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Chapter: Civil : Construction Planning And Scheduling : Cost Control, Monitoring and Accounting

Control of Project Cash Flows

Previously described the development of information for the control of project costs with respect to the various functional activities appearing in the project budget.

Control of Project Cash Flows

 

Previously described the development of information for the control of project costs with respect to the various functional activities appearing in the project budget. Project managers also are involved with assessment of the overall status of the project, including the status of activities, financing, payments, and receipts. These various items comprise the project and financing cash flows described in earlier chapters. These components include costs incurred (as described above), billings, and receipts for billings to owners (for contractors), payable amounts to suppliers and contractors, financing plan cash flows (for bonds or other financial instruments), etc.

 

As an example of cash flow control, consider the report shown in Table 12-8. In this case, costs are not divided into functional categories as in Table 12-4, such as labor, material, or equipment. Table 12-8 represents a summary of the project status as viewed from different components of the accounting system. Thus, the aggregation of different kinds of cost exposure or cost commitment shown in Table 12-0 has not been performed. The elements in Table 3-8 include:

 

z    Costs

 

This is a summary of charges as reflected by the job cost accounts, including expenditures and estimated costs. This row provides an aggregate summary of the detailed activity cost information described in the previous section. For this example, the total costs as of July 2 (7/02) were $ 8,754,516, and the original cost estimate was $65,863,092, so the approximate percentage complete was 8,754,516/65,863,092 or 13.292%. However, the project manager now projects a cost of $66,545,263 for the project, representing an increase of $682,171 over the original estimate. This new estimate would reflect the actual percentage of work completed as well as other effects such as changes in unit prices for labor or materials. Needless to say, this increase in expected costs is not a welcome change to the project manager.

 

z    Billings

 

This row summarizes the state of cash flows with respect to the owner of the facility; this row would not be included for reports to owners. The contract amount was $67,511,602, and a total of $9,276,621 or 13.741% of the contract has been billed. The amount of allowable billing is specified under the terms of the contract between an owner and an engineering, architect, or constructor. In this case, total billings have exceeded the estimated project completion proportion. The final column includes the currently projected net earnings of $966,339. This figure is calculated as the contract amount less projected costs: 67,511,602 - 66,545,263 = $966,339. Note that this profit figure does not reflect the time value of money or discounting.

 

z    Payables

 

The Payables row summarizes the amount owed by the contractor to material suppliers, labor or sub-contractors. At the time of this report, $6,719,103 had been paid to subcontractors, material suppliers, and others. Invoices of $1,300,089 have accumulated but have not yet been paid. A retention of $391,671 has been imposed on subcontractors, and $343,653 in direct labor expenses have been occurred. The total of payables is equal to the total project expenses shown in the first row of costs.

 

z    Receivables

 

This row summarizes the cash flow of receipts from the owner. Note that the actual receipts from the owner may differ from the amounts billed due to delayed payments or retainage on the part of the owner. The net- billed equals the gross billed less retention by the owner. In this case, gross billed is $9,276,621 (as shown in the billings row), the net billed is $8,761,673 and the retention is $514,948. Unfortunately, only $7,209,344 has been received from the owner, so the open receivable amount is a (substantial!) $2,067,277 due from the owner.

 

z    Cash Position

 

This row summarizes the cash position of the project as if all expenses and receipts for the project were combined in a single account. The actual expenditures have been $7,062,756 (calculated as the total costs of $8,754,516 less subcontractor retentions of $391,671 and unpaid bills of $1,300,089) and $ 7,209,344 has been received from the owner. As a result, a net cash balance of $146,588 exists which can be used in an interest earning bank account or to finance deficits on other projects.

 

 

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Civil : Construction Planning And Scheduling : Cost Control, Monitoring and Accounting : Control of Project Cash Flows |


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