Project Cash Flow Analysis

Project Cash Flow

Cash flow analysis is to predict the actual flow of
money during the contract duration

Project’s cash flow is basically the difference

between the project’s income and its expenses.

Contract cash flow = Cash in – Cash out

( Net cash flow) = Income – expenses

The survivability of a business is heavily dependent

on not profit but also on cash flows.
S- Curve

How does a typical cumulative curve in a

project look like?
The curve that represents
the cumulative
expenditures of a project (
direct and indirect costs)
over time is called the S-
curve, as it takes the S-
shape.
S- Curve is one of the most
commonly techniques to
control project costs
S- Curve

What is the slope of this curve indication

of?

Slope  rate of expenditure

Planned Vs. Actual Costs
Payment Methods

• % Complete ( based on progress)

Preferred by contractors

• Milestone

Preferred by owners
Retention
b

a
Remember this is all cumulative
Gross
Profit
Overdraft
Zone
Profit (Markup)

• Markup is the ratio between the cost of a

good or service and its selling price
Overdraft Zone

• How the owner can help the

contractor reduce the
overdraft?

• How does the contractor

reduce the overdraft?
BID UNBALANCING
Example: Consider the following project schedule network and the
activities details below
ES EF

2 19
B Activity ID

Duration
17

19 20
0 2 8 11 13 19 G
A C E
1
2 3 6

3 8 11 13
D F Target Schedule
5 2
Target Schedule: is the schedule that will be used in the field. we get it after
resource allocation and leveling

Activities Details

Duration Direct Direct Cost Unit Price

Activity Pay Quantity Price($)
(Weeks) Cost ($) Rate($/week) ($/Unit)
A 2 1,000 500 _ _ _
B 17 3,400 200 20 300 6,000
C 3 9,000 3000 6 2000 12,000
D 5 5,000 1000 1 (L.S) 7000 7,000
E 6 12,000 2000 6 2500 15,000
F 2 1,000 500 2 1000 2,000
G 1 1,000 1000 _ _ _
Total 32,400 42,000
• Direct cost of each activity is assumed to be uniformly
distributed over activity duration.
• Indirect cost is estimated at $200 per week.
• Pay Period = 4 weeks (1 Month)
• Interim payment is due after 1 pay period of payment
application
• Final payment is due after 2 pay periods of project
completion
• Retention 10%
• Retention is withheld and paid back with final payment
What is the maximum amount of cash the
contractor needs to execute this contract and
when does he require this amount?
 Project Cash-out
Time (Weeks)
Activity ID 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Activity A 0.5 0.5

Activity B 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2

Activity C 3 3 3

Activity D 1 1 1 1 1

Activity E 2 2 2 2 2 2

Activity F 0.5 0.5

Activity G 1

Direct Cost 0.5 0.5 0.2 1.2 1.2 1.2 1.2 1.2 3.2 3.2 3.2 0.7 0.7 2.2 2.2 2.2 2.2 2.2 2.2 1
Cumulative Direct Cost 0.5 1 1.2 2.4 3.6 4.8 6 7.2 10.4 13.6 16.8 17.5 18.2 20.4 22.6 24.8 27 29.2 31.4 32.4
Indirect Cost 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2
Cumulative Indirect Cost 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2 2.2 2.4 2.6 2.8 3 3.2 3.4 3.6 3.8 4
Total Cost 0.7 0.7 0.4 1.4 1.4 1.4 1.4 1.4 3.4 3.4 3.4 0.9 0.9 2.4 2.4 2.4 2.4 2.4 2.4 1.2
Cumulative Total Cost 0.7 1.4 1.8 3.2 4.6 6 7.4 8.8 12.2 15.6 19 19.9 20.8 23.2 25.6 28 30.4 32.8 35.2 36.4

Values ×1,000
 Cash-out Curve
40

35

30

25
Cost ($)

20 Cumulative Direct Cost

Cumulative Indirect Cost
15 Cumulative Total Cost

10

0
0 5 10 15 20 25 30
Time(weeks)
Cash-In Calculations

Case 1:

Retention = 10%
Maximum retention = 5% of bid price
= 5% × $42,000
= $ 2,100
 Pay Bid Unit Pay Cumulative Period Cumulative Due
Activity % Complete Quantitiy Price Retention
Period Quantity Price Request Retention Payment Payment Date
1 A (2/2)*100 = 100.0 0 0 0 0.0
(0-4) B (2/17)*100 = 11.8 20 2.4 300 720.0 720 72 72 648 648 8
D (1/5)*100 = 20.0 1 0.2 7,000 1,400.0
2 B (4/17)*100 = 23.5 20 4.7 300 1,410.0
8,410.0 841 913 7,569.0 8,217.0 12
(4-8) D (4/5)*100 = 80.0 1 0.8 7,000 5,600.0
3 B (4/17)*100 = 23.5 20 4.7 300 1,410.0
(8-12) C (3/3)*100 = 100.0 6 6 2,000 12,000.0 14,410.0 1187 2100 13,223.0 21,440.0 16
F (1/2)*100 = 50.0 2 1 1,000 1,000.0
4 B (4/17)*100 = 23.5 20 4.7 300 1,410.0
(12-16) E (3/6)*100 = 50.0 6 3 2,500 7,500.0 9,910.0 0 2100 9,910.0 31,350.0 20
F (1/2)*100 = 50.0 2 1 1,000 1,000.0
5 B (3/17)*100 = 17.6 20 3.5 300 1,050.0
(16-20) E (3/6)*100 = 50.0 6 3 2,500 7,500.0 8,550.0 0 2100 10,650.0 42,000.0 28
G (1/1)*100 = 100.0 0 0 0 0.0

•Invoice will be based on progress

•Quantity ( Installed quantity) = % complete × bid quantity
•Price = quantity × unit price
•Retention = 10% of pay request
•Period payment = pay request (invoice) – retention
•Final payment = last invoice + cumulative retention
 Cash- In Curve
45000

40000

35000

30000
Cash-In ($)

25000

20000 Cash-In

15000

10000

5000

0
0 5 10 15 20 25 30 35
Time (weeks)
 Net Cash Flow
45000

40000

35000

30000

25000

20000

15000 Cash-Out
$$

10000 Cash-In
Net Cash
5000

0
0 5 10 15 20 25 30 35
-5000

-10000

-15000

-20000 Max. Overdraft

Time (weeks)
Cash-In Calculations

Case 2:

Retention = 10%
Advanced payment ( down payment ) = 10% of
bid price
= 10% × $42,000
= $ 4,200
 Pay Bid Unit Pay for down- Cumulative Period Cumulative Due
Activity % Complete Quantitiy Price Retention
Period Quantity Price Request payment Retention Payment Payment Date
0 4,200.00 4,200.00 0
1 A (2/2)*100 = 100.0 0 0 0 0.0
(0-4) B (2/17)*100 = 11.8 20 2.4 300 720.0 720 72 72 72 576.00 4,776.00 8
D (1/5)*100 = 20.0 1 0.2 7,000 1,400.0
2 B (4/17)*100 = 23.5 20 4.7 300 1,410.0
8,410.0 841 841 913 6,728.00 11,504.00 12
(4-8) D (4/5)*100 = 80.0 1 0.8 7,000 5,600.0
3 B (4/17)*100 = 23.5 20 4.7 300 1,410.0
(8-12) C (3/3)*100 = 100.0 6 6 2,000 12,000.0 14,410.0 1441 1441 2354 11,528.00 23,032.00 16
F (1/2)*100 = 50.0 2 1 1,000 1,000.0
4 B (4/17)*100 = 23.5 20 4.7 300 1,410.0
(12-16) E (3/6)*100 = 50.0 6 3 2,500 7,500.0 9,910.0 991 991 3345 7,928.00 30,960.00 20
F (1/2)*100 = 50.0 2 1 1,000 1,000.0
5 B (3/17)*100 = 17.6 20 3.5 300 1,050.0
(16-20) E (3/6)*100 = 50.0 6 3 2,500 7,500.0 8,550.0 0 855 3345 11,040.00 42,000.00 28
G (1/1)*100 = 100.0 0 0 0 0.0

•Invoice will be based on progress

•Quantity ( Installed quantity) = % complete × bid quantity
•Price = quantity × unit price
•Retention = 10% of pay request
•For down payment = 10% of pay request
•Period payment = pay request (invoice) – retention – for down payment
•Final payment = last invoice + cumulative retention
 Cash- In Curve
45000

40000

35000

30000
Cash - In ($)

25000

20000 Cash-In

15000

10000

5000

0
0 5 10 15 20 25 30 35
Time (Weeks)
 Net Cash Flow
45000
40000
35000
30000
25000
20000
15000 Cash-In
$$

10000 Cash-Out
Net Cash
5000
0
0 5 10 15 20 25 30 35
-5000
-10000
-15000
-20000
Time (Weeks)