Project Cash Flow

Making Sure the Project Cash Flow Will be There

Just as project managers must secure the availability of the project team members and the materials or equipment required for the tasks, they must also secure the project cash flow availability. While some contractors will wait until the completion of the project to receive payment, others must be paid when they have finished their assignment. Still other contractors may require periodic payments during the course of the work. Some materials and equipment may be available within the performing organization but other equipment must be leased or rented. And materials must be ordered from suppliers who have their own payment terms.

Your experience managing projects may be limited to projects done within an organization where the people, materials and equipment are all available from different departments in the organization. In that situation, these cash flow issues don’t arise. so you don’t have to read this article.

Project Cash Flow Forecast

Having contractors stop work because they haven’t been paid or suppliers refuse to deliver necessary items because they haven’t been paid is the kind of mistake good project managers don’t make. These project managers always develop a forecast of the project cash flow. This can be developed in an Excel spreadsheet but the easier way is to use project schedule software. Professional-level software gives you the ability to forecast the cost of contractors and materials directly from your project schedule. As an example, from the schedule you could identify the materials that have been delivered, the equipment that has been leased and the professional or consulting fees the project will have incurred at the end of each month. Having this data allows you to discuss the project cash flow requirements before consultants or vendors have gone unpaid and stopped work. Cost Benefit Analysis Main Page

Project Cash Flow Problems

Executives who are owners of the project should approve the cost benefit analysis, the project plan and the required cash flow before work starts on the project. If that doesn’t occur, problems like this one will arise. During the execution stage, the PM submits a request to pay a supplier. The finance manager replies that there is no cash! project cash flowThe project manager argues that the executives approved the project budget. The finance manager agrees that is true but he cannot reserve all funding amounts at one time. As a result, this problem affects the entire project duration. This is an example of not planning for cash flow during the project planning phase. The PM should have gotten the finance manager’s  commitment about payments.

Project Cash Flow Plan

All receivables and payables during the project’s life cycle should be planned and secured. The project manager should plan for the cash flow on a monthly basis, as shown below, and get the finance manager’s approval.

Cash Flow Project Plan
Period 01-JUN-2013 To 30-JUN-2013
“The Whole Amount must be reserved from the beginning of the month to the End” Item IN OUT
Purchasing HW $40,000
Training Courses $15,000
JUN Payment $55,000

The project manager should also create an actual cash flow document and compare it with the planned cash flow each month. The cash flow project plan should be secured and if either the project manager or finance manager wants to modify it, they should ask for a change request. That is  because the change will affect the project dimensions, scope, duration, budget, and risk. By adding this cash flow plan to the project management plan,the project manager reduces the risk and enhances the organization’s project management performance culture.

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Author: Dick Billows, PMP

Dick has more than 25 years of project and program management experience throughout the US and overseas. Dick was a partner in the 4th largest professional firm and a VP in a Fortune 200 company. He trained and developed 100's of project managers using his methodology. Dick is the author of 14 books, over 300 articles and director/producer of 90 short project management training videos. He and a team of 25 project managers work with client companies & students across the US and in Europe, South America, Asia and the Middle East. They have assisted over 300 organizations in improving their project performance. Books by Dick Billows, PMP are on