Cash Flow Projection Management for Small – Medium Sized Vietnamese Contractors

While a construction company is doing one or more contracts at the same time, a project manager must be able to answer the following issues:

i) The amount of money at a particular time:

            + How much is the minimum and maximum amount of money that has to be available?

            + How much money do we have and spend?

            + How to get that money?

+ From where?

ii) The suggestion in preparation of improving the performance to reduce insolvency.

iii) With that maximum amount of money that we can prepare, supposed, clients want to accelerate the schedule, so what is the longest duration for the project, and to do that, how much money the clients have to give us and when?

Pham Thi Ngoc Hien made a case study which objectives were to:

1. study the theory of project cash flow management in construction

2. synthesize the project management issues related to cash flow projection

3. apply project cash flow management into a case.

Conclusions

1. Theory of cash flow

(a) This study is useful and limited to small and medium- sized projects. In large project the number of variables should be large and complex and takes long-time duration, it needs deeper research with the help of computer software and take into account the analysis on the value of time and money and the effects of inflation. However, in the large project that consists of many smaller subprojects, these financing solutions may help bring the requirements and paybacks which are used as information or inputs to large projects.

(b) Adequate cash flow management benefits not only in cost control and assists profit acquisition for contractors but also contribute to other management skills. Individual project net cash flows contribute to and from the organizational cash flow which directly relates to the financial health of the organization. The key aspect to cash flow is to understand the way project cash flows layer over each other to generate organizational cash flow. A secondary aspect is to understand that organizational cash flow is dependent on the individual project profiles. Manipulation of these layered profiles has the capacity to change the organizational. In turn it is the overall management of a portfolio of net cash flow which determines the success of the whole organization. The aim of cash flow projection is to maintain the positive or at least manageable cash flow. In cash flow projection, the management of the timing of payments is most important to the effective management.

© Cash flow management helps the contractor in inspecting project financing issues, resource usage and can be a useful tool to prove with banks.

(d) Combining the cash flow management and earned value technique, a project can be, a project can track the real status of progress, detect any early cost deviation, suggest payment strategy and be a factor that affects the scheduling for the coming projects.

2. Project management issues related to cash flow management

(a) Cash flow forecast should be made at all phases of the construction process. Cash flow can be contributed to tendering stage to decide the agreement of the contract payment terms and schedule, decide whether to accept or reject the bid; to construction stage to determine capital have to be available at a time, track the real status of the project ,set out a financial plan to recover costs; and  retainage management.

(b) In project scheduling problems resources-constrained issue is generally considered essential for contractors as a means; furthermore there is an involving of cash flow in project scheduling. Contractor thus can evaluate appropriate project schedules under associated constraints, and arrange activities and resources.

© A company level cash flow model must be based on cash flows of all the company’s individual projects. The use of cash flow management at company level or project level helps the company to be in active position in any financial related decisions.

3. Applying project cash flow management theory into a case study

(a) In portfolio project, cash flow contractor should avoid accepting the schedule and payment that caused the cash outflow and inflow of projects at the same time. Although following an abundant cash inflow. This cause a load at a time and an abundant at other.

(b) Small to medium contractor should consider cash management as rational and idiographic evaluation in integration with empirical evaluation rather than only empirical process which focused solely on the project margin.

© The contractor doesn’t need to have a large working capital to run the operation of projects, just managing well the cash flow.

Abstract

Cash is the most important of all business’s resources. Many construction companies fail not because of technique or skills but the insufficient cash flow management (Singh and Lakanathan, 1992; Navon, 1994b). In progress-payment contracts, the contractor is paid for the work performed based on progress reports made at specified intervals. The owner holds back a percentage of the payments until the project are completed. The insufficient of time and amount of money contractor receives from client and pay to their supports causes the financial problems. This study provides concepts and tools that can be applicable during the construction phase based on the planned earned value and the actual incurred cost on a project from a general contractor’s viewpoint as the cash flow projection’s role integration to project management. Combining the cash flow and earned value technique, a project can track the real status of progress, detect any early cost deviation, suggest payment strategy, adjusting the planned schedule and be a factor that affects the scheduling for the coming projects.

Keywords: Percentage, Payments, Project, Insufficient, Construction, Lakanathan, Schedule, Technique