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Construction Management
Site Management
1. Roles of Consultant and Contractor at Site (Covered
CE403 – Construction under Life of a Project – Construction Management
Introduction)
Management
2. Documents, Records and Meetings
(Slides Set No. 3)
3. Progress Monitoring and Control
4. Site Supervision
By
5. Cash flow management
Dr. Pujitha B. G. Dissanayake 6. Introductionto Material and Construction
Department of Civil Engineering Equipment Management.
Faculty of Engineering
University of Peradeniya
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Construction Management Construction Management

Site Management – Cash Flow Management How to Analyse Cash Flow
• Managing cash flow control in construction • An S-curve, such as the one shown below can be
projects is an important aspect of project used to predict the cash flow requirement of the
management plan during the execution stage. project.
• Funding problems usually arise due to many
reasons.
• To ensure the project’s continuity, Cash Flow
Management should be properly carried out.
• Cash flow management means delaying outflow of
cash as long as possible while encouraging any
inflow of money as rapidly as possible.

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Cash Flow Analysis
• What is an S-Curve?
• S-Curve is the graphical representation of how the
project budget will be spent if the work is carried
out exactly as estimated and scheduled.
• Cash flow and cost incurred are different and will
be discussed in this section.
Cash Flow Analysis
• The S-curve is developed by cumulatively adding the
costs from the work breakdown structure according
to their planned completion time (based on the
schedule).

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Construction Management Construction Management

Cash Flow Analysis Cash Flow Analysis
• Prepare schedule • The above S-curve is known as the Budgeted Cost of
Work Scheduled.
• The cost will usually increase gradually as the
contractor will use the early days for mobilization
and organizing the work and will steadily increase
and tend to slow down as the project nears
completion.

• Input cost to each activity

• Find cost for each day and get cumulative cost
• Generate S-Curve

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Construction Management
Cash Flow Analysis
• During the middle portion of the work, a project will
accumulate costs at a more or less steady rate,
thereby producing the S-shaped curve.
CE403 - Construction Management
Construction Management
Cash Flow Analysis
• The contractor has a slightly different reason for
making cash flow analysis.
• The contractor will need working capital during the
construction, and must know how much cash flow is
needed before the project starts.
• The cash flow analysis is used as a key management
tool of the contractor.
• Many contractors have got into financial trouble
when they suddenly and unexpectedly run out of
cash to pay their bills.
CE403 - Construction Management
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Construction Management
Cash Flow Analysis
• The S-curve can be used to predict the monthly cash
flow requirements of the contractor and the monthly
payment requirements of the owner.
• The timing of these payments is a matter of
contractual agreements.
• The owner needs to plan the costs of the progress
payments before the project starts and ensure the
funding is available to make the payments.
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Construction Management
Cash Flow Analysis
• Although it can happen to any business, cash flow is
one of the major causes of failure for small
construction firms.
• A positive cash flow indicates that the cash coming
in exceed the expenses and a negative cash flow
signifies the opposite.
• Cash is the fuel that runs the business and a
contractor must maintain a cash balance sufficient to
meet the payrolls, pay for materials and equipment
etc.
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Construction Management
Cash Flow Analysis
• The management will need to know when to borrow
money and how much is required early on so that
there are no surprises.
• Timing of cash flow is especially important in
determining a firms working capital requirements
and the future cash position of the construction firm
is of great importance to the management.
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Construction Management
Cash Flow Analysis
Generating the S- Curve for a Project
• It is a simple and concise graphical picture for
managing a project and it also can compare planned
schedule with the actual progress on site.
• The bar-chart is widely used as a construction
scheduling tool because of its simplicity, ease of
preparation and graphical format.
• The advantage of using a bar chart is that field
personnel can easily understand the information and
can be used as a preliminary planning schedule
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Construction Management
Cash Flow Analysis
Generating the S- Curve for a Project
• The cumulative cost versus time S-Curve can easily
be prepared by cost loading the bar chart.
• The bar chart also known as the Gantt chart was first
introduced by Henry Gantt.
• The bar chart is the most commonly used project
planning and control tool.
• Almost all currently available commercial
scheduling software present information in bar chart
format.
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Construction Management
Cash Flow Analysis
Generating the S- Curve for a Project
• If cost, equipment or personnel requirements are
superimposed on the activities the total resources
required at any time can also be computed.
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Construction Management Construction Management

Cash Flow Analysis Cash Flow Analysis
Generating the S- Curve for a Project Generating the S- Curve for a Project
• A typical example of a simple bar chart for a project • In the case of a bar chart not generated from the
is as follows: critical path method, the user must have detailed
knowledge of the particular project and the
construction sequence.
• If the S-curve is required for the above project, a
simple spreadsheet could be prepared to add-up the
total cost incurred on each day if the individual cost
of activities are known.

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Construction Management Construction Management

Cash Flow Analysis Cash Flow Analysis
Generating the S- Curve for a Project Generating the S- Curve for a Project
• Cost included for each activity is shown below:

Daily Cost Values

S – Curve for the Project

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Construction Management
Cash Flow Analysis
What is Front Loading?
• Front loading is achieved by assigning higher costs
to early activities and lower costs to late activities,
but keeping the total project cost unchanged.
• Many people consider front loading unethical.
• Contractors consider it essential if they are going to
manage their cash flow effectively.
• It is necessary for cash flow and their least expensive
source of borrowed money.
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Construction Management
Cash Flow Analysis
Exercise 1:
The following bill values and cost data are given for a
road construction contract of Rs. 10,000,000.
Using the following information, prepare a cash flow
statement for the project.
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Construction Management
Cash Flow Analysis
Front Loading
• Subcontractors, particularly find it necessary to
overbill as they must pay their labour and material
bills prior to even submitting their invoices, and then
wait around 2 months or more after that to receive
their progress billing.
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Construction Management
Cash Flow Analysis
Exercise 1: (Cont.)
1. 10% retention is deducted from the monthly bills up
to a maximum of 5% of the contract value.
2. Monthly bill is prepared at the end of every month
and employer will pay the bill after 30 days.
3. 20% mobilization advance will be paid at the
beginning of the contract and will be deducted from
the monthly bill at the rate of 20%.
4. Contract period is 6 months and the defects liability
period is 3 months.
5. Labour, material and plant costs are assumed as 25%,
30% and 45% of the total cost respectively.
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Construction Management
Cash Flow Analysis
Exercise 1: (Cont.)
6. No sub-contractors are deployed in this project.
7. 50% of the retention money will be paid at the end of
the contract and the balance will be paid after the
defects liability period.
8. One month credit is provided for the materials and
plants.
State any other assumptions. Comment on the cash flow
statement
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Construction Management
Cash Flow Analysis
Exercise 2: (Cont.)
1. According to the contract, payments will be made as
lump sum amounts for each completed major activity
after a period of 30 days.
2. An amount equal to 1/6th of the above lump sum
amounts for each major activity will be deducted as
retention money from each lump sum payment upto
a maximum of 10% of the contract sum.
3. 50% of the retention money will be paid at the end of
the contract period (9th month) and the balance 50%
will be paid at the end of the defects liability period
(12th month).
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Construction Management
Cash Flow Analysis
Exercise 2:
A civil engineering contractor has undertaken to carry
out a project for a contract sum of Rs. 240 million. The
contract duration is 9 months and the defects liability
period is 3 months. The construction schedule and the
value of each of the major activities are as given in the
following figure.
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Construction Management
Cash Flow Analysis
Exercise 2: (Cont.)
4. A mobilization advance of Rs. 60 million is paid to
the contractor at the beginning of the contract.
5. The mobilization advance will be deducted from the
1st and 3rd lump sum payments at the rate of 50%.
6. Assume that the contractor has included a profit
margin of 20% on top of his total cost in the value of
the contract sum.
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Construction Management
Cash Flow Analysis
Exercise 2: (Cont.)
(i) Using the above data prepare a cash-flow statement
for the above contract. State any assumptions made.
(ii) If the contractor needs to borrow money from the
bank at an interest rate of 3% per month, what would
be the minimum total finance charge incurred by the
contractor to maintain positive cash flow.

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