
Cumulative EXPENDITURE $95 $190 $285 $570 $1425 $2422 $2470 $2517 $2565 $2612 $2660
45
Cumulative EXPENDITURE $95 $190 $285 $570 $1425 $2422 $2470 $2517 $2565 $2612 $2660
$ $2800
$2612 $2660
$2517 $2565
$2470 $2430
$2422
$2340 $2475
$2385
Expenditure Curve
$2295
$1425
$1350
INCOME
CURVE
$540
$570
$285
$270 Completion
$190
$180
Date
$95
$90
Duration
46
Exercise-1 (PART-3): Construct the Expenditure Curve
i. Labor costs are paid bi-weekly.
ii. Material and equipment costs are paid at the end of the month.
iii. Subcontractors costs are paid two (2) weeks after owner’s
payment is received.
iv. GC and overhead is built into activity costs.
v. All expenses are evenly distributed across activity duration
47
Expenditure Curve
When Constructing the Expenditure curve, Direct and
Indirect costs are incurred differently.
 Direct Costs (Cost of Work)

• Labor
• Material
• Equipment
• Subcontractors
 Indirect Costs
• General Conditions
• Overhead
48
Expenditure Curve
1. Labor
• Varies based on type of project and the amount of
work subcontracted. (Different in other countries).
• Timing of disbursement of funds for labor is

dictated by US labor law (e.g. hourly wages are
paid weekly, full time labor are paid bi-weekly).
• If applies, overtime pay should be considered in

the expenditure projection.
49
Expenditure Curve
2. Equipment
• Varies depending on whether the equipment is
owned, leased, or rented.
• For equipment owned, it is common to create a

separate “profit center” within the company (i.e.
separate company from an accounting sense) –
this allows to more accurately determine cost
associated with using the equipment for a
particular project.
50
Expenditure Curve
3. Material
• Actual payment varies based on contract arrangement
with suppliers –should be clearly understood and
accounted for in expenditure projection.
• Paid at the end of the month or at a given specified

promotional date, or using a blanket contract (with
monthly billing or 6-12 months).
Example: Invoice: 2% 10, net 30

A 2% discount is given if the invoice is paid by the 10th of the month
(following the purchase) and that the payment will be delinquent if the
full amount is not paid by the 30th of the month.
51
Expenditure Curve
4. Subcontractors
• Subcontractor agreements usually include a provision
that payments will be made to the subcontractor once
the general contractor has received payment for the
work from the owner.
This “pay when paid” provision has a more negative

impact on the subcontractor’s cash flow.
• General contractors will commonly withhold a portion

of the payments due to the subcontractor as retainage
(stated as a percent) – similar to the retainage
withheld from the general contractor by the owner.
52
Expenditure Curve
5. Indirect Costs
• Usually expensed evenly across project duration
• If GC are built in activity direct cost, then can be

expensed evenly over duration of activity.
53
OUTLINE

Planned Value (PV)
Income Curve
Expenditure Curve
Cash Flow Analysis
Improving Cash Flow
54
Cash Flow Analysis
The computation of both an Income Curve and an

Expenditure Curve allows for projecting all cash
needs for the project.
Cash Inflow vs Cash Outflow
55
Cash Flow Analysis
Example-2d: Analyze Cash Flow Duration (months)
1 2 3 4 5 6 7 8 9 10 11 12 13 14
Cumulative INCOME ($) 0 $90 $180 $270 $540 $1350 $2295 $2340 $2385 $2430 $2475 $2520 $2520 $2800
Cumulative EXPENDITURE ($) $95 $190 $285 $570 $1425 $2422 $2470 $2517 $2565 $2612 $2660 $2660 $2660 $2660
Cumulative CASH FLOW ($) $95 $100 $105 $300 $885 $1072 $175 $177 $180 $182 $185 $140 $140 $140
Profit
+$
Cumulative Net Cash Flow
$140
-$95 -$100
-$105 -$175 -$140 -$140
-$180 -$182
-$300 -$177
-$185
-$885
-$ - $1,072
56
Cash Flow Analysis
Exercise-1 (PART-4): Calculate and plot the cumulative Net Cash
Flow.
57
Cash Flow Analysis
Exercise-2: A contractor has been awarded an eight (8) month
$100,000 contract renovation project. The projected S-Curve for work
to be completed is assumed to follow a straight-line model as shown.
i. Profit is estimated at $10,000.
ii. Payment invoices are submitted

at the end of each month.
Owner’s payment will be issued
the following month to assess
progress and verify invoice.
iii. Retainage is 10% of invoice

value. Retainage only apply to
the first half of the project
duration.
58
Cash Flow Analysis
Exercise-2: (continued)
iv. Full payment of retainage is expected 60 days after end of contract

period.
v. Contractor’s direct and indirect costs will be expensed as follows:

a. 50% of costs incurred in a given month are expensed at the end
of the same month.
b. The other 50% of costs incurred will be expensed at the end of
the following month.
59
Cash Flow Analysis
Exercise-2: Using the templates provided, complete the following:
1. Calculate the current and cumulative monthly Planned Value (PV) for
the contract.
2. Calculate the current and cumulative monthly owner payments
(Income).
3. Calculate the current and cumulative monthly contractor’s
expenditure.
4. Plot the Income and Expenditure curves.
5. Perform a cash flow analysis. Plot the monthly net cash flow and the
Cumulative net cash flow. Determine what month(s) does the
contractor needs to secure his own financing.
60
OUTLINE

Planned Value (PV)
Income Curve
Expenditure Curve
Cash Flow Analysis
Improving Cash Flow
61
Improving Cash Inflow
Early negative cash flow is typical for most projects. WHY?
Expenditure
62
Improving Cash Inflow
Early negative cash flow is typical for most

projects as a result of:
• Delay of owner payment of invoice

• Owner withholding of retainage
• Large mobilization costs
63
Improving Cash Flow
Contractors need to consider ways to improve their cash flow
• Using more subcontractors
• Using subcontractors early
• Negotiating a lower rate of retainage or freeing up
retainage early
• Arranging additional credit from material suppliers
• Delay early high-cost activities, that demand contractor
investment (such as in-house labor, or material
purchase), within their float window.
• Cash from other projects or other sources
64
Improving Cash Flow
Front-end Loading
It is not unusual for the contractor to shift cash demands
to the front of the project by overvaluing early activities
while under valuing later items.
Is this Ethical? Why?
65
Cash Flow Analysis
Exercise-3: Table-1 below lists the cumulative monthly expense
incurred by a contractor and the corresponding cumulative monthly
payment received from the owner.
Table-1: Cumulative Income and Expense

Monthly
Monthly Cumulative
Cumulative
Month Expense
Income
($ x 1000)
($ x 1000)
1 12 0
2 20 0
3 54 0
4 90 14
5 130 40
6 180 100
7 220 130
8 240 190
9 260 210
10 290 300
11 290 320
12 290 340
66
Cash Flow Analysis
Exercise-3: (continued)
The contractor is given a line of credit by his bank with an interest rate
of 1% applied monthly on any overdraft.
Assume that interest on any overdraft in any given month is posted at

the end of that month.
Required:
Calculate the net profit to the contractor for this project. Assume two
scenarios:
i. Apply income received in a given period towards payment of
expenses in that period.
ii. Apply income received in a given period towards payment of
expenses in the following period.
67
Thank You
68
Cash Flow
Cash Flow Analysis involves comparing the projected
(forecasted) Cash Inflow (or Income/Revenue)
against the projected Cash Outflow (or Expenditure) at
each project period in order to determine the available
Net Cash Flow to fund the project.
Construction Project
Projected Projected
Cash Inflow Cash Outflow
(Income/Revenue) (Expenditure)
Negative net cash

Net Cash Flow (+/-) flow may require
borrowing money.
69
Cash Flow Analysis

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Projecting Cash

Dr. Walid Thabet

Projecting Income and Expenditure

Cash Flow Analysis

Improving Cash Flow

Net Cash Flow (+/-)

Negative cash flow requires determining other sources of funds

Completion Date Duration

Contractors need for cash flow analysis

 Contractors need to forecast or project very early

 Maintaining a positive cash flow for longer periods of

 Negative cash flow will require planning ahead to

Owners need for cash flow analysis

 Owners need a projection of their periodic payments

Projecting Income and Expenditure

Cash Flow Analysis

Improving Cash Flow

Projecting Income and Expenditure requires

This is referred to as the Planned Value.

Current PV is the sum of the budget (or value) for

Cumulative PV is the sum of the budget (or value) for

Planned Value is also known as Budgeted Cost of Work

The Planned Value (PV) curve is also known as

Current PV $12,000 $20,000 $28,000

Cumulative Planned Value (PV) Curve

Contractual Requirement for Cost Loaded Schedules

D. The CONTRACTOR shall use cost loaded construction activities from

Completion Date Duration 20

Part-1: Construct a cost-loaded schedule and plot the Planned

Challenges with Cost-Loaded Schedules

1- Demands more accountability and transparency

 GCs/Subs have to publish proprietary estimating

 Provides the owner greater control over the estimate

 GCs/Subs would rather not develop a cost-loaded

Challenges with Cost-Loaded Schedules

 The level of detail of the schedule of values (budget) is different

 GCs/Subs have to summarize and breakout an estimate to parse into

Challenges with Cost-Loaded Schedules

3- Not all activities have a straight line relationship

 For example, large material packages such as electrical

 Material costs for electrical distribution packages

In this case, the installation activity will “earn” an equal

Challenges with Cost-Loaded Schedules

4- The schedule must be updated with time and

 Costs will be updated by Percent Complete (PC)

 Accounting gives you a percent complete based on the total

Challenges with Cost-Loaded Schedules

5- Subcontractors should be informed and aware

Cumulative PV Curve Income Curve has

Income curve projection from the cumulative Planned

• Contract type and payment schedule

Factors Influencing the Income Curve

 The time lag between application for payment and

Owner’s approved payment is

Factors Influencing the Income Curve

An amount deducted from the contractor’s invoice and

 Released after completion of work. Usually One to

Factors Influencing the Income Curve

 Mobilization can be a large cost item and the contract

 Contractors may request (or negotiate) front or

Factors Influencing the Income Curve

Long lead-time items may be purchased and delivered