Level 3 - Cashflow Forecasting

Question 1

How did you go about preparing your cashflow forecast ?

Answer 1

I used indicative stage 3 programme from the EA

Split the cost plan (formal cost plan 2) works elementally across the programme which indicated a ‘S curve’ in expenditure

Question 2

What would you advise the Client on a project where actual payments are behind the anticipated forecast?

Answer 2

Could be a number of things - I would discuss with the contractor first to find out reasons and report back to the client

This happened on Devonshire Row, I advised the client that this indicated the project was in delay and a potential risk to the overall completion date.

Question 3

What are some other causes of contractor being behind on cashflow?

Answer 3

The cashflow was wrong in the first place

1. Works being omitted
2. Resequencing of the Works
3. Lots of variations Changes
4. Inaccurate Cashflow
5. Materials not being delivered in time
6. Materials behind stored offsite and not claimed for

Question 4

If the cash flow was ahead of schedule what could this indicate?

Answer 4

1. Ahead of programme
2. Contractor front loading costs
3. Resequencing (higher value works carried out earlier)
4. Inaccurate cashflow
5. Advanced payments
6. Materials offsite not taken into account when preparing cashflow
7. Materials being stored on site way before they’re required
8. Variations
9. Acceleration (to complete works earlier

Question 5

What is the purpose of a cash flow forecast?

Answer 5

Pre contract Tells client how much money they will be spending on a monthly basis.

Post contract Helps the client drawdown funds from funders / creditors. Helps the client to understand whether the contractor is ahead or behind the programme. Helps the client understand how much money is being spent in relation to anticipated cash flow.

Question 6

Why is it important to have a cash-flow?

Answer 6

Outlines anticipated expenditure

Gives an indicated of when funds are required

Question 7

How was the cash flow produced post contract?

Answer 7

The contractor produced the cashflow post contract using their programme and CSA and splitting works into the appropriate months. They then deducted the retention each month to give a net cumulative total. I then reviewed it and agreed it with them.

Question 8

How did you update the cashflow forecast in every monthly cost report?

Answer 8

Cumulative net amount paid till date and then minus the retention

Updated the cashflow forecast taking this into account

Continuously compared actual cash flow to predicted cash flow to predicted cashflow forecast in every updated cost report using a line graph.

Question 9

When might you adjust the cash flow forecast?

Answer 9

to reflect EAIs
reflect anticipated variations
reflect loss and expense
reflect prov sums
reflect risk allowances

Question 10

What’s the risk of using a PM programme when preparing a cashflow?

Answer 10

Inaccurate sequencing of the works, contractor might have different methodology.

Cash flow forecast should be updated when entering in to contract and based on the contractors programme

Question 11

Why is it important that the contractor prepared the cashflow rather than you preparing one?

Answer 11

They are more aware of how works will be sequenced and therefore should be more accurate

Question 12

How often was the cashflow updated?

Answer 12

Monthly to reflect actual expenditure and post contract changes

Should also be updated to reflect any large variations / provisional sums

Question 13

You mentioned you advised the client that the contractor was delayed due to cashflow indicating they was behind, would this be your first action / advise to the client if cashflow is behind?

Answer 13

I would discuss with the contractor before making any assumptions
Could be number of things
1. Works may be omitted
2. Sequenced
3. Lot of changes Variations
4. Inaccurate baseline cashflow
On this project it was clear the contractor was progressing much slower than anticipated

Question 14

What is the issue for the client is actual payments are ahead of cashflow?

Answer 14

Potential funding issues

Question 15

You had a variations tracker, was variations included in the cashflow?

Answer 15

Yes, I would ask the contractor to update cashflow if:
• They wasn’t progressing diligently – ie behind programme
• To reflect EAI
• To reflect Anticipated Changes
• Loss & Expense
• Changes to provisional sums

Question 16

On Devonshire row, why was the cashflow falling behind?

Answer 16

Performance of the contractor (labour shortages)
Instructions to carry out additional works
Contractor not being able to access landlord areas where they were working in

Question 17

How would you allow for risk when preparing a cash flow?

Answer 17

Depends what stage:
Early stages – would be a % on the construction cost and fed into S curve
Later Stages – ideally a priced risk register which feeds into the cash flow

Question 18

How did you include and provisional sums in the cashflow?

Answer 18

Include as provisional value and update when agreed cost

Undefined is difficult to understand when it will be expended

Risk of provisional sum should being over (or under) should be included in the risk register and factored into the risk spend profile

Question 19

What are some events on site that you may need to adjust the cashflow?

Answer 19

1. Actual progress (in front or behind)
2. Variations
3. Change in sequencing
4. Formally awarded EOT
5. Acceleration in the event of falling behind
6. Partial possession

Question 20

How would you deal with EOT or L&E in cashflows?

Answer 20

When EOT is granted cashflow should be updated to reflect new completion date

L&E should be reported at the earliest opportunity (if it hasnt been agreed yet I would let the client know about the accuracy of the cash flow and provide them with best and worst case assessment so the client understands their potential liability

Question 21

How accurate was the stage 3 cashflow you prepared against the contractors?

Answer 21

It was similar and spread across them same time period and showed and S curve