Cash flow management critical to project success

Nov 12, 2008 News

– Project Management Professional

Managing Director of Rivelin Consultants Ltd, a Trinidadian-based project management and civil engineering consultancy company, Mithra Rampersad, recently shared with local project managers and other stakeholders the importance of cash flow management for construction projects.
Rampersad spoke at a project management conference which was held at the Le Meridien Pegasus on October 31.
He was one of five project management professionals who presented papers at the event.
Given that Guyana has in the recent past taken on several major developmental projects, contractors were able to gain knowledge from the project management professional.
Rampersad said that in today’s competitive contracting environment, the ability of a contractor to support his project initiatives depends not only on technical ability, but the ability to manage cash flow and financing.
According to him, except in very rare occasions, in essence, all projects within the construction industry contain some component of self-financing and in larger construction projects, the ability to provide necessary finance during execution is critical.
“This is more relevant at the start of the project, but continuous cash management throughout the project execution phase is also vital.”
He added that the use of scheduling software such as MS Project allows the contractor to schedule and plan his work activities, but advanced use of the software also allows the project cash flows to be modeled and thus better managed.
“This modeling may then be used to manage financing and commercial activities.”
“Inadequate access to cash during project execution can lead to project and indeed business failure, and thus the timing and quantum of these flows are vital.”
He said that cash flow management is critical to the success of the project and inadequate management can lead to project failure and possibly on to business failure.
Over-estimating the effect of cash flow management and subsequent finance charges may inflate tender and capital development prices, and reduce competitive edge. Under-estimating could lead to erosion of profitability and excessive charges on sources of finance.
He noted that the traditional approach to cash flow management is to develop the cash flow curve and identify the areas of negative (and positive) cash for use in determining project and Contractor financing requirements.

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Cash flow management critical to project success

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