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.
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.
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.
