"Monitoring Project Cash Flows"

The principal difficulties for main contractors in monitoring changes in their net cash position are associated with the complexity of obtaining reliable actual and forecast project cash flow figures.

Luca Bovo Senior financial analyst – Snamprogetti Spa ed Eugenio Rocco Prof. of Managerial Engineering at LIUC
With permission of the publisher this article is taken from "Guida alla Contabilità&Bilancio" n. 19/2006, pagg. 24 e segg. – “Monitoraggio dei flussi finanziari di commessa”, originally in Italian and translated in English.

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Abstract

This article examines criteria for determining a final project balance sheet and cash-flow statement and the logic of project-based planning that make it possible to refine cash-flow forecasting, using the data contained in the IT and accounting system.

Corporate accounting models usually do not provide for a specific project balance sheet: while the P&L impact is attributed to each project, the balance-sheet item is associated with the customer/supplier with no indication of the project. Upon issuing an invoice, the revenue is allocated to a specific project, while the receivable is associated with a customer, who may have commissioned multiple works from the engineering company. The problem also exists on the debtor side, where the supplier ledger may report invoices for more than one project, the payable for which cannot easily be broken down by project or the nature of the costs that generated it (tenders, materials, transport, etc.).

Obtaining a project balance sheet therefore requires the specification of criteria to enable the reclassification, using a custom-developed program, of all account entries related to the projects by work breakdown structure (WBS). For the balance sheet and cash flow items, detail at the level of work breakdown elements (WBE). and type, even if no value is assigned to the field within the entry.

The data thus reclassified will be consolidated in a table that serves as the database for subsequent re-processing on the basis of cash flow aggregates, from which control reports can be obtained.