PROJEC T FINANCIAL CONTROL AND REPORTING

1. CASHFLOW ND CASHFLOW FORECASTING

1.1 Definition of Cashflow

Cashflow – is the lifeblood of the construction industry and relates to the incoming or outgoing of money to or from a
company over a given period (usually monthly).

1.2 Uses of Cashflow Forecast

1. Assessment of progress / monitor progress of works against the agreed programme (i.e., if interim valuations are
ahead of cashflow = can signify that the works are ahead of the programme)
2. Ensure that the client/contractor has enough fund to run the project
3. Analyze actual expenditures against forecast expenditure
4. Inform the client/contractor what and when their monetary commitments under contract will be
5. Measure company’s business performance (is the company bringing in more income than its expenditures)
6. Assist in managing resources (i.e., know the liabilities via ascertaining the number of resources needed)

1.3 Types of Cashflow

Project cashflow – deals with payments due under a particular construction contract

1. Employer - to Main Contractor

- to Consultant
- to Specialist Contractor

2. Main Contractor - to Subcontractor

- to Suppliers
- to Designers

3. Subcontractors - to Suppliers
- to Specialist

Organisational Cashflow – review and analyze the predicted incoming and outgoing cash for a set period of time (usually
one year) and is often used for business and resource planning and for analyzing the financial health of companies.

1.4 Cashflow Duties of QS

1. Brief – take initial brief from the client to understand their requirements in producing cashflow
2. Feasibility Stage – initial cashflow forecast to give client understanding of likely obligations
3. Update - Update constantly throughout design, tendering and contract period as information becomes available (i.e.,
variations, provisional sum, claims, extension of time)
4. Monitor – monitor actual expenditures against forecast and explain discrepancies.
5. Tender – assess cashflow forecast of a company before selecting tenderers for a project.
6. Timescales in contract – contracts must be reviewed with regard to timescales of payment

1.5 Types of Valuation Payment

1. Stage Payments – Pre-agreed amounts are paid at pre-set times regardless of progress on site. It provides high
predictability of cashflow forecast but low accuracy on value of works done to date, hence works could be either be
underpaid or overpaid. Used in design and build contract.

2. Milestone Payments – Pre-agreed amounts are paid upon completion of pre-agreed elements (i.e., foundation, . It
provides high predictability of cashflow forecast but low predictability on when they become due.
3. Payments against activity schedule – Pre-agreed timescales against an activity schedule are monitored and paid when
a particular activity is completed. It provides reasonable predictability of cashflow forecast and reasonable accuracy of
value of works done to date

4. Valuation of works done to date via 3rd party certification – Provides lowest predictability of cashflow forecast but
high accuracy of value of works done to date (i.e. valuation of works, variation, materials on/off site, preliminaries)

1.6 Producing Cashflow Forecast

Pre-contract: Use of S-Curve / Formula – used to assist the client on choice of procurement and contract and funding
agreements

Post-contract: Based on contract sum / adjustments + Programme or time of payment commitment (can also use
programmes such as Primavera)

DEFINITIONS:

Cashflow – is the lifeblood of the construction industry and relates to the incoming or outgoing of money to or from a
company over a given period (usually monthly).
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