Article written by Natalie Ritchie on the Viewpoint blog
Managing cash flow for a large construction project is tricky — not just because you don’t get paid immediately, but also because you’re dealing with progress claim preparation, submission deadlines, varying substantiation requirements and variation and claim negotiations — all of which distract you from actually doing the work and finally getting payment.
Adding to the complexity are project durations (which can go from days to years), the broad scope of work, the logistical sequencing of tasks and any conditions tacked onto the contract.
Considering these complexities, it’s easy to understand why, throughout the life of a project, a variety of things can change — directly impacting the original cash flow forecast.
But when underlying project revenue and cost forecasts are inaccurate, even the largest company can tap out its cash reserves, resulting in a failure to meet payroll payments, supplier payments, subcontractor commitments and service payment obligations.
Here are three ways to ensure your cash flow forecast gets your project done on time, on brief and on budget.
1. Create Rolling Enterprise Cash Flow Forecasts
The only way around the complexity of a large-scale construction project is to ensure working capital requirements are known and provided for. This means you need to build rolling enterprise operating cash flow forecasts, project by project.
A rolling cash flow forecast will equip management with the tools to:
- Assess project performance
- Better manage commercial risk and opportunity
- Understand future cash position and potential funding needs
But a standard cash flow forecast is not enough.
Use Time-Phased Planning to Improve Validation and Accuracy of Forecasts
Since many things that directly impact cash flow are subject to change, companies need to know quickly what has changed, why it changed and what its overall impact is on the project, business unit and overall enterprise./p>
Money is constantly going in and out of the business to different areas of the project, which is why you should allocate costs over time. The best benefit of a time-phased cost budget baseline is that project forecasts will be more accurate, with improvements in validation and efficiency. Combined with rolling forecast capabilities, this will result in reduced cycle times and, best of all, an idea of the latest financial standing of the project at any given time.
Integrate Your Key Systems to Achieve Data Integrity
Without an integrated system that connects your office, team, and field, you jeopardise the ability to communicate and share information efficiently — something that is crucial if you’re going to finish the project on time and on budget.
This is because data is housed in separate systems that don’t talk to each other, making it difficult to organise and causing discrepancies in execution. For example, if changes to construction materials are not detailed in the original spec, it could result in erroneous execution. This delays the completion of the project, wastes resources and upsets your client — all outcomes that you want to avoid.
In contrast, integrated enterprise software has components that are compatible with each other, meaning that everyone in the business is referring to just one source of the truth. This takes the task of forecasting cash flow from complex, high-risk and error-prone systems to an integrated, logical and standardised process.
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