&'($ ) ($ * &+,

Construction Project Management

Financial Management 6' 78 9:
Cash Flow :
# $ % ) !
Cash In 2 ( &$ 01 ! # % Cash Out ( &'
. 5' ( 6 789 :; <

Cash Flow

Cash In Cash Out

$%

Cash In = Payments = Price Cash Out = Costs = Expenses =

=Revenue = Income Expenditure = S-Curve

- -
Initial Payment = Advanced Payment = Down Payment = Geared
Payment 6 6C
T 1 #O &# $P 71 Q 5 $' # < R2 ( S$ 01! ( %
.2 U V<

Periodical Payment 6 8 D %EF +

# ( 6 :; < W ! $ X #R 0 2 ( S $ 01 ! ( %
.( 5'Y

Retention HI +
( 6 5 $' Q Z [ 5 $' # &Y R ( W #O \ #O 0 $P ]^ #OQ OY
. $ #O

Residual Payment F JEF +

.(T V^ #O ) ( < O T !#O 0 R _` < 5$' Q 7Q Wa < b 7[

Time Lag
( 6 de# f <^ g# \ #O h i \ #O j k $< $ l #'
. #' m5 (e 5'
.2 U he 5 7 9 &o #' m5 5 nQ
Time lag = 1 month

&o
0 1 2 3
h i
\ #O
\ #O
jk

-N-
Cost Envelope:
y Late dates S-Curve Early dates S-Curve $ < a1 ! 9O
^ Y6 2 !Q ! ^ Y6 | $ }Q ~ k 2 U S-Curve z &Y{ W 7f & <
.Float (e 9 $•
(Banana Curve) •< ! 5 O

Cost

S-Curve based
on early dates

Cost
Envelope

S-Curve based
on late dates

Time

BAC (Budget at Completion) R $S T U V 6'EW 6XEW :

Cost
BAC

S-Curve

Time

BAC = Total Costs = D.C + I.C

-w-
Mobilization Cost:
V T V 0 Y ] Pa l $&8Q ˆ$ yQ 0 } 5 $' # R; 0 P Za yQ # ˆ$ y# 0
.Z [ ‰ ^ Š 8 f W Wa
0• ! m5 'R ^ Y Ž Y Mobilization Cost # 9 R-
. '1 S-Curve

Cost

Time

! m5 'R ^ Y Ž Y Mobilization Cost # d 9 R -N

.Mobilization Cost $P Š OQ $P y '1 S-Curve {

Cost

Mobilization
Cost Time

-‡-
Price $C+

Price = Cost + Markup

' y# jOy

Price = Cost (1 + %Markup)

Payment JEF +

VRW Wa d 9 R-

Payment = Cost *(1 + %Markup)*(1-%Retntion)

= Cost *(1+M)*(1-R)

VRW Wa 9 R -N

Payment = Cost *(1 + %Markup)*(1- %Retention - %Initial Payment)

= Cost *(1+M)*(1-R1-R2)

OY & a!Y $ R1&R2 ^ U :6[ \E

V^ #O $
R1 =
Vf

VR
R2 =
Vf

Net Cash Flow

Net Cash Flow = Cash In – Cash Out

= +Ve Surplus ( ] š Y ™z R

= - Ve Deficit ( Š Y l8
-•-
Tender price

Tender Price
(T IC ) R $S $Cc

Direct Cost Indirect Cost

7$d e' Wj 7$d $'k e' Wj

Markup
Site Overhead General Overhead
(Profit & Risk)

Tender Price = Direct Cost + Indirect Cost

Construction Cost = Direct Cost + Site Overhead
Total Cost = Net Cost = Construction Cost + General Overhead

1- Direct cost
. o ^< $V < & $ !Q y # ˆ$ y# 0

Direct cost
7$d 6XEW

Labor cost Material cost Equipment cost Sub-contractor

6 C 6XEWj 9 6XEWj D C 6XEWj )p 6XEWj

6\E+ 6U c$F ,: b
Material j : •••$ •o
Labor 8Y
Material •$ OQ 9 : W ••••••••••••9
7$d EV e' W fgh i \j Labor W 9
Material Yf Wa : Yf ji
Labor ji
Equipment ke

-œ-
2- Site-Overhead
y $V <š & $ !Q y { # ]Pa af 0 W ] Q # ˆ y# 0
.S & $ !Q 7#

S.O.H

Site staff Site security First aids

Scaffolding Tower crane
)' $S )'c 6' D Cc:
Dt + Hs ) u vU
Hs

3- General- Overhead
y $V & $ !Q y { # $V W` i ˆ$ y# 0
. ; Y` |!Q ] 0 0 !Q

G.O.H

Company staff
w W )'c 6'U U x yS D , +\ Dt %j: Dt U:
X

4- Risk 7$p F
.]Pa R zW !Q # VPa# $¡ ˆ$ yQ Š $^•# &#R _ 7# ( $P
5- Profit ~,$
9 jO 9 ] _aQ •< OY T R 1 0 71 V< T z V $R 1 $
.¢aO
6- Markup
(a1 ! ' yQ &#R _ y # k •< £ a
.; ^V Vf

-Ÿ-
 :6[ \E
7 ( Mobilization & Mark up & G.O.H & S.O.H ) • a¥ jO ^ U -
.Direct Cost ZayQ S jO m5 W !
(Direct Cost ) x Wj h9 \', 6 +U u)
S jO m5 W ! 7 (Down Payment & Retention ) • a¥ jO ^ U -N
.Tender Price Vf ZayQ
(Tender Price ) x Wj € h9 \', 6 +U u)

-¤-
How to reduce the project negative cash flow

EV •‚C i'E j )W e'ƒ

:6' „… e' Wj u x , -u
.Float R ^ Y6 2 !Q ~ k 2 U (Planning) ©$^ # $$•Q -
.(Subcontracting) k < $ Wa ™V< j$O Q -N
.(Down Payment) VRW (a1! -w
. W a k T !#O h i $ gQ -‡
< R Wa Vf W X Š (Unbalanced bid) Zl# $¡ ; ^ 0 -•
ŠWnQ P &Y6 ^ m5 0['Q{ : «a! ) &Y R Wa Vf 0$ Q
.(; ^V ™R

:6' „… e' W , -†
.2 ¬ P (a1! -
. $ V ]$< - o6 9 ] -N

-¨-
Example

- Monthly Indirect cost 5000/Month

- Mark Up = 5% total cost
- Retain age = 10%
- Periodic Payment are billed at the end of the month and received one month later.
- The accumulated Retain age will be paid within the last payment.

Required
A) Sketch the cash flow profile.
B) Sketch the net cash flow profile.
C) Draw over draft curve if interest rate is 1% per month.

- ®-
Solution:
Cash Out

C 1 = (1±2 * A) + 5,000

= (1±2 * 50,000) + 5,000 = 30,000 L.E

C 2 = (1±2 * A) + (1±2 * B) + (1±3 * C) + 5,000

= (1±2 * 50,000) + (1±2 * 40,000) + (1±3 * 60,000) + 5,000 = 70,000 L.E

C 3 = (1±2 * B) + (2±3 * C) + (1±2 * D) + 5,000

= (1±2 * 40,000) + (2±3 * 60,000) + (1±2 * 30,000) + 5,000 = 80,000 L.E

C 4 = (1±2 * D) + 5,000

= (1±2 * 30,000) + 5,000 = 20,000 L.E

Time Cost S-Curve

1 30,000 30,000
2 70,000 100,000
3 80,000 180,000
4 20,000 200,000

Check (1):
Budget at completion (BAC) = · Total costs
; &#Y ^^ ' y# = ^ Y6 0y $ y ˆ$ y# a8
·Total costs = 50,000 + 40,000 + 60,000 + 30,000 + (5,000*4) = 200,000 L.E
BAC = 200,000 L.E OK

- -
Cash In
- Payments will be billed at the end month and received one month later.
.]^ #O $P & 9 ^ & ^ 9 &o V< 7 #OQ &o 0 &Y j ^Q T 1 #O
Payment = Cost * (1 + %M) * (1 - %R)
Payment = Cost * (1 + 0.05) * (1 – 0.1)
Payment = Cost * 1.05 * 0.9
Pay 1 = 30,000 * 1.05 * 0.9 = 28,350 L.E

Pay 2 = 70,000 * 1.05 * 0.9 = 66,150 L.E

Pay 3 = 80,000 * 1.05 * 0.9 = 75,600 L.E

Pay 4 = (20,000 * 1.05 * 0.9) + (0.1 * 1.05 * 200,000) = 39,900 L.E

Payment Cash in Cumulative

1 28,350 28,350
2 66,150 94,500
3 75,600 170,100
4 39,900 210,000

Check (2):
Price ( Vf) = · Payments (T 1 #O a8)
·Payments = 28,350 + 66,150 + 75,600 + 39,900 = 210,000 L.E
Price = 1.05 * 200,000 = 210,000 L.E OK

- N-
- w-
Over Draft:

30,300 72,953 88,332 33,815 -5747

Month 1 2 3 4 5 6
Expenses 30,000 70,000 80,000 20,000 -
Payments 28,350 66,150 75,600 39,900
Overdraft 30,000 100,300 152,953 108,332 33815
Interest 1% 300 1,003 1,529 1,083 338
Total Cost 30,300 101,303 154,482 109,415 34153 (5747)

Over Draft

- ‡-
Example

- Monthly Indirect cost 5000/Month

- Mark Up = 5% total cost
- Retain age = 10%
- Down payment = 20% tender price
- Periodic Payment are billed at the end of the month and received one month later.
- The accumulated Retain age will be paid within the last payment.

Required
A) Sketch the cash flow profile.
B) Sketch the net cash flow profile.
C) Draw over draft curve if interest rate is 1% per month.

- •-
Solution:
Cash Out

C 1 = (1±2 * A) + 5,000

= (1±2 * 50,000) + 5,000 = 30,000 L.E

C 2 = (1±2 * A) + (1±2 * B) + (1±3 * C) + 5,000

= (1±2 * 50,000) + (1±2 * 40,000) + (1±3 * 60,000) + 5,000 = 70,000 L.E

C 3 = (1±2 * B) + (2±3 * C) + (1±2 * D) + 5,000

= (1±2 * 40,000) + (2±3 * 60,000) + (1±2 * 30,000) + 5,000 = 80,000 L.E

C 4 = (1±2 * D) + 5,000

= (1±2 * 30,000) + 5,000 = 20,000 L.E

Time Cost S-Curve

1 30,000 30,000
2 70,000 100,000
3 80,000 180,000
4 20,000 200,000

Check (1):
Budget at completion (BAC) = · Total costs
; &#Y ^^ ' y# = ^ Y6 0y $ y ˆ$ y# a8
·Total costs = 50,000 + 40,000 + 60,000 + 30,000 + (5,000*4) = 200,000 L.E
BAC = 200,000 L.E OK

- œ-
Cash In
- Payments will be billed at the end month and received one month later.
.]^ #O $P & 9 ^ & ^ 9 &o V< 7 #OQ &o 0 &Y j ^Q T 1 #O
Payment = Cost * (1 + %M) * (1 – %R1– %R2)

Payment = Cost * (1 + 0.05) * (1 – 0.1– 0.2)

Payment = Cost * 1.05 * 0.7
Pay 0 = 0.2 * 210,000 = 42,000 L.E

Pay 1 = 30,000 * 1.05 * 0.7 = 22,050 L.E

Pay 2 = 70,000 * 1.05 * 0.7 = 51,450 L.E

Pay 3 = 80,000 * 1.05 * 0.7 = 58,800 L.E

Pay 4 = (20,000 * 1.05 * 0.7) + (0.1 * 1.05 * 200,000) = 35,700 L.E

Payment Cash in Cumulative

0 42,000 42,000
1 22,050 64,050
2 51,450 115,500
3 58,800 174,300
4 35,700 210,000

Check (2):
Price ( Vf) = · Payments (T 1 #O a8)
·Payments = 42,000 + 22,050 + 51,450 + 58,800 + 35,700 = 210,000 L.E
Price = 1.05 * 200,000 = 210,000 L.E OK

- Ÿ-
- ¤-
Over Draft:

- 42,000 -12,000 36,530 66,245.3 28,307.8 - 7109.1

Month 0 1 2 3 4 5 6
Expenses - 30,000 70,000 80,000 20,000 -

Payments 42,000 - 22,050 51,450 58,800 35,700

Overdraft - - 58,000 116,530 86245.3 28,307.8

Interest 1% - - 580 1165.3 862.5 283.1

Total - 42,000 -12,000 58,580 117,695.3 87,107.8 28,590.9 (7109.1)

- ¨-
Example

Activity Duration Direct Cost

Depend on
(Weeks) (L.E)
A 5 ••••• 10000
B 3 A 6000
C 2 A 5000
D 4 B 20000
E 3 C 15000
F 2 C 4000
H 6 D,E,F 18000
G 2 H 2000

- Monthly Indirect cost 4000/Month

- Mark Up = 20% total cost
- Retain age = 10%
- Periodic Payment are billed at the end of the month and received one month later.
- The accumulated Retain age will be paid within the last payment.

Required
A) Sketch the cash flow profile.
B) Sketch the net cash flow profile.

- N® -
Solution:

-N -
Cash Out
Cash out1 = (4±5 * A) + 4,000

= (4±5 * 10,000) + 4,000 = 12,000 L.E

Cash out2 = (1±5 * A) + B + C + (1±2 * F) + (1±3 * E) + 4,000

= (1±5 * 10,000) + 6,000 + 5,000 + (1±2 * 4,000) + (1±3 * 15,000) +

4,000 = 24,000 L.E
Cash out3 = D + (1±2 * F) + (2±3 * E) + 4,000

= 20,000 + (1±2 * 4,000) + (2±3 * 15,000) + 4,000 = 36,000 L.E

Cash out4 = (4±6 * H) + 4,000

= (4±6 * 18,000) + 4,000 = 16,000 L.E

Cash out5 = (2±6 * H) + G + 4,000

= (2±6 * 18,000) + 2,000 + 4,000 = 12,000 L.E

Month Cash out Cumulative Cash out

1 12,000 12,000
2 24,000 36,000
3 36,000 72,000
4 16,000 88,000
5 12,000 100,000

Check (1):
Budget at completion (BAC) = · Total costs
; &#Y ^^ ' y# = ^ Y6 0y $ y ˆ$ y# a8
·Total costs = 10,000 + 6,000 + 5,000 + 20,000 + 15,000 + 4,000 + 18,000 +
2,000 + (5 * 4,000) = 100,000 L.E
BAC = 100,000 L.E OK
- NN -
Cash In
- Payments will be billed at the end month and received one month later.
.]^ #O $P & 9 ^ & ^ 9 &o V< 7 #OQ &o 0 &Y j ^Q T 1 #O
Payment = Cost * (1 + %M) * (1 - %R)
Payment = Cost * 1.2 * 0.9
Pay 1 = 12,000 * 1.2 * 0.9 = 12,960 L.E

Pay 2 = 24,000 * 1.2 * 0.9 = 25,920 L.E

Pay 3 = 36,000 * 1.2 * 0.9 = 38,880 L.E

Pay 4 = 16,000 * 1.2 * 0.9 = 17,280 L.E

Pay 5 = (12,000 * 1.2 * 0.9) + (0.1 * 1.2 * 100,000) = 24,960 L.E

Payment Cash in Cumulative

1 12,960 12,960
2 25,920 38,880
3 38,880 77,760
4 17,280 95,040
5 24,960 120,000

Check (2):
Price ( Vf) = · Payments (T 1 #O a8)
·Payments = 12,960 + 25,920 + 38,880 + 17,280 + 24,960 = 120,000 L.E
Price = 1.2 * 100,000 = 120,000 L.E OK

- Nw -
- N‡ -
Example
For the following information of a certain construction project:

Activity Duration Direct Cost

Depend on
(Weeks) (L.E)
A 3 ••••• 21000
B 2 A 50000
C 4 A 28000
D 5 B 30000
E 5 B,C 24000
F 4 D,E 32000

- Site over head = 5%.

- Office over head = 10%.
- Mobilization = 8%.
- Bond = 2%.
- Mark up = 10%.
(All items are percentage from direct cost)
- Payments will be billed at the end month and received one month later.
- Contract retention = 5% of tender price.
- Retention will be paid to the contractor with the final payment.
Required:
A) Draw the late start cash flow of this project.
B) Determine the maximum negative cash.

- N• -
Solution:

· Direct costs = 21,000 + 50,000 + 28,000 +30,000 + 24,000 + 32,000

= 185,000 L.E.
Bond & Mobilization = 0.1 * 185,000 = 18,500 L.E.
S.O.H & G.O.H = 0.15 * 185,000 = 27,750 L.E.
S.O.H & G.O.H / Month = 27,750 / 4 = 6937.5 L.E.
Total cost = 185,000 + 18,500 + 27,750 = 231,250 L.E.
Mark up = 0.1 * 185,000 = 18,500 L.E.
Tender price = Total cost + Mark up
= 231,250 + 18,500 = 249,750 L.E.

Or,
Total cost = 1.25 * 185,000 = 231,250 L.E.
Tender price = 1.35 * 185,000 = 249,750 L.E.

- Nœ -
Cash Out

C 0 = 18,500 L.E

C 4 = A + (1±4 * C) + 6,937.5

= 21,000 + (1±4 * 28,000) + 6,937.5 = 34,937.5 L.E

C 8 = (3±4 * C) + (1±5 * E) + (1±5 * D) + B + 6,937.5

= (3±4 * 28,000) + (1±5 * 24,000) + (1±5 * 30,000) + 50,000 + 6,937.5

= 88,737.5 L.E

C 12 = (4±5 * E) + (4±5 * D) + 6,937.5

= (4±5 * 24,000) + (4±5 * 30,000) + 6,937.5= 50,137.5 L.E

C 16 = F + 6,937.5

= 32,000 + 6,937.5= 38,937.5 L.E

- NŸ -
 Time Cost S-Curve
0 18,500 18,500
4 34,937.5 53,437.5
8 88,737.5 142,175
12 50,137.5 192,312.5
16 38,937.5 231,250

Check (1):
Budget at completion (BAC) = · Total costs
; &#Y ^^ ' y# = ^ Y6 0y $ y ˆ$ y# a8
·Total costs = 21,000 + 50,000 + 28,000 + 30,000 + 24,000 + 32,000 + 27,750
+ 18,500 = 231,250 L.E
BAC = 231,250 L.E OK

- N¤ -
Cash In

Pay 1 = [28,350 + (1±4 * 37,800)] * 0.95 = 35,910 L.E

Pay 2 = [(3±4 * 37,800) + (1±5 * 32,400) + (1±5 * 40,500) + 67,500] * 0.95

= 104,908.5 L.E

Pay 3 = [(4±5 * 32,400) + (4±5 * 40,500)] * 0.95 = 55,404 L.E

Pay 4 = (43,200 * 0.95) + (0.05*249,750) = 53,527.5 L.E

Payment Cash in Cumulative

1 35,910 35,910
2 104,908.5 140,818.5
3 55,404 196,222.5
4 53,527.5 249,750

Check (2):
Price ( Vf) = · Payments (T 1 #O a8)
·Payments = 35,910 + 104,908.5 + 55,404 + 53,527.5 = 249,750 L.E
Price = 1.35 * 185,000 = 249,750 L.E OK
- N¨ -
- w® -
Example
For the following information of a certain construction project:

Activity Duration Direct Cost

Depend on
(Weeks) (L.E)
A 4 ••••• 16000
B 5 ••••• 50000
C 5 A 30000
D 2 B 14000
E 7 C,D 21000
F 4 E 19000

- Site & office over heads = 15%. - Mobilization = 3%.

- Bond = 2%. - Profit & Risk = 10%.
(All items are percentage from direct cost)
- Payments will be billed at the end month and received one month later.
- Contract retention = 5% of tender price.
- Retention will be paid to the contractor with the final payment.
Required:
A) Draw the early start cash flow of this project.
B) Draw over draft curve if interest rate is 1% per month.

-w -
Solution:

· Direct costs = 16,000 + 30,000 + 50,000 +14,000 + 21,000 + 19,000

= 150,000 L.E.
Bond & Mobilization = 0.05 * 150,000 = 7,500 L.E.
S.O.H & G.O.H = 0.15 * 150,000 = 22,500 L.E.
S.O.H & G.O.H / Month = 22,500 / 5 = 4,500 L.E.
Total cost = 150,000 + 7,500 + 22,500 = 180,000 L.E.
Mark up = 0.1 * 150,000 = 15,000 L.E.
Tender price = Total cost + Mark up
= 180,000 + 15,000 = 195,000 L.E.

Or,
Total cost = 1.2 * 150,000 = 180,000 L.E.
Tender price = 1.3 * 150,000 = 195,000 L.E.
- wN -
Cash Out

C 0 = 7,500 L.E

C 4 = A + (4±5 * B) + 4,500

= 16,000 + (4±5 * 50,000) + 4,500 = 60,500 L.E

C 8 = (1±5 * B) + (4±5 * C) + D + 4,500

= (1±5 * 50,000) + (4±5 * 30,000) + 14,000 + 4,500 = 52,500 L.E

C 12 = (1±5 * C) + (3±7 * E) + 4,500

= (1±5 * 30,000) + (3±7 * 21,000) + 4,500 = 19,500 L.E

C 16 = (4±7 * E) + 4,500

= (4±7 * 21,000) + 4,500 = 16,500 L.E

C 20 = F + 4,500

= 19,000 + 4,500 = 23,500 L.E

- ww -
 Time Cost S-Curve

0 7,500 7,500
4 60,500 68,000
8 52,500 120,500
12 19,500 140,000
16 16,500 156,500
20 23,500 180,000

Check (1):
Budget at completion (BAC) = · Total costs
; &#Y ^^ ' y# = ^ Y6 0y $ y ˆ$ y# a8
·Total costs = 16,000 + 50,000 + 30,000 + 14,000 + 21,000 + 19,000 + 22,500
+7,500 = 180,000 L.E
BAC = 180,000 L.E OK

- w‡ -
Cash In

Pay 1 = [20,800 + (4±5 * 65,000)] * 0.95 = 69,160 L.E

Pay 2 = [(1±5 * 65,000) + (4±5 * 39,000) + 18,200] * 0.95 = 59,280 L.E

Pay 3 = [(1±5 * 39,000) + (3±7 * 27,300)] * 0.95 = 18,525 L.E

Pay 4 = [(4±7 * 27,300)] * 0.95 = 14,820 L.E

Pay 5 = (24,700 * 0.95) + (0.05*195,000) = 33,215 L.E

Payment Cash in Cumulative

1 69,160 69,160
2 59,280 128,440
3 18,525 146,965
4 14,820 161,785
5 33,215 195,000

Check (2):
Price ( Vf) = · Payments (T 1 #O a8)
·Payments = 69,160 + 59,280 + 18,525 + 14,820 + 33,215 = 195,000 L.E
Price = 1.3 * 150,000 = 195,000 L.E OK
- w• -
- wœ -
Over Draft:

7,500 68,680 53,231.8 14,179.1 12,460.9 21,500.5 -11,499.5

Month 0 1 2 3 4 5 6 7

Expenses 7,500 60,500 52,500 19,500 16,500 23,500 -

Payments - - 69,160 59,280 18,525 14,820 33,215

Overdraft 7,500 68,000 121,180 72,731.8 30,679.1 35,960.9 21,500.5

Interest 1% 0 680 1211.8 727.3 306.8 359.6 215

Total 7,500 68,680 122,391.8 73,459.1 30,985.9 36,320.5 21,715.5 (11,499.5)

wŸ