How Project Managers Can Increase Cash Flow - Electric West Show 2007 D. Brown Management

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Inadequate cash flow kills more construction businesses than poor profitability.

Learn techniques from startup through project close-out that can be used to improve cash flow and profitability. These ideas are all based on real-world experience and projects.
This paper and session is geared towards anyone directly involved in the management of projects, PM’s, or financial managers, and will include worksheets and ideas that can be put to use immediately in your business.

Published in: Economy & Finance, Business

How Project Managers Can Increase Cash Flow - Electric West Show 2007 D. Brown Management

  1. 1. How Project Managers Can Increase Cash Flow
  2. 2. 14 CONTRACTORS Will Fail Before I’m Done Talking
  3. 3. About David <ul><li>In industry since 1988 </li></ul><ul><li>Apprentice, electrician, superintendent, project management, executive </li></ul><ul><li>Stints with GC and CPA </li></ul><ul><li>Projects from service calls through $20M design & build </li></ul><ul><ul><li>I love construction! </li></ul></ul>www.dbrownmanagement.com © 2006 by D. Brown Management /34 Field | Management | Consulting
  4. 4. CA$H FLOW OUT IN MONEY FLOWING IN AND OUT OVER TIME /34
  5. 5. Cash Flow Graph Project Start-Up Labor, Material, Equipment Little Or Minimal Billings /34 Project Start-Up PROJECT DURATION ZERO CASH UTILIZATION
  6. 6. Cash Flow Graph This is the point where you start to get billings out /34 Initial Billings & Cash Receipts PROJECT DURATION ZERO CASH UTILIZATION
  7. 7. Cash Flow Graph Waiting on cash from customer to catch up /34 Cash Catching Up PROJECT DURATION ZERO CASH UTILIZATION
  8. 8. Cash Flow Graph BREAK EVEN The point where cash received equals cash spent /34 Break Even – FINALLY! PROJECT DURATION ZERO CASH UTILIZATION
  9. 9. Cash Flow Graph CREDIT LINE USED The shorter time - The better /34 Getting By Until Break-Even PROJECT DURATION ZERO CASH UTILIZATION
  10. 10. Cash Flow Graph Working on customer’s money until the end /34 Working On Customer’s Money PROJECT DURATION ZERO CASH UTILIZATION
  11. 11. Cash Flow Graph GROSS MARGIN What’s left when it’s over /34 Cash Flow = Profit Margin PROJECT DURATION ZERO CASH UTILIZATION
  12. 12. Looking At A Typical Project Costs & Cash www.dbrownmanagement.com
  13. 13. Cash Flow Graph – Project Level Needs $45,000 In Capitol www.dbrownmanagement.com www.dbrownmanagement.com /34
  14. 14. Cash Flow Graph – Company Level Needs Almost $50,000 For Months www.dbrownmanagement.com www.dbrownmanagement.com /34
  15. 15. Why Cash Flow Matters? Survival | Stability | Growth www.dbrownmanagement.com © 2006 by D. Brown Management /34
  16. 16. <ul><li>It is IMPOSSIBLE to have good cash flow without good profitability </li></ul>Myth #1 – Cash Flow ≠ Profitability Theory & Reality Are Different www.dbrownmanagement.com © 2006 by D. Brown Management /34
  17. 17. Myth #2 – Finance People Manage Cash Flow Do Firefighters Manage Fires? www.dbrownmanagement.com © 2006 by D. Brown Management /34
  18. 18. Kaizen – Improving Cash Flow 1 Detail At A Time
  19. 19. 1. Relationships Are EVERYTHING! People In Your Cash Flow Process www.dbrownmanagement.com © 2006 by D. Brown Management /34
  20. 20. 1. Relationships Are EVERYTHING! <ul><li>Project Engineer </li></ul><ul><li>Inspector </li></ul><ul><li>Owner’s Representative </li></ul><ul><li>A/P Person </li></ul><ul><li>Compliance Officer </li></ul><ul><li>Subcontractor Payroll / Contracts & A/R </li></ul><ul><li>Get contact info for everyone and start the relationships </li></ul><ul><li>Introductory letter to all parties </li></ul><ul><li>Help your subs / vendors with their certified payroll </li></ul><ul><li>Make your formats match your customer’s as closely as possible </li></ul>Relationship Management Ideas WHO? WHAT CAN YOU DO? www.dbrownmanagement.com © 2006 by D. Brown Management /34
  21. 21. 2. Flowchart Project Cash Flow Processes Look For Ways To Improve Them… www.dbrownmanagement.com © 2006 by D. Brown Management /34
  22. 22. 3. Billing Format / Schedule of Values Loading | Format | Integration www.dbrownmanagement.com © 2006 by D. Brown Management /34
  23. 23. 4. Subcontractor / Vendor Pay Schedules Carrots & Hammers = Cash Flow www.dbrownmanagement.com © 2006 by D. Brown Management /34
  24. 24. 5. Managing The Schedule Watch Your Manpower Requirements www.dbrownmanagement.com © 2006 by D. Brown Management /34
  25. 25. 6. Submittals & The Close-Out Process <ul><li>Build submittals into billing format & get them done quickly! </li></ul><ul><li>Build major buyout into billing format – order as soon as possible </li></ul><ul><li>Set framework for and do most of the close-out process as early as possible </li></ul>The Power Of The Submittal Log www.dbrownmanagement.com © 2006 by D. Brown Management /34
  26. 26. 7. Improve Change Order Processing Time <ul><li>Use project pre-planning to identify changes before you start </li></ul><ul><li>Get to know everyone involved in approving your change requests </li></ul><ul><li>Find out exactly what the specified change processing time is </li></ul><ul><li>If a time isn’t specified in the contract try to insert your own clause </li></ul><ul><li>Setup a change request as soon as you THINK there may be an issue </li></ul><ul><li>Make pricing change orders a top priority in the company </li></ul><ul><li>Manage all your documents electronically </li></ul><ul><li>Attach all supporting documents to your change request in one PDF </li></ul><ul><li>Make sure your backup format meets the contract requirements </li></ul><ul><li>Build your change request format to match the customer’s </li></ul><ul><li>Get change requests on billing format as soon as they are submitted </li></ul>Custom Issues | Logs | COR’s www.dbrownmanagement.com © 2006 by D. Brown Management /34
  27. 27. The Cost Of Problems www.dbrownmanagement.com © 2004 by D. Brown Management /34 Early Detection Is Best
  28. 28. 8. Compliance Documents <ul><li>Insurance certificates </li></ul><ul><li>Certified payroll </li></ul><ul><li>Fringe benefit statements </li></ul><ul><li>Lien releases </li></ul><ul><li>Daily reports </li></ul><ul><li>Safety meetings </li></ul><ul><li>Incident reports </li></ul>Don’t Let Them Stop Payments www.dbrownmanagement.com © 2006 by D. Brown Management /34
  29. 29. 9. Punch Early – Punch Often <ul><li>Don’t wait until the end </li></ul><ul><li>Make your own punch list </li></ul><ul><li>Make a list every few hundred man hours </li></ul><ul><li>Note areas where others are impacting your work </li></ul><ul><li>Resolve punch list items fast </li></ul>Don’t Let It Hold Your Retention www.dbrownmanagement.com © 2006 by D. Brown Management /34
  30. 30. 10. The Close-Out Process <ul><li>O&M manuals </li></ul><ul><li>Spare parts </li></ul><ul><li>As-built drawings </li></ul><ul><li>Test reports </li></ul><ul><li>System training </li></ul>Don’t Let The Last 5% Cost You 20% www.dbrownmanagement.com © 2006 by D. Brown Management /34
  31. 31. 11. Projecting Cash Flow Involve Project Managers
  32. 32. 12. BONUS – The Cash Flow Game <ul><li>Recognize that almost everyone has an effect on cash flow </li></ul><ul><li>Train them on the financial basics and how they can improve cash flow </li></ul><ul><li>Brainstorm ways to improve cash flow on a regular basis </li></ul><ul><li>Discuss over / under billings candidly at regular meetings </li></ul><ul><li>Hold PM’s accountable for A/R problems </li></ul>Engage The Project Managers www.dbrownmanagement.com © 2006 by D. Brown Management /34
  33. 33. Don’t Forget Human Nature <ul><li>“ People don’t do what you EXPECT , they do what you INSPECT .” </li></ul><ul><li>– Lou Gerstner, Ex-CEO of IBM </li></ul>It’s All About People www.dbrownmanagement.com © 2006 by D. Brown Management /34
  34. 34. /34 Q&A Give Me Your Business Card To Download Slides & Excel Files

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