How Project Managers Can Increase Cash Flow

14 CONTRACTORS Will Fail Before I’m Done Talking

About David In industry since 1988 Apprentice, electrician, superintendent, project management, executive Stints with GC and CPA Projects from service calls through $20M design & build I love construction! www.dbrownmanagement.com © 2006 by D. Brown Management /34 Field | Management | Consulting

In industry since 1988

Apprentice, electrician, superintendent, project management, executive

Stints with GC and CPA

Projects from service calls through $20M design & build

I love construction!

CA$H FLOW OUT IN MONEY FLOWING IN AND OUT OVER TIME /34

Cash Flow Graph Project Start-Up Labor, Material, Equipment Little Or Minimal Billings /34 Project Start-Up PROJECT DURATION ZERO CASH UTILIZATION

Cash Flow Graph This is the point where you start to get billings out /34 Initial Billings & Cash Receipts PROJECT DURATION ZERO CASH UTILIZATION

Cash Flow Graph Waiting on cash from customer to catch up /34 Cash Catching Up PROJECT DURATION ZERO CASH UTILIZATION

Cash Flow Graph BREAK EVEN The point where cash received equals cash spent /34 Break Even – FINALLY! PROJECT DURATION ZERO CASH UTILIZATION

Cash Flow Graph CREDIT LINE USED The shorter time - The better /34 Getting By Until Break-Even PROJECT DURATION ZERO CASH UTILIZATION

Cash Flow Graph Working on customer’s money until the end /34 Working On Customer’s Money PROJECT DURATION ZERO CASH UTILIZATION

Cash Flow Graph GROSS MARGIN What’s left when it’s over /34 Cash Flow = Profit Margin PROJECT DURATION ZERO CASH UTILIZATION

Looking At A Typical Project Costs & Cash www.dbrownmanagement.com

Cash Flow Graph – Project Level Needs $45,000 In Capitol www.dbrownmanagement.com www.dbrownmanagement.com /34

Cash Flow Graph – Company Level Needs Almost $50,000 For Months www.dbrownmanagement.com www.dbrownmanagement.com /34

Why Cash Flow Matters? Survival | Stability | Growth www.dbrownmanagement.com © 2006 by D. Brown Management /34

It is IMPOSSIBLE to have good cash flow without good profitability Myth #1 – Cash Flow ≠ Profitability Theory & Reality Are Different www.dbrownmanagement.com © 2006 by D. Brown Management /34

It is IMPOSSIBLE to have good cash flow without good profitability

Myth #2 – Finance People Manage Cash Flow Do Firefighters Manage Fires? www.dbrownmanagement.com © 2006 by D. Brown Management /34

Kaizen – Improving Cash Flow 1 Detail At A Time

1. Relationships Are EVERYTHING! People In Your Cash Flow Process www.dbrownmanagement.com © 2006 by D. Brown Management /34

1. Relationships Are EVERYTHING! Project Engineer Inspector Owner’s Representative A/P Person Compliance Officer Subcontractor Payroll / Contracts & A/R Get contact info for everyone and start the relationships Introductory letter to all parties Help your subs / vendors with their certified payroll Make your formats match your customer’s as closely as possible Relationship Management Ideas WHO? WHAT CAN YOU DO? www.dbrownmanagement.com © 2006 by D. Brown Management /34

Project Engineer

Inspector

Owner’s Representative

A/P Person

Compliance Officer

Subcontractor Payroll / Contracts & A/R

Get contact info for everyone and start the relationships

Introductory letter to all parties

Help your subs / vendors with their certified payroll

Make your formats match your customer’s as closely as possible

2. Flowchart Project Cash Flow Processes Look For Ways To Improve Them… www.dbrownmanagement.com © 2006 by D. Brown Management /34

3. Billing Format / Schedule of Values Loading | Format | Integration www.dbrownmanagement.com © 2006 by D. Brown Management /34

4. Subcontractor / Vendor Pay Schedules Carrots & Hammers = Cash Flow www.dbrownmanagement.com © 2006 by D. Brown Management /34

5. Managing The Schedule Watch Your Manpower Requirements www.dbrownmanagement.com © 2006 by D. Brown Management /34

6. Submittals & The Close-Out Process Build submittals into billing format & get them done quickly! Build major buyout into billing format – order as soon as possible Set framework for and do most of the close-out process as early as possible The Power Of The Submittal Log www.dbrownmanagement.com © 2006 by D. Brown Management /34

Build submittals into billing format & get them done quickly!

Build major buyout into billing format – order as soon as possible

Set framework for and do most of the close-out process as early as possible

7. Improve Change Order Processing Time Use project pre-planning to identify changes before you start Get to know everyone involved in approving your change requests Find out exactly what the specified change processing time is If a time isn’t specified in the contract try to insert your own clause Setup a change request as soon as you THINK there may be an issue Make pricing change orders a top priority in the company Manage all your documents electronically Attach all supporting documents to your change request in one PDF Make sure your backup format meets the contract requirements Build your change request format to match the customer’s Get change requests on billing format as soon as they are submitted Custom Issues | Logs | COR’s www.dbrownmanagement.com © 2006 by D. Brown Management /34

Use project pre-planning to identify changes before you start

Get to know everyone involved in approving your change requests

Find out exactly what the specified change processing time is

If a time isn’t specified in the contract try to insert your own clause

Setup a change request as soon as you THINK there may be an issue

Make pricing change orders a top priority in the company

Manage all your documents electronically

Attach all supporting documents to your change request in one PDF

Make sure your backup format meets the contract requirements

Build your change request format to match the customer’s

Get change requests on billing format as soon as they are submitted

The Cost Of Problems www.dbrownmanagement.com © 2004 by D. Brown Management /34 Early Detection Is Best

8. Compliance Documents Insurance certificates Certified payroll Fringe benefit statements Lien releases Daily reports Safety meetings Incident reports Don’t Let Them Stop Payments www.dbrownmanagement.com © 2006 by D. Brown Management /34

Insurance certificates

Certified payroll

Fringe benefit statements

Lien releases

Daily reports

Safety meetings

Incident reports

9. Punch Early – Punch Often Don’t wait until the end Make your own punch list Make a list every few hundred man hours Note areas where others are impacting your work Resolve punch list items fast Don’t Let It Hold Your Retention www.dbrownmanagement.com © 2006 by D. Brown Management /34

Don’t wait until the end

Make your own punch list

Make a list every few hundred man hours

Note areas where others are impacting your work

Resolve punch list items fast

10. The Close-Out Process O&M manuals Spare parts As-built drawings Test reports System training Don’t Let The Last 5% Cost You 20% www.dbrownmanagement.com © 2006 by D. Brown Management /34

O&M manuals

Spare parts

As-built drawings

Test reports

System training

11. Projecting Cash Flow Involve Project Managers

12. BONUS – The Cash Flow Game Recognize that almost everyone has an effect on cash flow Train them on the financial basics and how they can improve cash flow Brainstorm ways to improve cash flow on a regular basis Discuss over / under billings candidly at regular meetings Hold PM’s accountable for A/R problems Engage The Project Managers www.dbrownmanagement.com © 2006 by D. Brown Management /34

Recognize that almost everyone has an effect on cash flow

Train them on the financial basics and how they can improve cash flow

Brainstorm ways to improve cash flow on a regular basis

Discuss over / under billings candidly at regular meetings

Hold PM’s accountable for A/R problems

Don’t Forget Human Nature “ People don’t do what you EXPECT , they do what you INSPECT .” – Lou Gerstner, Ex-CEO of IBM It’s All About People www.dbrownmanagement.com © 2006 by D. Brown Management /34

“ People don’t do what you EXPECT , they do what you INSPECT .”

– Lou Gerstner, Ex-CEO of IBM

/34 Q&A Give Me Your Business Card To Download Slides & Excel Files