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Budget The financial success of a project depends not only on the project making a profit, but also the

project through project life cycle. Statistics clearly indicates that more companies go into liquidation because of cash-flow problems than for any other reason. The project manager must therefore plan and control the projects cash-flow. Cash-Flow Statement The cash flow statement is a document which models the flow of money in and out of the project. The time frame is usually monthly, to coincide with the normal business accounting cycle. The cash-flow statement is based on the same information used in a typical bank statement, except that here the income (cash inflow) and expenditure (cash outflow) are grouped together and totaled. In a project the contractors income would come from the monthly progress payments, and the expenses would be wages, materials, overheads, interest and bought-in services. While the clients income would come from the operation of the facility (after the project has been completed) and the expenses would be the invoices from the contractors and suppliers. Consider following example where: Brought forward amount for January is $5,000 Income January $10,000, February $15,000, March $20,000 Expenses January $8,000, February $12,000, March $16,000

Use the following steps as a guideline to solve the exercise. Step 1: Set up the cash-flow statement headings. Use monthly headings to cover the duration of the project. Step 2: The brought forward (B/F) for January is given at $5,000. Step 3: List the inflow of cash items from the income statement for January, February and March, $10,000, $15,000 and $20,000 respectively. Step 4 : Calculate the total funds available for January by adding total income to the brought forward. Step 5: List the outflow of cash items from the expense statement for January, February and March, $8,000, $12,000 and $16,000 respectively. Step 6: Calculate the total outflow of funds for January. Step 7: Calculate the closing statement for January, funds available minus expenditure. Step 8: The closing statement for January now becomes the B/F, or opening statement for the next month February.

Repeat this procedure every month for the rest of the project.

Brought Forward Income Total Available Expenses Total Expenses Closing Balance

January February March $5,000 $7,000 $10,000 $10,000 $15,000 $20,000 $15,000 $22,000 $30,000 $8,000 $12,000 $16,000 $8,000 $12,000 $16,000 $7,000 $10,000 $14,000