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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.
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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
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