Cash flow in construction industry - Revision history

S162469 at 21:46, 12 June 2017

2017-06-12T21:46:58Z

← Older revision		Revision as of 21:46, 12 June 2017
Line 46:		Line 46:
	Building a cash flow forecast allows an evaluation of cash resources that are required and when they are required by. Business owners can identify likely future gaps in funding and plan for those gaps accordingly. It is a vitally important tool for predicting the continuing financial health of the business.		Building a cash flow forecast allows an evaluation of cash resources that are required and when they are required by. Business owners can identify likely future gaps in funding and plan for those gaps accordingly. It is a vitally important tool for predicting the continuing financial health of the business.
	Additionally, cash flow models enable business owners to assess 'what if' scenarios by changing key variables to see how vulnerable the business is to price changes, staffing levels, exchange or interest rate movements, and other key drivers.		Additionally, cash flow models enable business owners to assess 'what if' scenarios by changing key variables to see how vulnerable the business is to price changes, staffing levels, exchange or interest rate movements, and other key drivers.
	In larger organisations the cash flow projection can be integrated with day to day operations. This can help identify what production is necessary, what resourcing is required and can provide an assessment of the capacity within a business.		In larger organisations the cash flow projection can be integrated with day to day operations. This can help identify what production is necessary, what resourcing is required and can provide an assessment of the capacity within a business. <ref name="Design2"> Cash flow in construction, Designing Buildings Wiki [URL:https://www.designingbuildings.co.uk/wiki/Cash_flow_forecast]Retrieved on 12 June 2017</ref>.

S162469 at 21:43, 12 June 2017

2017-06-12T21:43:59Z

← Older revision		Revision as of 21:43, 12 June 2017
Line 9:		Line 9:
	these specific milestones. This procedure leads not only eventually in the efficient operation		these specific milestones. This procedure leads not only eventually in the efficient operation
	of the construction works and the on-time deliverable of the project, but also help a		of the construction works and the on-time deliverable of the project, but also help a
	company grow its business. In this wiki article, ~~the questions of what~~ cash flow ~~is, how it has~~		company grow its business. In this wiki article, cash flow and its relation with the project milestones is presented.
	~~to be managed~~ and ~~what~~ project milestones ~~are and how they have to be set, are going to~~
	be presented ~~in this wiki-article~~.

	=Introduction=		=Introduction=

S162469 at 21:40, 12 June 2017

2017-06-12T21:40:25Z

← Older revision		Revision as of 21:40, 12 June 2017
Line 22:		Line 22:
	Cash flow projections may be affected by the need for the early purchase of long-lead time items or by items that the client may wish to purchase that are outside of the main contract (such as furniture or equipment).		Cash flow projections may be affected by the need for the early purchase of long-lead time items or by items that the client may wish to purchase that are outside of the main contract (such as furniture or equipment).

	Cash flow is an issue of utmost importance for the client. It represents the timeline of the incurred costs for the project not only during its construction, but also during the life cycle of the project. In other terms, it is the inflow of cash to the contractor form the client, which is necessary for funding the project. <ref name="Design">[URL:http://https://www.designingbuildings.co.uk/wiki/Cash_flow_in_construction]Retrieved on 12 June 2017</ref>.		Cash flow is an issue of utmost importance for the client. It represents the timeline of the incurred costs for the project not only during its construction, but also during the life cycle of the project. In other terms, it is the inflow of cash to the contractor form the client, which is necessary for funding the project. <ref name="Design"> Cash flow in construction, Designing Buildings Wiki [URL:http://https://www.designingbuildings.co.uk/wiki/Cash_flow_in_construction]Retrieved on 12 June 2017</ref>.


	==Supply chain cash flow==		==Supply chain cash flow==
	Cash flow is also an issue for the construction supply chain, and is a common reason for contractors and sub-contractors becoming insolvent. This can be catastrophic for a project in terms of time and money. It is in the client's interest therefore to ensure that the supply chain is paid promptly. <ref name="Design">[URL:http://https://www.designingbuildings.co.uk/wiki/Cash_flow_in_construction]Retrieved on 12 June 2017</ref>.		Cash flow is also an issue for the construction supply chain, and is a common reason for contractors and sub-contractors becoming insolvent. This can be catastrophic for a project in terms of time and money. It is in the client's interest therefore to ensure that the supply chain is paid promptly. <ref name="Design"> Cash flow in construction, Designing Buildings Wiki [URL:http://https://www.designingbuildings.co.uk/wiki/Cash_flow_in_construction]Retrieved on 12 June 2017</ref>.
	https://www.designingbuildings.co.uk/wiki/Cash_flow_in_construction		https://www.designingbuildings.co.uk/wiki/Cash_flow_in_construction

Line 96:		Line 96:

	=Annotated bibliography=		=Annotated bibliography=

	~~:'''1. Winch, G. M., 2010, Managing Construction projects, second edition'''~~

	~~:'''2. Eastman, C.; Tiecholz, P.; Sacks, R.; Liston, K., 2008, "BIM Handbook: a Guide to Building Information Modeling for owners, managers, designers, engineers, and contractors"'''~~
	~~::<u>Summary:</u>~~

S162469 at 21:34, 12 June 2017

2017-06-12T21:34:55Z

← Older revision		Revision as of 21:34, 12 June 2017
Line 22:		Line 22:
	Cash flow projections may be affected by the need for the early purchase of long-lead time items or by items that the client may wish to purchase that are outside of the main contract (such as furniture or equipment).		Cash flow projections may be affected by the need for the early purchase of long-lead time items or by items that the client may wish to purchase that are outside of the main contract (such as furniture or equipment).

	Cash flow is an issue of utmost importance for the client. It represents the timeline of the incurred costs for the project not only during its construction, but also during the life cycle of the project. In other terms, it is the inflow of cash to the contractor form the client, which is necessary for funding the project. <ref name="~~Constructing~~">[URL:http://https://www.designingbuildings.co.uk/wiki/Cash_flow_in_construction]Retrieved on 12 June 2017</ref>.		Cash flow is an issue of utmost importance for the client. It represents the timeline of the incurred costs for the project not only during its construction, but also during the life cycle of the project. In other terms, it is the inflow of cash to the contractor form the client, which is necessary for funding the project. <ref name="Design">[URL:http://https://www.designingbuildings.co.uk/wiki/Cash_flow_in_construction]Retrieved on 12 June 2017</ref>.


	==Supply chain cash flow==		==Supply chain cash flow==
	Cash flow is also an issue for the construction supply chain, and is a common reason for contractors and sub-contractors becoming insolvent. This can be catastrophic for a project in terms of time and money. It is in the client's interest therefore to ensure that the supply chain is paid promptly. <ref name="~~Constructing~~">[URL:http://https://www.designingbuildings.co.uk/wiki/Cash_flow_in_construction]Retrieved on 12 June 2017</ref>.		Cash flow is also an issue for the construction supply chain, and is a common reason for contractors and sub-contractors becoming insolvent. This can be catastrophic for a project in terms of time and money. It is in the client's interest therefore to ensure that the supply chain is paid promptly. <ref name="Design">[URL:http://https://www.designingbuildings.co.uk/wiki/Cash_flow_in_construction]Retrieved on 12 June 2017</ref>.
	https://www.designingbuildings.co.uk/wiki/Cash_flow_in_construction		https://www.designingbuildings.co.uk/wiki/Cash_flow_in_construction

S162469 at 21:33, 12 June 2017

2017-06-12T21:33:40Z

← Older revision		Revision as of 21:33, 12 June 2017
Line 89:		Line 89:
	bids for only the most profitable projects.		bids for only the most profitable projects.

	Payment to a contractor in a series of lump sums, each paid upon his achieving a ‘milestone’ – meaning a defined stage of progress. Use of the word milestone usually means that the payment is based upon progress in completing what the promoter (client) wants. Payment based upon achieving defined percentages of a contractor’s programme of activities is also known as a ‘planned payment’ scheme.

	=Limitations=		=Limitations=

S162469 at 21:32, 12 June 2017

2017-06-12T21:32:26Z

← Older revision		Revision as of 21:32, 12 June 2017
Line 22:		Line 22:
	Cash flow projections may be affected by the need for the early purchase of long-lead time items or by items that the client may wish to purchase that are outside of the main contract (such as furniture or equipment).		Cash flow projections may be affected by the need for the early purchase of long-lead time items or by items that the client may wish to purchase that are outside of the main contract (such as furniture or equipment).

	Cash flow is an issue of utmost importance for the client. It represents the timeline of the incurred costs for the project not only during its construction, but also during the life cycle of the project. In other terms, it is the inflow of cash to the contractor form the client, which is necessary for funding the project. ~~The client~~		Cash flow is an issue of utmost importance for the client. It represents the timeline of the incurred costs for the project not only during its construction, but also during the life cycle of the project. In other terms, it is the inflow of cash to the contractor form the client, which is necessary for funding the project. <ref name="Constructing">[URL:http://https://www.designingbuildings.co.uk/wiki/Cash_flow_in_construction]Retrieved on 12 June 2017</ref>.


	==Supply chain cash flow==		==Supply chain cash flow==
	Cash flow is also an issue for the construction supply chain, and is a common reason for contractors and sub-contractors becoming insolvent. This can be catastrophic for a project in terms of time and money. It is in the client's interest therefore to ensure that the supply chain is paid promptly.		Cash flow is also an issue for the construction supply chain, and is a common reason for contractors and sub-contractors becoming insolvent. This can be catastrophic for a project in terms of time and money. It is in the client's interest therefore to ensure that the supply chain is paid promptly. <ref name="Constructing">[URL:http://https://www.designingbuildings.co.uk/wiki/Cash_flow_in_construction]Retrieved on 12 June 2017</ref>.
	The government suggest that, 'Historically, it is has not been unusual for lower tier supply chain members to have to wait for up to 100 days to receive payment, which damages their cash flow and can harm their business.~~' Ref Cabinet Office, Project Bank Accounts – Briefing document~~.		https://www.designingbuildings.co.uk/wiki/Cash_flow_in_construction
	~~A number of measures can be adopted to improve payment and so cash flow in the supply chain, including~~:
	~~Fair payment practices~~.
	~~Construction supply chain payment charter~~.
	~~Project bank accounts.~~
	~~In addition there are a number of remedies for late payment~~.

S162469 at 21:27, 12 June 2017

2017-06-12T21:27:34Z

← Older revision		Revision as of 21:27, 12 June 2017
Line 21:		Line 21:
	Until the main contractor has been appointed, cash flow projections are likely to be based only on agreed fee payment schedules for consultants and a simple division of the construction cost over the likely construction period (or perhaps an allocation of construction cost over an s-curve distribution). It is only when the main contractor is appointed, a master programme prepared and some form of payment schedule agreed that cash flow projections become reliable.		Until the main contractor has been appointed, cash flow projections are likely to be based only on agreed fee payment schedules for consultants and a simple division of the construction cost over the likely construction period (or perhaps an allocation of construction cost over an s-curve distribution). It is only when the main contractor is appointed, a master programme prepared and some form of payment schedule agreed that cash flow projections become reliable.
	Cash flow projections may be affected by the need for the early purchase of long-lead time items or by items that the client may wish to purchase that are outside of the main contract (such as furniture or equipment).		Cash flow projections may be affected by the need for the early purchase of long-lead time items or by items that the client may wish to purchase that are outside of the main contract (such as furniture or equipment).
	~~Supply chain cash flow~~

			Cash flow is an issue of utmost importance for the client. It represents the timeline of the incurred costs for the project not only during its construction, but also during the life cycle of the project. In other terms, it is the inflow of cash to the contractor form the client, which is necessary for funding the project. The client


			==Supply chain cash flow==
	Cash flow is also an issue for the construction supply chain, and is a common reason for contractors and sub-contractors becoming insolvent. This can be catastrophic for a project in terms of time and money. It is in the client's interest therefore to ensure that the supply chain is paid promptly.		Cash flow is also an issue for the construction supply chain, and is a common reason for contractors and sub-contractors becoming insolvent. This can be catastrophic for a project in terms of time and money. It is in the client's interest therefore to ensure that the supply chain is paid promptly.
	The government suggest that, 'Historically, it is has not been unusual for lower tier supply chain members to have to wait for up to 100 days to receive payment, which damages their cash flow and can harm their business.' Ref Cabinet Office, Project Bank Accounts – Briefing document.		The government suggest that, 'Historically, it is has not been unusual for lower tier supply chain members to have to wait for up to 100 days to receive payment, which damages their cash flow and can harm their business.' Ref Cabinet Office, Project Bank Accounts – Briefing document.
Line 30:		Line 33:
	Project bank accounts.		Project bank accounts.
	In addition there are a number of remedies for late payment.		In addition there are a number of remedies for late payment.

	Cash flow is an issue of utmost importance for the client. It represents the timeline of the incurred costs for the project not only during its construction, but also during the life cycle of the project. In other terms, it is the inflow of cash to the contractor form the client, which is necessary for funding the project. The client


	~~==Supply chain cash flow==~~


Line 78:		Line 76:
	==Cash flow estimation with BIM==		==Cash flow estimation with BIM==

	A unique value of this prototype is dramatically		A unique value of this prototype through [[Building Information Modeling]] is dramatically
	automating the time required to generate cash flow		automating the time required to generate cash flow
	analysis. Traditionally, contractors could spend weeks		analysis. Traditionally, contractors could spend weeks
Line 94:		Line 92:
	has the best possibility to earn the highest profit margins.		has the best possibility to earn the highest profit margins.
	The contractor could then focus its resources on preparing		The contractor could then focus its resources on preparing
	bids for only the most profitable projects.		bids for only the most profitable projects.

	Payment to a contractor in a series of lump sums, each paid upon his achieving a ‘milestone’ – meaning a defined stage of progress. Use of the word milestone usually means that the payment is based upon progress in completing what the promoter (client) wants. Payment based upon achieving defined percentages of a contractor’s programme of activities is also known as a ‘planned payment’ scheme.		Payment to a contractor in a series of lump sums, each paid upon his achieving a ‘milestone’ – meaning a defined stage of progress. Use of the word milestone usually means that the payment is based upon progress in completing what the promoter (client) wants. Payment based upon achieving defined percentages of a contractor’s programme of activities is also known as a ‘planned payment’ scheme.

S162469 at 21:15, 12 June 2017

2017-06-12T21:15:14Z

← Older revision		Revision as of 21:15, 12 June 2017
Line 38:		Line 38:

	==Importance of cash flow==		==Importance of cash flow==
	Cash flow is vital for organizations in the construction industry. Shortfalls in cash flow may result to major problems in all the parties involved in the construction project. These problems affect the relationship and the collaboration atmosphere between the different parties in a project, leading eventually to disputes between them. Consequently, additional risk is included in the overall final cost estimation, which maybe conclude to higher final cost. Constructing Excellence (2016). \The Payment Minefiled, Constructing Excellence Member Forum". Pat. [URL: ~~https~~://~~web~~.~~archive~~.~~org~~/~~web~~/~~20141021154645~~/~~http:~~//~~www.nationalbimstandard~~.~~org/faq.php~~] Retrieved on 9 June 2017.		Cash flow is vital for organizations in the construction industry. Shortfalls in cash flow may result to major problems in all the parties involved in the construction project. These problems affect the relationship and the collaboration atmosphere between the different parties in a project, leading eventually to disputes between them. Consequently, additional risk is included in the overall final cost estimation, which maybe conclude to higher final cost. <ref name="Constructing">Constructing Excellence (2016). \The Payment Minefiled, Constructing Excellence Member Forum". Pat. [URL:http://constructingexcellence.org.uk/wp-content/uploads/2016/03/cemembersforum10022016.pdf]Retrieved on 12 June 2017</ref>.

	[[File:Cashflow.png\|thumb\|right\|300px\|Figure 1: Problems derived from cash flow (click to zoom)]]		[[File:Cashflow.png\|thumb\|right\|300px\|Figure 1: Problems derived from cash flow (click to zoom)]]

S162469 at 21:11, 12 June 2017

2017-06-12T21:11:25Z

← Older revision		Revision as of 21:11, 12 June 2017
Line 38:		Line 38:

	==Importance of cash flow==		==Importance of cash flow==
	Cash flow is vital for organizations in the construction industry. Shortfalls in cash flow may result to major problems in all the parties involved in the construction project. These problems affect the relationship and the collaboration atmosphere between the different parties in a project, leading eventually to disputes between them. Consequently, additional risk is included in the overall final cost estimation, which maybe conclude to higher final cost.		Cash flow is vital for organizations in the construction industry. Shortfalls in cash flow may result to major problems in all the parties involved in the construction project. These problems affect the relationship and the collaboration atmosphere between the different parties in a project, leading eventually to disputes between them. Consequently, additional risk is included in the overall final cost estimation, which maybe conclude to higher final cost. Constructing Excellence (2016). \The Payment Minefiled, Constructing Excellence Member Forum". Pat. [URL: https://web.archive.org/web/20141021154645/http://www.nationalbimstandard.org/faq.php] Retrieved on 9 June 2017.

	[[File:Cashflow.png\|thumb\|right\|300px\|Figure 1: Problems derived from cash flow (click to zoom)]]		[[File:Cashflow.png\|thumb\|right\|300px\|Figure 1: Problems derived from cash flow (click to zoom)]]

S162469 at 21:07, 12 June 2017

2017-06-12T21:07:37Z

← Older revision		Revision as of 21:07, 12 June 2017
Line 36:		Line 36:
	==Supply chain cash flow==		==Supply chain cash flow==

	~~=Cash flow estimation=~~
	A cash flow projection is a business tool of utmost importance for the construction industry, providing a basis for controlling one or multiple projects. The cash flow projection of the project execution team implies whether the project can be funded throughout its whole construction timeline, avoided undesirable events, such as budget shortfall, which maybe in some extreme cases may lead the contractor to bankruptcy. Cash flow estimation is closely related to construction time, as it is a dynamic procedure where project cost meets the project schedule. <ref name="Chen">Chen, M. T. et al, 2007, ABC of Cash Flow Projections, AACE International Transactions, PM. 02</ref>
	~~A cash flow forecast (also called a 'cash flow budget' or 'cash flow projection') helps identify whether a firm needs to borrow, how much, when, and how it will repay the loan.~~
	Building a cash flow forecast allows an evaluation of cash resources that are required and when they are required by. Business owners can identify likely future gaps in funding and plan for those gaps accordingly. It is a vitally important tool for predicting the continuing financial health of the business.
	Additionally, cash flow models enable business owners to assess 'what if' scenarios by changing key variables to see how vulnerable the business is to price changes, staffing levels, exchange or interest rate movements, and other key drivers.
	In larger organisations the cash flow projection can be integrated with day to day operations. This can help identify what production is necessary, what resourcing is required and can provide an assessment of the capacity within a business.

	=Importance of cash flow=		==Importance of cash flow==
			Cash flow is vital for organizations in the construction industry. Shortfalls in cash flow may result to major problems in all the parties involved in the construction project. These problems affect the relationship and the collaboration atmosphere between the different parties in a project, leading eventually to disputes between them. Consequently, additional risk is included in the overall final cost estimation, which maybe conclude to higher final cost.

	[[File:Cashflow.png\|thumb\|right\|300px\|Figure 1: Problems derived from cash flow (click to zoom)]]		[[File:Cashflow.png\|thumb\|right\|300px\|Figure 1: Problems derived from cash flow (click to zoom)]]
Line 55:		Line 50:

	In construction projects, the identification of the major milestones of the construction process is often the major tool for managing the schedule <ref name="Winch"></ref>, and consequently the managing of the budget of the project. Finally, the payment between the suppliers and the contractor usually take place after the delivery of the service. <ref name="Winch"></ref>		In construction projects, the identification of the major milestones of the construction process is often the major tool for managing the schedule <ref name="Winch"></ref>, and consequently the managing of the budget of the project. Finally, the payment between the suppliers and the contractor usually take place after the delivery of the service. <ref name="Winch"></ref>

			=Cash flow estimation=
			A cash flow projection is a business tool of utmost importance for the construction industry, providing a basis for controlling one or multiple projects. The cash flow projection of the project execution team implies whether the project can be funded throughout its whole construction timeline, avoided undesirable events, such as budget shortfall, which maybe in some extreme cases may lead the contractor to bankruptcy. Cash flow estimation is closely related to construction time, as it is a dynamic procedure where project cost meets the project schedule. <ref name="Chen">Chen, M. T. et al, 2007, ABC of Cash Flow Projections, AACE International Transactions, PM. 02</ref>
			A cash flow forecast (also called a 'cash flow budget' or 'cash flow projection') helps identify whether a firm needs to borrow, how much, when, and how it will repay the loan.
			Building a cash flow forecast allows an evaluation of cash resources that are required and when they are required by. Business owners can identify likely future gaps in funding and plan for those gaps accordingly. It is a vitally important tool for predicting the continuing financial health of the business.
			Additionally, cash flow models enable business owners to assess 'what if' scenarios by changing key variables to see how vulnerable the business is to price changes, staffing levels, exchange or interest rate movements, and other key drivers.
			In larger organisations the cash flow projection can be integrated with day to day operations. This can help identify what production is necessary, what resourcing is required and can provide an assessment of the capacity within a business.