Introduction to

Construction Management

(CBE 305)
Lecture No.6: Cash Flow

Dr. Ahmed Bahaaeldin Ibrahim

Ghonamy
 Cash Flow
• Problem Data
 Cash Flow
• Problem Data (Continue)
The contractor awarded this contract will receive payments as follows:

• The contractor will submit an invoice at the end of each month, this invoice
will include the value of all works carried out to date.
• The owner will pay the invoice one month later after invoice submission.
• The owner shall hold back 10% of the invoice value as retention.
• The retention money will be paid to the contractor two months after project
completion.
• The contractor will receive an advanced payment of 5% of the contract value
upon project commencement.
• Assume the contractor profit = 20%, and the indirect costs = 20% of the direct
costs.
 Cash Flow
• Problem Requirement

a) Draw the cumulative cash outflow for this project.

b) Draw the cumulative cash inflow for this project.

c) Calculate the monthly financial gap.

 Cash Flow
a. Cash Outflow - Calculation
Duration Direct Cost Indirect Cost Total Cost Total Cost /
(Month) (20% of Direct (Direct + Indirect Month
Cost) Cost)

20%

A 2 10,000 2,000 12,000 6,000

B 2 15,000 3,000 18,000 9,000

C 3 30,000 6,000 36,000 12,000

D 2 10,000 2,000 12,000 6,000

Total 65,000 13,000 78,000

 Cash Flow
a. Cash Outflow - Illustration
 Cash Flow
a. Cash Outflow - Graph
Cumulative Cash Out Graph
90,000

80,000
78,000 78,000
70,000

60,000 60,000
50,000
Cost

40,000 42,000

30,000

20,000
15,000
10,000

0 0
Month 1 Month 2 Month 3 Month 4 Month 5

Month
 Cash Flow
b. Cash Inflow - Calculation
Duration Total Cost Profit (20% of Total Project Price Total Project Price
(Month) (Direct + Total Cost) (Total Cost + / Month
Indirect Cost) Profit)

20%

A 2 12,000 2,400 14,400 7,200

B 2 18,000 3,600 21,600 10,800

C 3 36,000 7,200 43,200 14,400

D 2 12,000 2,400 14,400 7,200

Total 78,000 15,600 93,600

 Cash Flow
b. Cash Inflow – Main Inputs
 Advance Payment %.

 Advance Payment release.

 Monthly Invoice Period.

 Monthly Invoice release.

 Retention %.

 Retention release.
 Cash Flow
b. Cash Inflow – Main Inputs
 Advance Payment % - 5%.

 Advance Payment release – Start of project.

 Monthly Invoice Period – Monthly.

 Monthly Invoice release – One month later after invoice submission.

 Retention % - 10%.

 Retention release – two months after project completion.

 Cash Flow
b. Cash Inflow – Table
Month Cost / Total Invoice Advance Advance Retained Net Retained Cash In Cum.
Month Amount per Payment Payment per Invoice Collection amount Cashed In
month (5%) Deduction Month Amount (10%) per month
(5%) (10%) per
Month

Month 0 0 0 4,680 0 0 0 0 4,680 4,680

Month 1 15,000 18,000 0 900 1,800 15,300 0 0 4,680

Month 2 27,000 32,400 0 1,620 3,240 27,540 0 15,300 19,980

Month 3 18,000 21,600 0 1,080 2,160 18,360 0 27,540 47,520

Month 4 18,000 21,600 0 1,080 2,160 18,360 0 18,360 65,880

Month 5 0 0 0 0 0 0 0 18,360 84,240

Month 6 0 0 0 0 0 0 9,360 9,360 93,600

Total 78,000 93,600 4,680 4,680 9,360 79,560 9,360 93,600

 Cash Flow
b. Cash Inflow – Graph
 Cash Flow
Financial Gap (deficit)