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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