THU35 - Cash Flow Curve

Considerations

Can P6 Do a Cash Flow Curve?

Jim Simons, PMP PSP EVP

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 Can P6 Do a Cash Flow Curve?
Primavera doesnt really create a cash flow
curve showing the timing of cash in/out.
However, the time-phased data that
Primavera creates is the basis for creating an
assortment of cash flow curves in Excel.
A cost processor can also utilize Primavera
baseline to delay the planned value curve and
create a cash flow curve.

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 Overview
The time-phased cash out and revenue in data
touches many project members, each with
unique uses and requirements.
Resource-loaded P6 activities can time-phase
aggregate resource quantities across the
dynamic network.
The P6 resource distribution layout is output
to Excel and processed to reflect the timing
delays.
 Who uses Cash Flow?
Different functional entities have different uses and
definitions of Cash Flow
A Project Manager might consider cash flow to be the
value of work-in-place, or the Earned Value.
A Project Accountant might consider cash flow as the cost
of transactions booked in the accounting system, or Actual
Cost.
A Financial Manager might consider cash flow as an actual
disbursement of funds from treasury, or Cash Out.
A Program Manager might consider the timing of
disbursements against receiving revenue payments as
extremely important.
A Project Controls Manager might consider cash flow as
the Planned Value.
The numbers are the same; the difference is timing.
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 How will they use the data?
Support for a proposed project
Perhaps the Cash Flow Curve is expected to give
management some idea of future cash demands.
These demands may be coordinated with other projects,
to present the composite enterprise cash flow.
If the aggregate cash demands exceed the corporate
resources, then projects are dropped/delayed until the
curve falls within available resources.
These broad brush Cash Flow Curves are not expected to
be definitive or exact.
Primavera can plot enterprise resources for this type of
analysis, which is especially useful when both proposed
and in-flight projects are displayed in an enterprise report.

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 How will they use the data?
Forecasting Financial Cash Flow
When the Cash Flow Curve is expected to forecast the
real cash demands of a real project, the matter
becomes a bit more serious.
If we were able to predictably forecast cash demands,
Finance would be very happy with us.
Finance is less concerned about when the work was
performed, than the demands on treasury from
invoices and the timing of revenue receipts.
The accuracy of the PV curve data compiled by P6, is
dependent on the level of detail necessary to model
the timing of discrete elements of the work.

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Factors affecting Disbursement Timing
The Cost Type
Direct Labor
Paid weekly or every other week; Essentially instantaneous.
No delay, as the labor is already reported as an actual transaction.
Direct Material Purchase Order
Paid in accordance with the conditions of the purchasing document.
Usually 15 days after invoicing, with invoicing up to 30 days after delivery.
Thus, the delay is 15-45 days.
Direct Material Purchase Agreement
Similar to Purchase Order.
The PA is usually more specific about payment.
Usually 45 days after delivery.
Subcontracts
Usually paid based on end of the month progress.
Producing the Payment Application requires at least 2 weeks.
Approval might be another 2-3 weeks.
Payment might be 30 days after approval of the invoice.
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 The time sequence of cash flow
Calculated by the schedule network.
The schedule calculations produce early and late
dates for every activity.
The loading values can be captured for any period
from hours to years, but days and months are the
more common.
Both early and late curves may be plotted.
Perhaps the most reasonable Planned Value curve
would use median values.

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Defining P6 Cash Flow Resources
P6 resources are anything that can be quantified
for an activity; CY, MH, USD, etc.
For clarity and processing consistency
Each cash flow resource should be either Cash or
Revenue at the root level.
At the next level, the Cash resources should be
whatever Cost Types are normal to the organization;
Lab, Matl, SubC, for example.
Define a resource for each combination of cost type
and assumed period from execution to disbursement.
Define a P6 filter to only display this set of cash flow
resources.

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 Establish P6 Cash Resources
Cash$
[as a parent level, with no reporting at this level]
Cost Type = Material
Unit Price = $1/unit
UOM = $
Default Units/Time = 0
Maximum Units/Time = 0
Calendar = 7-day, No Holiday
Do not Auto-Compute Actuals
Lab$, under Cash$, same configuration
Matl$, under Cash$, same configuration
SubC$, under Cash$, same configuration
Xxx$, as many more under Cash$ to define the period
from execution to disbursement.

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Establish P6 Revenue Resources
Rev$
Cost Type = Material
Unit Price = $1/unit
UOM = $
Default Units/Time = 0
Maximum Units/Time = 0
Calendar = 7-day, No Holiday
Do not Auto-Compute Actuals

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 P6 Resource Dictionary
Cash$
Lab$
Matl$30
Matl$45
Matl$60
SubC$45
SubC$60
SubC$75
Rev$ -
When Revenue is from multiple sources, with different statutory
payment values, then more revenue resources should be added.
More revenue resources could be added for different colors of
money, such as WADs on certain government projects.
This has the advantage of allowing WAD funding projections,
which is a matter of intense interest on those projects.

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 Load Resource Quantities
All the Cash$ should sum to the budget value.

All the Rev$ should sum to the contract value.

When modifications occur, they should be defined

as separate activities, with discrete resource
Cash$ and Rev$ values to maintain integrity to the
budget and contract values.

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 Structuring the CFC Data and Graph
Planned Expenditures [PE]
Calculate the PV for the remainder of the project.
Summarize the PV by Cost Type [Resource ID]
Graph each Cost Type by the appropriate expenditure delay.
Add the projected expenditures for any unpaid billings.
This PE S-curve projects when funds should be required.
Review and Revise
Each month plot the actual expenditures against the Planned
Expenditures.
If the variance shows a diverging trend:
Analyze the trend by Cost Type
Calculate a factor to bring the variance within tolerance.
This tolerance is justified by the empirical nature of the data.
Apply the factor, revisit the analysis next month.
Include the variance on the graph, proving limit compliance.
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 Excel Calculations
Insert cells before the first period for each row to shift
entire row right, based on the timing.
If the interval scale is monthly, and the shift is one cell for
30 days, two for 60, etc.
A weekly interval scale would give more granularity to the
cash out projections, but would not affect the monthly
Revenue In.
Insert new Sum formulas for the shifted Cost and
Revenue values.
The Planned Value totals were unchanged.
Calculate cumulative totals, graph [PV, Cash and
Revenue] then analyze. Share as appropriate.

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 P6 Copy/Paste to Excel

Budget Distribution from

P6
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6
Total 177 311 400 410 365 159
Labor 12 26 35 24 10 6
Matl 30 20 25 25 16 10 8
Matl 60 35 40 45 50 30 10
SubC 30 60 100 135 180 195 65
SubC 60 50 120 160 140 120 70

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 Excel Shift
Budget Distribution from P6
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8
Total 177 311 400 410 365 159
Labor 12 26 35 24 10 6
Matl 30 20 25 25 16 10 8
Matl 60 35 40 45 50 30 10
SubC 30 60 100 135 180 195 65
SubC 60 50 120 160 140 120 70

Resources Shifted to Reflect Cash Out Delay

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8
Labor 12 26 35 24 10 6
Matl 30 > 20 25 25 16 10 8
Matl 60 > > 35 40 45 50 30 10
SubC 30 > 60 100 135 180 195 65
SubC 60 > > 50 120 160 140 120 70

Cash Out 12 106 245 344 411 401 223 80

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 Excel Results
Budget Distribution from P6
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8
Planned Value 177 311 400 410 365 159
Cuml 177 488 888 1,298 1,663 1,822

Period Results
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8
Cash Out 12 106 245 344 411 401 223 80
Revenue In - 204 358 460 472 420 183 -

Cumulative Results
Cash Out 12 118 363 707 1,118 1,519 1,742 1,822
Rev In - 204 561 1,021 1,493 1,912 2,095 2,095

Net Flow (12) 86 198 314 375 393 353 273

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 Cash Flow Graphics
Based on the 86 key activities for a $100m BFB boiler.
Define Cost Budget resources indicating Cost Type and
payment delay interval after execution.
Load P6 activities with Cost Budget and Revenue
Budget.
Open Resource Assignment view in P6.
Format the table for intervals and subtotals.
Group by resources, timing.
Copy the entire table [Ctrl-A] and paste into Excel.
Delete the subtotal rows for cost and revenue
resources.

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 Cash Flow using Early Dates
120,000,000

Early Planned Value

100,000,000

Early Cash Flow

80,000,000

Early Revenue
60,000,000

40,000,000

20,000,000

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 Cash Flow using Late Dates
120,000,000

100,000,000

Late Planned Value

80,000,000

Late Cash Flow

60,000,000

Late Revenue
40,000,000

20,000,000

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 Early / Late Planned Values
120,000,000

100,000,000

Late Planned Value

80,000,000

Early Planned Value

60,000,000

40,000,000

20,000,000

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 Cash Flow Delta
9,000,000
Cash Flow Delta = Revenue In less Cash Out

8,000,000

7,000,000

6,000,000

5,000,000
Early Cash Delta
4,000,000
Late Cash Delta
3,000,000

2,000,000

1,000,000

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 Composite Planned Value
120,000,000

Late Planned Value

100,000,000

Early Planned Value

80,000,000

Composite Planned Value

60,000,000

40,000,000

20,000,000

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 Composite Cash Flow Delta
9,000,000
Composite Cash Flow Delta = Average Early/Late Cash Flow Deltas

8,000,000
Early Cash Delta
7,000,000
Late Cash Delta
6,000,000

Composite Cash Delta

5,000,000

4,000,000

3,000,000

2,000,000

1,000,000

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 Results May Differ
The PV is usually based on the Early Dates
Any particular item of work may be delayed by the Free
Float, or even Total Float and still not technically
compromise the network.
Basing the PE on the recalculated network [not PMB], will
dampen much of this possible variation.
Large items with lump sum expenditures may skew the
statistics. Thus, they should be clearly reflected in the
budget loading to keep the PV as accurate as possible.
Deductions and hold-backs are individual management
prerogatives on invoices that have been entered into the
accounting system, are not addressed. If they were not in
the accounting system, they were simply an accrual.
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 Results May Differ
By default, P6 spreads the resources evenly [linear
distribution] across the activity period of
performance.
Usually this is adequate, especially for short activities.
Each resource assignment may be assigned a resource
curve when the resource is front-end loaded or another
or custom configuration. This might be appropriate for
longer activities with varying intensities.
As the curve applies to each resource in each activity,
assigning a resource curve to activities less than 3
update periods long may be more effort than necessary
to reach the result.

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 Results May Differ
P6 assigns values for each increment of a planning
unit [day]. The related resource loading is much
more detailed than necessary for reporting, so the
output is usually summed for the end of the
month.
So, the resource quantities are actually a series of
monthly steps, as opposed to a curve.
With each element [budget, earned, billed, paid] at a
30-day interval, not the standard EOM, the results may
show more variance than reality.
If the analysis period were days, then the curves would
be more predictable, but daily reporting, billing, etc.
would be impractical, or at least expensive.
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 Projections Change
At each update cycle the cash flow results should
be reviewed to determine if the assumptions are
still current, or will need adjustment.
Documenting these adjustments will allow the next
project to be projected more accurately.
As the Estimate to Complete [ETC] is reviewed and
revised with each update, the changes may
require updating the cost resource quantities, to
keep the cash flow projections accurate.
The threshold for changes should be defined by
management.
On a project with hundreds of changes, this could be a
significant factor.
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 Looking over the Horizon
Start with a good PMB;
Clear, complete Scope
Comprehensive Estimate
Healthy Schedule
Know the data, the contract and subcontracts.
Obtain and maintain Team Involvement, including
Finance for requirements and data.
Analyze flow optimization alternates with the Team.
Revisit actual cash flow and progress at each update
cycle.
Adjust projections for ETC, as necessary.

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 Questions?

Jim Simons, PMP PSP EVP

jsimons944@aol.com
334-546-0224 Cell

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