Cash flow & payment milestones
| Line 21: | Line 21: | ||
===Milestones definition=== | ===Milestones definition=== | ||
| − | Each project has a determined timeframe, or duration. '''Milestones''' are key reference points, or events on this timeline, that are crucial for measuring the project progress and achieving the final outcome. In project management milestones can be called signal anchors | + | Each project has a determined timeframe, or duration. '''Milestones''' are key reference points, or events on this timeline, that are crucial for measuring the project progress and achieving the final outcome. In project management milestones can be called signal anchors <ref name=" SignalAnchors"/> and are used for marking following deliverables: |
*Start of the project | *Start of the project | ||
*End of the project | *End of the project | ||
| Line 32: | Line 32: | ||
[[File:Milestones.png|center|thumb|500px|Milestones scheme]] | [[File:Milestones.png|center|thumb|500px|Milestones scheme]] | ||
| + | |||
| + | '''Payment milestones''' are another kind of milestones, that are strictly dedicated to finances. They are fixed dates, when certain percent of money is being payed or received. The bigger the project, the bigger the budget, and therefore the more payment milestones present. | ||
| + | |||
| + | ==Cash flow and payment milestones in Project Cost Management== | ||
| + | |||
| + | ===Cash Flow Analysis=== | ||
| + | |||
| + | Referring to popular saying that "Cash is King" - money is one of the most important resources in business <ref name="CashisKing"/> | ||
| + | and requires proper control and analysis. Skillful financial data management allows to extract from cash flow several measures crucial for Project Cost Management. Some of them are: | ||
| + | *'''Project value''' or rate of return. It is basically a profit of an investment. Cash flow is implemented in some financial models, such as IRR or NPV. | ||
| + | *'''Project liquidity'''. It can be determined how easily the financial obligations can be met during the project. | ||
| + | *'''Project risk evaluation'''. It can be determined what is the uncertainty about deviation from expected earnings or expected outcome. | ||
| Line 44: | Line 56: | ||
<ref name="CashFlow"> "Cash Flow" February 2018 https://en.wikipedia.org/wiki/Cash_flow:.</ref> | <ref name="CashFlow"> "Cash Flow" February 2018 https://en.wikipedia.org/wiki/Cash_flow:.</ref> | ||
<ref name="CashFlowPicture"> "Cash Flow Scheme" February 2018 https://www.bbc.co.uk/education/guides/z67mpv4/revision </ref> | <ref name="CashFlowPicture"> "Cash Flow Scheme" February 2018 https://www.bbc.co.uk/education/guides/z67mpv4/revision </ref> | ||
| + | <ref name="SignalAnchors"> "Signal Anchors" February 2018 https://en.wikipedia.org/wiki/Milestone_(project_management) </ref> | ||
| + | <ref name="CashisKing"> "Cash is King" https://books.google.dk/books?id=r4R3gDES5lMC&pg=PA158&lpg=PA158&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management&source=bl&ots=pXc4hlRRCk&sig=8Ma_EihrAuCnJ4lHyi_P7cKf2IQ&hl=en&sa=X&ved=0ahUKEwievtuBh6bZAhWSKCwKHQL-CMMQ6AEIfDAH#v=onepage&q=cash%20flow%20and%20payment%20milestones%20in%20Project%20Cost%20Management&f=false | ||
Revision as of 15:18, 18 February 2018
Contents |
Abstract
Project Cost Management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.[1]. Two main concerns, that are crucial in Project Cost Management are cash flow and payment milestones.
This article will contain two chapters, one for each issue. Apart from diversification of definitions of cash flow [2] and payment milestones for project, program and portfolio, this article will focus on practical information for Project Managers, and present some real life relevant technics and tools. It will also answer the question "Why cash flow and payment milestones are so important in Project Cost Management?" and how to approach them.
Introduction
Cash Flow definition
Cash flow is a term used to describe money movement (flow) in business in defined time period. Cash flow is determined by the following factors: time, nominal amount, currency and account [3].There are two main subdivisions of this term - cash flow in and cash flow out.
Cash flow in stands for money that is coming into the business. It may come from investors, who are investing or financing the company, from gathered capital that business owner has, or from profits that business is making from selling products or services.
Cash flow out stands for money that is going out of the business. It may go for covering the wages of hired workers, bills like rental payment or mortgage for facilities or services, and other expenses like taxation.
The difference between cash flow in and cash flow out is called net cash flow.
Milestones definition
Each project has a determined timeframe, or duration. Milestones are key reference points, or events on this timeline, that are crucial for measuring the project progress and achieving the final outcome. In project management milestones can be called signal anchors [5] and are used for marking following deliverables:
- Start of the project
- End of the project
- Start of determined phase of the project
- End of determined phase of the project
- Reviews
- Budget checks
Milestones are fixed points, so in contrast to the timeline, they do not have duration, they are fixed dates.
Payment milestones are another kind of milestones, that are strictly dedicated to finances. They are fixed dates, when certain percent of money is being payed or received. The bigger the project, the bigger the budget, and therefore the more payment milestones present.
Cash flow and payment milestones in Project Cost Management
Cash Flow Analysis
Referring to popular saying that "Cash is King" - money is one of the most important resources in business [6] and requires proper control and analysis. Skillful financial data management allows to extract from cash flow several measures crucial for Project Cost Management. Some of them are:
- Project value or rate of return. It is basically a profit of an investment. Cash flow is implemented in some financial models, such as IRR or NPV.
- Project liquidity. It can be determined how easily the financial obligations can be met during the project.
- Project risk evaluation. It can be determined what is the uncertainty about deviation from expected earnings or expected outcome.
Annotated Bibliography
Project Management Institute (2013). A Guide to the Project Management Body of Knowledge (PMBOK® guide)
References
- ↑ Project Management Institute (2013). A Guide to the Project Management Body of Knowledge (PMBOK® guide). Newtown Square, Pennsylvania: Project Management Institute, Inc
- ↑ Cash Flow. February 2018 from https://www.investopedia.com/terms/c/cashflow.asp
- ↑ "Cash Flow" February 2018 https://en.wikipedia.org/wiki/Cash_flow:.
- ↑ "Cash Flow Scheme" February 2018 https://www.bbc.co.uk/education/guides/z67mpv4/revision
- ↑ "Signal Anchors" February 2018 https://en.wikipedia.org/wiki/Milestone_(project_management)
- ↑ "Cash is King" https://books.google.dk/books?id=r4R3gDES5lMC&pg=PA158&lpg=PA158&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management&source=bl&ots=pXc4hlRRCk&sig=8Ma_EihrAuCnJ4lHyi_P7cKf2IQ&hl=en&sa=X&ved=0ahUKEwievtuBh6bZAhWSKCwKHQL-CMMQ6AEIfDAH#v=onepage&q=cash%20flow%20and%20payment%20milestones%20in%20Project%20Cost%20Management&f=false
