CHAPTER TWO: CASH FLOW CALCULATIONS 2.1. Derivation of contract Cost/Expense curve Calculate/allocate the activities’ weekly cost. Sum up the activities’ weekly cost. Adjust costs for referred payment to get actual expenses. Cumulate expenses to get expense versus time curve. 2.2. Derivation of contract Net Cash Flow curve Contract net cash flow = Cash-in — Cash-out • = Income — Expense

CHAPTER TWO: CASH FLOW CALCULATIONS Example 2.1 The activities involved in the construction of a certain project as well as the value of work for each activity are presented in the following table. Assuming that: Mark-up is uniformly distributed over the contract Advanced payment = 10% Retention = 5% Labor cost = 30% of costs and is paid 1 week delayed Other costs could be delayed for 1 month Revenue is received after 1 month from issuing invoices.

CHAPTER TWO: CASH FLOW CALCULATIONS Activity Duration (weeks) Preceding activity Overlap Value (LE) A B C D E F G H I J 5 4 6 3 2 -- A A A B B, C D E F, G H, I -1 1 2with G 3000 2000 15000 25000 16000 18000 8000 9000 4000

CHAPTER TWO: CASH FLOW CALCULATIONS A.For activities scheduled on their early starts timing, draw the following: Revenue and income curves Cost and expense curves Contract cumulative expense & income curves Contract net cash flow curve. A.Determine the effect of scheduling the activities on their late starts timing over the net cash flow.

CHAPTER TWO: CASH FLOW CALCULATIONS

CHAPTER TWO: CASH FLOW CALCULATIONS Bar Chart / Early Starts Timing

CHAPTER TWO: CASH FLOW CALCULATIONS

CHAPTER TWO: CASH FLOW CALCULATIONS

CHAPTER TWO: CASH FLOW CALCULATIONS Contract Revenue & Income Curves Early Starts Timing

CHAPTER TWO: CASH FLOW CALCULATIONS Contract Cost & Expense Curves Early Starts Timing

CHAPTER TWO: CASH FLOW CALCULATIONS Contract Expense & Income Curves Early Starts Timing

CHAPTER TWO: CASH FLOW CALCULATIONS Bar Chart / Late Starts Timing

CHAPTER TWO: CASH FLOW CALCULATIONS

CHAPTER TWO: CASH FLOW CALCULATIONS

CHAPTER TWO: CASH FLOW CALCULATIONS Contract Net Cash Flow Curves Early & Late Starts Timing

CHAPTER TWO: CASH FLOW CALCULATIONS 2.3 Minimizing contractor’s negative cash flow Factors for minimizing the contractor’ negative cash flow Front end loading of rates, (it is so risky to upload early items in the BOQ by a higher mark- up than later item) Increasing mobilization and advanced payment values. Negotiation for reduction of delays in receiving revenue. Negotiation for reducing retention percentage, (negotiation for the acceptance of replacing retention by L.G. could also be considered) Quick settlement of claims (for work changes and delays). Referred payment agreements, (specially for material suppliers, plant hirers and subcontractors)

CHAPTER TWO: CASH FLOW CALCULATIONS Coinciding the timing of delivery of large material orders with the submittal of the contractor’s monthly pay estimate. (negotiation for the acceptance of considering a % of delivered material in payments estimate) Achievement of maximum production in the field. Adjustment of work schedule to late start timing. (Less enhancement may be achieved as revenue will also be delayed accordingly)

CHAPTER TWO: CASH FLOW CALCULATIONS 2.3.1 Calculation of Financial Charges The cash invested in the contract is represented by the negative area (A) between the Expense & Income cumulative curves:

CHAPTER TWO: CASH FLOW CALCULATIONS • Financial charges; (cost of borrowing cash) could be calculated based upon the area (LE.Week) & borrowing interest rate as follow: Financial charges = A × r/52 Where: A = -Ve area between Expense & Income Cum. Curves = LE. Week • = LE.Week r = simple interest rate for borrowing cash/year