7/30/2019 Project Management (BUDGET)

1/2

Budget

The financial success of a project depends not only on the project making a profit, but also the

project throughproject life cycle. Statistics clearly indicates that more companies go into

liquidation because of cash-flow problems than for any other reason. The project manager must

therefore plan and control the projects cash-flow.

Cash-Flow Statement

The cashflow statement is a document which models the flow of money in and out of the

project. The time frame is usually monthly, to coincide with the normal business accounting

cycle. The cash-flow statement is based on the same information used in a typical bank

statement, except that here the income (cash inflow) and expenditure (cash outflow) are grouped

together and totaled. In a project the contractors income would come from the monthly progress

payments, and the expenses would be wages, materials, overheads, interest and bought-in

services. While the clients income would come from the operation of the facility (after theproject has been completed) and the expenses would be the invoices from the contractors and

suppliers. Consider following example where:

Brought forward amount for January is $5,000 Income January $10,000, February $15,000, March $20,000 Expenses January $8,000, February $12,000, March $16,000

Use the following steps as a guideline to solve the exercise.

Step 1: Set up the cash-flow statement headings. Use monthly headings to cover the duration of

the project.

Step 2: The brought forward (B/F) for January is given at $5,000.

Step 3: List the inflow of cash items from the income statement for January, February and

March, $10,000, $15,000 and $20,000 respectively.

Step 4 : Calculate the total funds available for January by adding total income to the brought

forward.

Step 5: List the outflow of cash items from the expense statement for January, February and

March, $8,000, $12,000 and $16,000 respectively.

Step 6: Calculate the total outflow of funds for January.

Step 7: Calculate the closing statement for January, funds available minus expenditure.

Step 8: The closing statement for January now becomes the B/F, or opening statement for the

next month February.

7/30/2019 Project Management (BUDGET)

2/2

Repeat this procedure every month for the rest of the project.

January February March

Brought Forward $5,000 $7,000 $10,000

Income $10,000 $15,000 $20,000

Total Available $15,000 $22,000 $30,000

Expenses $8,000 $12,000 $16,000

Total Expenses $8,000 $12,000 $16,000

Closing Balance $7,000 $10,000 $14,000