Technical paper by 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 Il Sole 24 Ore - Finance and Control, XXIX, vol. 8-9, Milan, originally in Italian and translated in English.

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Abstract

The construction of a balance-sheet and cash-flow budget is a challenging undertaking due to the large number of variables that must be considered and, in some cases, the difficulty of forecasting how a project will evolve.

An engineering firm (the main contractor) that designs and executes major projects featuring a multitude of diverse activities and customer and supplier contracts specific both to a given project and, within this, to the type of service performed, must have great skill and experience in planning and optimizing these activities. It must also possess advanced management tools and methodologies to monitor lead times, costs and cash flows calculated in the initial estimation stage.

This article seeks to provide insights into project planning that can help identify critical balance-sheet and cash-flow issues associated with a project in advance, issues that may depend on external market variables (structural or contingent) or the performance of company departments (commercial, administration, technical, etc.), in order to guide management in taking action to improve financial performance.