This document discusses cash flow management for large infrastructure projects in India. It notes that infrastructure projects require huge capital investments but often face delays and cost overruns. An effective cash flow management model is needed to precisely predict capital outflows and optimize the use of funds over time. The document proposes a mathematical model for rolling, flexible cash flow management that provides a practical solution to minimize capital costs and optimize cash flows on a monthly basis.
Investigating the Factors Affecting Delays in Infrastructure ProjectsDr. Amarjeet Singh
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Time and expense overruns are regular occurrences in the construction industry all around the world but these are a major concern in developing countries such as India, and their consequences can be extremely harmful when public infrastructure projects are concerned. In India as per the MoS & PI report, as of October 2019, there were 552 delayed construction projects, and the mean time overrun in these 552 delayed projects is29.07 months. Many studies in the literature review previously, have concentrated on a variety of infrastructure risk management issues but there have only been a few studies that have looked into the overall dynamics of infrastructure and how a project's timeline can be affected by changing risk interactions. This article aids in the investigation of the variables and causes of construction delays in infrastructure projects.
The alarming rate of project delays in this country needs urgent attention and resolution as one project delay leads to another therefore affecting the growth of any economy or profit-making organization. This alarming rate would possibly go out of oneโs hand if strategies are not put in place to curb these phenomena. The Objectives of this research is to critically identify and evaluate the setbacks or factors causing delays in completing projects on time and its effect. The study narrowed its arrows on Prime Ghana projects executed in the country and it was thus conducted with the usage of questionnaires to solicit for the required data for processing. Results from the study divulge that the actual sources of delays in project delivery are; Inadequate financial resources of clients, delays in honoring payment for work done, underestimation of project duration, poor communication between contracting parties, complexity, difficulties in accessing bank credit (client); change orders during construction and others. It was recommended that, initial proper planning and controlling is essential to the client to have proper action plan, procurement plan, and budget plan prepared before commencement of project. Payment schedule must be agreed by the parties involved. On the part of the contractor adequate knowledge of project management, principles, tools and techniques is required to reduce delays. Consultants must plan very well to ensure that contract processes are duly followed, thus approval of drawings, documentation, and other things to reduce variation during construction. They should monitor their assigned work very well by insisting that corrections are done at the appropriate time to reduce or avoid rework.
Financing Small Scale Contractors through Mobilization Advance Payments for I...IJERA Editor
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The construction industry plays an important role in any economy, and its activities are vital to the achievement
of the socio-economic development goals of a nation.
In Ghana, the construction and housing industry plays an immeasurable role in the national developmental
agenda. What however, appears to be debatable is whether the industry wields the much expected driving force
required to pronounce its vital contribution towards accelerated national growth in terms of infrastructural
development. This paper assesses the extent to which Mobilization Advance Payment (MAP) contribute to the
output of small scale contractors in the Tamale metropolis. Thirty (30) construction firms, fifteen (15)
consultancy firms and fifteen (15) financial institutions were surveyed, and Chi-Squared (X2) test at ฮฑ=0.05was
run on responses using SPSS. The study revealed that 49% of key stakeholders in the construction industry in
the Tamale metropolis see mobilization advance payment from clients as the most accessible and affordable
form of construction financing. This was closely followed by Banks/Saving & Loans (regulated financial
institution) with 43%, and 8% for non-regulated financial institutions. A significantly high number of
consultants (60%) agreed that mobilization advance payment is the most accessible and affordable form of
construction financing. The Chi-Squared (X2) Test on MAP and contractors performance also revealed an X2
statistic of โ0.711 for a degrees of freedom of 4 which means that MAP arrangements for contractors contribute
significantly to their output.
Regrettable though, the misappropriation or misuse of such funds by some contractors has resulted in
difficulties in accessing mobilization advance payments even by genuine contractors in dire need of working
capital. Abandoned projects, delay in project delivery, cost overruns and employment of unqualified personnel
among others result from the unavailability of this accessible and affordable form of construction financing.
This adversely affects the performance of contractors and the overall project success. It was strongly
recommended that clients strive to make mobilization advance payments available and easily accessible to
contractors to enhance their performance.
PUBLIC SECTOR PROJECT MANAGEMENT PLANNING AND EFFICIENCY PROBLEMS Emils Pulmanis
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Third International Scientific Conference on Project management in the Baltic Countries โProject Management DevelopmentโPractice and Perspectivesโ: Riga, Latvia,April 10-11,2014. Conference Proceedings. Riga: University of Latvia, 2014,337p. ISBN 978-9984-49-470-8
IJRET : International Journal of Research in Engineering and Technology is an international peer reviewed, online journal published by eSAT Publishing House for the enhancement of research in various disciplines of Engineering and Technology. The aim and scope of the journal is to provide an academic medium and an important reference for the advancement and dissemination of research results that support high-level learning, teaching and research in the fields of Engineering and Technology. We bring together Scientists, Academician, Field Engineers, Scholars and Students of related fields of Engineering and Technology
Investigating the Factors Affecting Delays in Infrastructure ProjectsDr. Amarjeet Singh
ย
Time and expense overruns are regular occurrences in the construction industry all around the world but these are a major concern in developing countries such as India, and their consequences can be extremely harmful when public infrastructure projects are concerned. In India as per the MoS & PI report, as of October 2019, there were 552 delayed construction projects, and the mean time overrun in these 552 delayed projects is29.07 months. Many studies in the literature review previously, have concentrated on a variety of infrastructure risk management issues but there have only been a few studies that have looked into the overall dynamics of infrastructure and how a project's timeline can be affected by changing risk interactions. This article aids in the investigation of the variables and causes of construction delays in infrastructure projects.
The alarming rate of project delays in this country needs urgent attention and resolution as one project delay leads to another therefore affecting the growth of any economy or profit-making organization. This alarming rate would possibly go out of oneโs hand if strategies are not put in place to curb these phenomena. The Objectives of this research is to critically identify and evaluate the setbacks or factors causing delays in completing projects on time and its effect. The study narrowed its arrows on Prime Ghana projects executed in the country and it was thus conducted with the usage of questionnaires to solicit for the required data for processing. Results from the study divulge that the actual sources of delays in project delivery are; Inadequate financial resources of clients, delays in honoring payment for work done, underestimation of project duration, poor communication between contracting parties, complexity, difficulties in accessing bank credit (client); change orders during construction and others. It was recommended that, initial proper planning and controlling is essential to the client to have proper action plan, procurement plan, and budget plan prepared before commencement of project. Payment schedule must be agreed by the parties involved. On the part of the contractor adequate knowledge of project management, principles, tools and techniques is required to reduce delays. Consultants must plan very well to ensure that contract processes are duly followed, thus approval of drawings, documentation, and other things to reduce variation during construction. They should monitor their assigned work very well by insisting that corrections are done at the appropriate time to reduce or avoid rework.
Financing Small Scale Contractors through Mobilization Advance Payments for I...IJERA Editor
ย
The construction industry plays an important role in any economy, and its activities are vital to the achievement
of the socio-economic development goals of a nation.
In Ghana, the construction and housing industry plays an immeasurable role in the national developmental
agenda. What however, appears to be debatable is whether the industry wields the much expected driving force
required to pronounce its vital contribution towards accelerated national growth in terms of infrastructural
development. This paper assesses the extent to which Mobilization Advance Payment (MAP) contribute to the
output of small scale contractors in the Tamale metropolis. Thirty (30) construction firms, fifteen (15)
consultancy firms and fifteen (15) financial institutions were surveyed, and Chi-Squared (X2) test at ฮฑ=0.05was
run on responses using SPSS. The study revealed that 49% of key stakeholders in the construction industry in
the Tamale metropolis see mobilization advance payment from clients as the most accessible and affordable
form of construction financing. This was closely followed by Banks/Saving & Loans (regulated financial
institution) with 43%, and 8% for non-regulated financial institutions. A significantly high number of
consultants (60%) agreed that mobilization advance payment is the most accessible and affordable form of
construction financing. The Chi-Squared (X2) Test on MAP and contractors performance also revealed an X2
statistic of โ0.711 for a degrees of freedom of 4 which means that MAP arrangements for contractors contribute
significantly to their output.
Regrettable though, the misappropriation or misuse of such funds by some contractors has resulted in
difficulties in accessing mobilization advance payments even by genuine contractors in dire need of working
capital. Abandoned projects, delay in project delivery, cost overruns and employment of unqualified personnel
among others result from the unavailability of this accessible and affordable form of construction financing.
This adversely affects the performance of contractors and the overall project success. It was strongly
recommended that clients strive to make mobilization advance payments available and easily accessible to
contractors to enhance their performance.
PUBLIC SECTOR PROJECT MANAGEMENT PLANNING AND EFFICIENCY PROBLEMS Emils Pulmanis
ย
Third International Scientific Conference on Project management in the Baltic Countries โProject Management DevelopmentโPractice and Perspectivesโ: Riga, Latvia,April 10-11,2014. Conference Proceedings. Riga: University of Latvia, 2014,337p. ISBN 978-9984-49-470-8
IJRET : International Journal of Research in Engineering and Technology is an international peer reviewed, online journal published by eSAT Publishing House for the enhancement of research in various disciplines of Engineering and Technology. The aim and scope of the journal is to provide an academic medium and an important reference for the advancement and dissemination of research results that support high-level learning, teaching and research in the fields of Engineering and Technology. We bring together Scientists, Academician, Field Engineers, Scholars and Students of related fields of Engineering and Technology
A Review of Cost overruns in Construction Project Managementijsrd.com
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In construction industry cost is amongst the major considerations throughout the project management life cycle and thus can be regarded as one of the most important parameter of a project and the driving force of project success. Despite of its proven importance it is not uncommon to see a construction project failing to achieve its objectives within the specified cost. Cost overrun is a very frequent phenomenon and is almost associated with nearly all projects in the construction industry. In this paper different type of cost are enlisted and due to the effect of cost overruns enumerated in building projects. Effects Cost overruns are decrease in the building projects so, different methods are used the analysis cost overruns factors and give the top ten ranks.
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Development projects undertaken in various sectors of economy and finance are building blocks of
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16 different project performance parameters applied on 49 construction projects (both public and private sector
projects). A questionnaire was drafted to test the parameters and criteria adopted when assessing the success of construction projects. The results shows that for general group of construction projects all 16 parameters have significant impact on cost growth.
Delay Analysis of Projects and Effects of Delays in the Mining/Manufacturing ...iosrjce
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IOSR Journal of Mechanical and Civil Engineering (IOSR-JMCE) is a double blind peer reviewed International Journal that provides rapid publication (within a month) of articles in all areas of mechanical and civil engineering and its applications. The journal welcomes publications of high quality papers on theoretical developments and practical applications in mechanical and civil engineering. Original research papers, state-of-the-art reviews, and high quality technical notes are invited for publications.
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Abstract The time and cost for performance of a project are usually important to the employer and contractor. About 57% of Indian construction projects are experiencing time overrun. These time overruns always contributed as expensive to all parties. This paper highlights the types of construction delays due to which project suffer time and cost overrun. Construction delay is considered to be one of the recurring problems in the construction industry and it has an adverse effect on project success in terms of time, cost and quality. The construction industry is the tool through which a society achieves its goal of urban and rural development. It is one of the sectors that provides important ingredient for the development of an economy. This paper studies external and internal factors that influence the construction process and outlines the effect of delay in large construction projects. Various media reports shows incidents of extended delays and extensive cost overruns in infrastructure projects. These delayed projects are further can conclude additional delays and this affects an ongoing projects and also new projects which could not be started due to pending projects whose completion date already elongated. Realizing the density of matter this paper studies the performance of previous year 2012 ongoing and also completed projects. These projects are from around 17 various central sectors costing Rs. 1000 crore and above (Mega Projects). Keywords: Delays, Time overrun, Cost overrun, Megaprojects etc
Cost Overrun Causes Related to the Design Phase in the Egyptian Construction ...World-Academic Journal
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Cost overrun is one of the most common problems that threaten any construction project. As the Design phase is responsible for many critical decisions, many of cost overrun causes are related to such phase. This paper aims to identify the most significant causes of cost overrun related to the design phase in the Egyptian construction industry from the point of view of owners, consultant, designers, project managers and contractors. A list of cost overrun causes related to the design phase collected through an extensive literature review, main causes were adapted to the Egyptian construction industry through seven semi-structured interviews. The resultant list was submitted to a questionnaire survey for the impact and frequency quantitative evaluation. the results of the research is expected to help the participants in the design phase to develop more optimized design and avoid the most usual flaws that could led to cost overruns.
Infrastructure plays a vital role in ensuring a sustained growth trajectory for India, it is imperative that we identify the core issues affecting completion of infrastructure projects in India and chalk out initiatives that need to be acted upon in short term as well as long term. This study attempts to identify these pertinent issues.
A Review of Cost overruns in Construction Project Managementijsrd.com
ย
In construction industry cost is amongst the major considerations throughout the project management life cycle and thus can be regarded as one of the most important parameter of a project and the driving force of project success. Despite of its proven importance it is not uncommon to see a construction project failing to achieve its objectives within the specified cost. Cost overrun is a very frequent phenomenon and is almost associated with nearly all projects in the construction industry. In this paper different type of cost are enlisted and due to the effect of cost overruns enumerated in building projects. Effects Cost overruns are decrease in the building projects so, different methods are used the analysis cost overruns factors and give the top ten ranks.
โInvestigation of Time-Cost Effectiveness on Construction ProjectsโIOSR Journals
ย
Development projects undertaken in various sectors of economy and finance are building blocks of
national economy. This paper examines the time-cost effectiveness on construction projects by quantification of
16 different project performance parameters applied on 49 construction projects (both public and private sector
projects). A questionnaire was drafted to test the parameters and criteria adopted when assessing the success of construction projects. The results shows that for general group of construction projects all 16 parameters have significant impact on cost growth.
Delay Analysis of Projects and Effects of Delays in the Mining/Manufacturing ...iosrjce
ย
IOSR Journal of Mechanical and Civil Engineering (IOSR-JMCE) is a double blind peer reviewed International Journal that provides rapid publication (within a month) of articles in all areas of mechanical and civil engineering and its applications. The journal welcomes publications of high quality papers on theoretical developments and practical applications in mechanical and civil engineering. Original research papers, state-of-the-art reviews, and high quality technical notes are invited for publications.
Effect of construction delays on project time overruneSAT Journals
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Abstract The time and cost for performance of a project are usually important to the employer and contractor. About 57% of Indian construction projects are experiencing time overrun. These time overruns always contributed as expensive to all parties. This paper highlights the types of construction delays due to which project suffer time and cost overrun. Construction delay is considered to be one of the recurring problems in the construction industry and it has an adverse effect on project success in terms of time, cost and quality. The construction industry is the tool through which a society achieves its goal of urban and rural development. It is one of the sectors that provides important ingredient for the development of an economy. This paper studies external and internal factors that influence the construction process and outlines the effect of delay in large construction projects. Various media reports shows incidents of extended delays and extensive cost overruns in infrastructure projects. These delayed projects are further can conclude additional delays and this affects an ongoing projects and also new projects which could not be started due to pending projects whose completion date already elongated. Realizing the density of matter this paper studies the performance of previous year 2012 ongoing and also completed projects. These projects are from around 17 various central sectors costing Rs. 1000 crore and above (Mega Projects). Keywords: Delays, Time overrun, Cost overrun, Megaprojects etc
Cost Overrun Causes Related to the Design Phase in the Egyptian Construction ...World-Academic Journal
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Cost overrun is one of the most common problems that threaten any construction project. As the Design phase is responsible for many critical decisions, many of cost overrun causes are related to such phase. This paper aims to identify the most significant causes of cost overrun related to the design phase in the Egyptian construction industry from the point of view of owners, consultant, designers, project managers and contractors. A list of cost overrun causes related to the design phase collected through an extensive literature review, main causes were adapted to the Egyptian construction industry through seven semi-structured interviews. The resultant list was submitted to a questionnaire survey for the impact and frequency quantitative evaluation. the results of the research is expected to help the participants in the design phase to develop more optimized design and avoid the most usual flaws that could led to cost overruns.
Infrastructure plays a vital role in ensuring a sustained growth trajectory for India, it is imperative that we identify the core issues affecting completion of infrastructure projects in India and chalk out initiatives that need to be acted upon in short term as well as long term. This study attempts to identify these pertinent issues.
Projects are activities taken up by organizations large and small, public and private, government
and non-government to execute their near and future term goals. Project is defined as a set of tasks taken up to
achieve a predefined end result within a predefined time, scope and budget. Our country has witnessed
tremendous growth in infrastructure and industrial sector in the last two decades. The study aims to review the
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over a period of time through the above methods
Projects are activities taken up by organizations large and small, public and private, government
and non-government to execute their near and future term goals. Project is defined as a set of tasks taken up to
achieve a predefined end result within a predefined time, scope and budget. Our country has witnessed
tremendous growth in infrastructure
The paper on real estate development is based on cost analysis and revenue generation of United World Trade Centre, Tripureshwor under land-lease agreement with T.U., Nepal
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Tata Group Dials Taiwan for Its Chipmaking Ambition in Gujaratโs Dholera
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Asim prasad
1. Page 1 of 12
Sustainable Mathematical Model for Cash Flow Management for
Large Infrastructure Projects
Asim Prasad
B.Tech IIT Kanpur, Post Graduate Diploma in Project Management, MBA
Chief Manager, GAIL India Ltd., Bhikaji Cama Place New Delhi, India
I. Abstract
Large Infrastructure Projects are Capital Intensive, have long gestation periods and requires huge
capital for its successful completion. India being a developing country, large number of
infrastructure projects is being undertaken by the government, semi government and private
agencies to speed up development. These projects cater the basic needs of the populace living in
rural or urban India. Some of these projects require more financial resources than others which
have limited amount of financial resources for the project disposal. Most of these projects are
executed amid challenges in the remote environment which are beyond the control of the project
executing agencies. Such challenges lead to risks which if not identified and managed properly,
results in time and cost overrun.
Seldom is large infrastructure projects executed on equity capital alone. The cost of capital goes
to decide the cost at which the end-user will finally avail services after the projectโs commercial
operation starts. Since most of the projects involve both equity and debt, managing cash outflows
efficiently is not only difficult but also an intricate process. This paper discusses a mathematical
model for cash flow management in infrastructure projects which has been applied successfully
for number of projects under concurrent execution. The key features of the methodology are that
it is rolling, flexible, zero based and participatory in nature. The methodology provides a practical
workable solution to precisely predict and manage cash outflows efficiently, thus optimizing the
capital outflow on month to month basis.
Key Words
Open System Theory, Operating Environment, Remote Environment, Schedule Physical
Progress, Schedule Financial Progress, Incremental schedule progress
II. Introduction
Projects are conceptualized, formulated and executed to derive tangible and intangible benefits to
meet the needs and expectations of interested parties, especially the customers and end users.
2. Page 2 of 12
Projects execution follows the principles of Open System theory (Fig.1) due to which the projects
continuously interacts with the surrounding comprising operating and remote environment.
Projects are characterized by its Uniqueness, Complexity, Dynamism, Diversity, Limited
Resources and Risk profile wherein the value of project output justifies the resource invested.
Projects bring beneficial change not only for the organization but also the society and country at
large. As more and more projects are being executed under stiff deadlines, it becomes essential
for project organizations to adopt such monitoring systems which correctly depict the project
physical and financial progress for assessing the project performance on real time basis.
Mathematically project characteristics are depicted as:
Projects Characteristics = f (C
a
,D1
b
,D2
c
,LR
d
,R
e
,U
f
) (1)
Where,
C: Complexity
D1: Dynamism
D2: Diversity
LR: Limited Resource
R: Risk
U: Uniqueness
a,b,c,d,e,f are real numbers greater than zero
Remote Environment
Operating Environment
Input
Output
Constraints
3. Page 3 of 12
Fig 1: Open System Approach
III. Infrastructure Projects in Indian Context
Indian is a developing economy with its populace residing in villages and towns. The citizens are
entitled for such facilities comparable to those available in developed countries which enhance
their living standards. Large numbers of projects are currently undertaken in different sectors
related to infrastructure development. Some of the projects that effects the common populace are
related to water resources, urban development, telecommunications, surface transportation,
railways, power, petroleum, petrochemicals, coal, fertilizer, civil aviation, etc. These projects are
executed either directly by the government agencies or in partnership with private agencies. Once
the project is completed the ownership of commercial operation may be wholly with the
government or in partnership with private agency or wholly with private agency. Under such
commercial operation model, predefined methodology for revenue and profit sharing exists. As
per the report compiled by Ministry of Statistics and Programme Implementation (MoSPI), as on
01.09.2012, 560 numbers of projects in 14 sectors with an original cost of Rs 765,702.99 Crore
were under execution by the central sectors. The latest and anticipated costs of these projects
are Rs 824,894.71 and Rs 883,467.92 Crore respectively. The cumulative expenditure is Rs
412,178.56. Upon commercial operation, these projects will lead to change bringing about
tangible and intangible benefits for the populace and government.
It is seen that, during the course of its execution the projects gets delayed resulting in time and
cost overrun. The cause of such delay is either known or unknown. Even if the cause is known,
the steps undertaken to eliminate the cause of delay or preventive measures adopted to control
such delays are not sufficient enough to completely arrest the delays. Some of the common
reasons for time and cost overrun in infrastructure projects in India are summarized as under:
Time Overrun: Time overrun is defined as difference in actual duration required for project
completion and scheduled duration of project completion considered during project approval. This
duration is measured in days or in months or in years. If the actual duration of project completion
is more than the scheduled duration, the project is delayed. Time overrun occurs due to primary
and secondary reasons. Primary reasons are beyond the control of project executing agencies
and some of them are:
4. Page 4 of 12
i. Time taken to obtain various types of statutory permissions from multifarious
government agencies are more compared to prescribed time limits for such
permissions.
ii. Land acquisition / Right of Way acquisition is often delayed
iii. Law and order problems at project site
iv. Insufficient availability of skilled, semiskilled and unskilled labor force during project
execution
v. Geographical surprise at project site
vi. Non availability / poor quality of infrastructure support and linkages leading to project
site
vii. Change in government law / regulations during project execution
viii. Inadequate availability of funds
Secondary reasons are those that can be controlled to some extent by project executing agencies
and some of them are:
i. Delay in financial closure
ii. Delay in appointment of project consultants
iii. Delay in finalization of detailed engineering document
iv. Delay in tendering / ordering
v. Delay in supply of long lead critical materials
vi. Problem in handling contractual issues during project execution
vii. Problems related to industrial relations
Cost Overrun: Cost overrun is defined as the difference between the actual cost at project
completion and cost estimated during project approval. If the actual cost at project completion is
more than the approved project cost, then there is cost overrun or cost escalation. As time is
money so, time overrun leads to cost overrun. Some of the common reasons for cost overrun
under Indian context are:
i. Increase in land cost
ii. Change is project scope
iii. Increase in taxes / duties
iv. Increase in cost of raw materials / project resources/ inflation
v. Devaluation of rupee
vi. Monopolistic situation during ordering
vii. Cartelization by suppliers / vendors
5. Page 5 of 12
Time and cost overrun not only leads to increase in the cost of the service, but also leads to extra
financial burden on exchanger apart from causing dent in the reputation of project executing
agency. Pace of economic developments is thus retarded.
IV. Project formulation in large infrastructure projects
Infrastructure projects are executed in areas having diversified geography, regional and local
conditions. These are considered during project modeling while the execution methodology,
project detailed plan, risk management plan, work breakdown structure, resource breakdown
structure, risk breakdown structure, responsibility matrix are finalized. The challenge before a
project agency of a large infrastructure project is to precisely identify the risk variables, its
mitigation measure, forecast the incremental physical progress under each work breakdown
structure (WBS) elements and corresponding amount, timing of capital expenditure outflow. Amid
all these, the most important aspect is the cost of service which needs to be optimized through
efficiency in managing these processes while aiming to reduce the interest cost on the capital
employed. Cash flow management for capital expenditure thus becomes very important.
V. Cash flow management
Capital expenditure is one of the most important resources required for building an infrastructure
project. Capital comprises both equity and debt. As capital is scarce, it is available at a cost. The
cost of capital is loaded to the project cost. As such it is important to effectively manage the
capital expenditure inflow and outflow. Cash flow management is defined as the process of
managing capital expenditure in infrastructure projects efficiently with the intent to make available
the required amount of fund when needed, but at the same time optimizing the cost of debt and
equity funds. The methodology of cash flow management involves estimating the cost of
different packages, predicting the timing of cash outflow, securing funds on time, controlling and
monitoring the actual cash outflow, identifying deviations in the cash flow plan and modifying the
baseline plan periodically to synchronize it with the incremental physical progresses so that the
actual cash outflow is within permissible deviation limits. This is a continuous and intricate
process as it requires thorough knowledge of schedule and actual progress, commercial
purchase and work order conditions, schedule for raising vendor, contractor bills, anticipated
amount against each bill and processing time before payment release. Irrespective of the nature
of infrastructure project, this is a standard methodology that can be applied to any type of
infrastructure project.
Cash flow management needs to be managed in such a manner that it adapts to the changing
environment quickly. It also needs to be ensured that sufficient funds are readily available to
6. Page 6 of 12
make payments against bills received, without adversely affecting the delivery of goods and
services.
VI. Steps in Cash Flow Management
Cash flow management is an integral part of project management. Itโs a systematic, long-drawn
and continuous process that starts immediately after the project business case has been
prepared. The cash flow management planning must start once the project charter is handed over
to the project manager. The plan is prepared by synchronizing it with the overall scheduled
physical progress plan. Experience reveals that the overall percentage planned cash outflow lags
the overall percentage scheduled physical progress. This is due to the fact that payments are
made only after completion of work or delivery of material or service by contractors and vendors.
Estimating the net fund flow till the commissioning of the project prior to start of commercial
operation of the project with accuracy is important as it affects the shareholdersโ profits
subsequently during the projectโs commercial operation. Based on experience, the steps required
for efficient cash flow management for large infrastructure projects are detailed below.
1. Identification of cost heads: Large infrastructure projects involve various cost heads
comprising direct cost, indirect cost, hard cost and soft cost. The project cost estimated at
the time of project investment approval is the cost considered in the Detailed Feasibility
Report (DFR). This forms the basis for ascertaining deviations at the time of project
completion.
2. Estimation of cost against each item in the cost head (Table-1) : During the project
investment approval, costs inclusive of taxes and duties, are allocated against each item
under the cost head based on past experience of executing similar projects, market
estimates and cost database. It may so happen that cost of some items are in foreign
currency also. With changes in market conditions, a 20 percent deviation from DFR is
considered reasonable for estimation purpose. Some of the items under cost heads
commonly encountered in infrastructure projects are:
i. Land, survey and statutory permissions
ii. Procurement packages such as raw materials, equipment, and machinery
iii. Work packages for different types of specialized contract works
iv. Project management consultancy and third-party inspection services
v. Ownersโ management expenses such as wages, salary, lodging and boarding of
workers, setting up offices and establishing communication networks
vi. Contingency or management reserve for managing known and unknown risks
Comment [Thakur1]: Pls explain
7. Page 7 of 12
vii. Inflation, interest, margin money for working capital, foreign exchange variation
Table-1
Sl. Cost head Total DFR Cost:
TCi
1. Land, survey and statutory permissions TC1
2. Procurent packages (P1,P2โฆ.Pj) TC2
3. Work Packages(W1,W2โฆ.Wk) TC3
4. Owners Management Expenses TC4
5. Contingency TC5
6. Inflation, Interest on Debt , Margin Money for Working Capital TC6
Total Project Approved DFR Cost(Baseline-0 at Time T0) TACB0
Mathematically,
TACB0 = TCi where i=1 to n; n= total number of cost heads; (2)
The total approved DFR cost=TAC, is a function of time and is dependent on market forces.
3. Calculation of the cash outflow based on DFR cost and anticipated project
schedule for each item(Table-2): Infrastructure projects normally takes 3-5 years to
complete. At the time of project investment approval, the project physical progress
schedule is prepared. This schedule is based on a forecast of how much progress the
project is likely to achieve in each month till its completion. The project manager then
forecasts expenditure against each item considering DFR estimate, based on the
estimated project progress schedule, bills schedule by vendors/contractors, time taken to
process these bills and anticipated bill amounts. The project manager now has the
incremental and total planned expenditure for each month. He/she can also ascertain the
cumulative cash flow in each month as a fraction of approved project cost.
Table-2
Sl. Cost head Total
Cost: TCi
Month -1 Month-N
1. Land, survey and statutory permissions TC1 TC11 TC1N
2. Procurement packages (P1,P2โฆ.Pj) TC2 TC21 TC2N
3. Work Packages(W1,W2โฆ.Wk) TC3 TC31 TC3N
4. Owners Management Expenses TC4 TC41 TC4N
5. Contingency TC5 TC51 TC5N
6. Inflation, Interest on Debt , Margin Money for Working
Capital
TC6 TC61 TC6N
Total Project Approved DFR Cost(Baseline-0 at Time TACB0 TCM1 TCM-N
8. Page 8 of 12
T0)
% Cash Outflow [Basaeline-0] - TCM1/
TACB0
TCM-N/
TACB0
Mathematically,
TACB0 = TCMm where m=1 to N; N= total number of months for project cash outflow (3)
The cash outflow so calculated is the baseline-0 cost outflow based on estimated DFR cost.
4. Calculation of the cash outflow for each item based on actual ordered value and
planned incremental scheduled progress (Table-3): The actual order value differs
from the DFR estimates since orders are placed at a date later than planned. Delays are
common because high value procurement involves lengthy processes with multiple
stakeholders. Hence, it is important to record the actual order value against each item.
Next step in this step is to calculate the planned expenditure against each item and the
total incremental planned expenditure for each month. This method helps in deriving the
cash flow. As the time gap between DFR preparation and ordering is considerable, the
time horizon for this cash flow is indicated by T1. This time horizon starts from the
placement of 1st order and ends when all orders have been placed. The steps are
repeated till all orders are placed.
Expenditure against contingency, inflation, interest, margin money for working capital,
foreign exchange variation is recorded during project capitalization on actual basis.
Table-3
Sl. Cost head Total
Order
value
TOCi
Month -1 Month-N
1. Land, survey and statutory permissions TOC1 TOC11 TC1N
2. Procurement packages (P1,P2โฆ.Pj) TOC2 TOC21 TC2N
3. Work Packages(W1,W2โฆ.Wk) TOC3 TOC31 TC3N
4. Owners Management Expenses TOC4 TOC41 TC4N
5. Contingency TOC5 TOC51 TC5N
6. Inflation, Interest on Debt , Margin Money for Working
Capital
TOC6 TOC61 TC6N
Total Project Ordered Cost(Baseline-1 at Time T1) TOCB1 TOCM1 T0CM-N
% Cash Outflow [Basaeline-1] - TOCM1/
TACB1
T0CM-N/
TACB1
Comment [Thakur2]: Again, donโt
think we can accommodate another
graph/table
9. Page 9 of 12
Mathematically,
TOCB1 = TOCMm where m=1 to N; N= total number of months for project cash outflow;(4)
The cash outflow so calculated is the baseline-1 cost outflow based on order value.
5. Recalculate the cash outflow during project execution based on balance
expenditure and actual physical progress [Table-4]: Infrastructure projects encounter
hurdles due to political, economic, social, technical, legal, and environmental factors.
Therefore, the actual percentage progress varies from the scheduled percentage
progress, which directly affects the actual expenditure outflow. The actual expenditure of a
delayed project will be lesser than the planned expenditure.
In order to ascertain the planned cash outflow of successor months, the balance
expenditure at the end of the current month for all items is calculated. This balance
expenditure is the difference between the actual order value and sum of the payments
made for the items till the previous month. Based on the current progress, commercial
order conditions, the balance expenditure is distributed in the subsequent months. This
way, the forecasted cash outflow is calculated.
This method results in realistic cash outflow against each item for all subsequent months.
For orders placed on fixed cost basis, this monthly process stops when the order value is
exhausted, meaning the entire committed expenditure has been made. However, incase
the actual expenditure overshoots the DFR estimated cost, it means that the project
encounters cost overrun.
Table-4
Sl. Cost head Total Order
value TOCi
Y=Cumu
lative
Expendi
ture till
previou
s month
Z=X-Y
=Balance
Expenditure
till previous
month
1. Land, survey and statutory permissions TOC1 TCE1 Z1=TOC1-
TCE1
2. Procurement packages (P1,P2โฆ.Pj) TOC2 TCE2 Z2=TOC2-
TCE2
3. Work Packages(W1,W2โฆ.Wk) TOC3 TCE3 Z3=TOC3-
TCE3
4. Owners Management Expenses TOC4 TCE4 Z4=TOC4-
10. Page 10 of 12
TCE4
5. Contingency TOC5 TCE5 Z5=TOC5-
TCE5
6. Inflation, Interest on Debt , Margin Money for Working
Capital
TOC6 TCE6 Z6=TOC6-
TCE6
Total Project Ordered Cost TOCB1 TCE Z=TOCB1 -
TCE
% Cash Outflow [Basaeline-2] - TCE/
TOCB1
(TOCB1 โ
TCE)/
TOCB1
The cash outflow so calculated is the baseline-2 cost outflow based on balance expenditure. As
the project progress, on month to month basis the balance expenditure and revised cash flow
are calculated. This continuous process improves the accuracy level of prediction w.r.t.
anticipated expenditure required in subsequent months. Refer Fig 2.
6. Prepare contingency plan to minimize deviations: The actual overall progress of large
infrastructure projects in India is seldom ahead of schedule. The project team needs to
prepare contingency plans for work breakdown structure elements where actual progress
is behind schedule. However, project execution involves scarce resources and the project
manager may not always be at liberty to execute contingency plans. Project delays also
result in cost overrun. While preparing contingency plans, the project manager needs to
conduct a decision tree analysis to ascertain the cost of not implementing the contingency
plan or implementing it partially, due to scarcity of resources.
7. Continuously monitor the actual cash outflow: Monitor the actual cash outflow
continuously with the release of payments against running bills. This is a real-time
process, and requires systems to monitor the progress electronically and update the
project manager on aspects like availability of funds for capital expenditure, cost of such
funds, balance payment against each item on cost head, look ahead cash flow plan for
succeeding months, and percentage financial progress made in each cost head along with
overall percentage financial progress. The financial percentage progress report will give
the project manager a clear idea of whether there will be cost overrun in the project.
VII. Key features of the model
This methodology has been implemented with a reasonable degree of accuracy while executing
cross-country natural gas pipeline infrastructure projects. The methodology can be used for any
type of infrastructure projects as this is generic in nature. The key features of this methodology are
as under:
11. Page 11 of 12
i. Time Period: Under this methodology the cash flow is continuously updated so the time
frames remains stable but the period changes. So it is rolling.
ii. Forecast Values: The Cash Outflows are adjusted according to the variance between
scheduled and actual physical progress on real time basis. So it is flexible.
iii. Forecasting Process: The Cash flow begins from ground up considering the previous
month cumulative actual values as the baseline. So it is zero based.
iv. Setting Goals: All those responsible to achieve the actual targets are included. So it is
participatory.
VIII. Conclusion
Infrastructure projects are largely executed with borrowed funds and precise forecast of cash
outflows on a monthly basis is important. That way only the incremental amount required for
expenditure in the successive months is borrowed. The above methodology also helps to prepare
capital expenditure budget estimates for the project during execution. Companies that execute
infrastructure projects of varying size and complexity can also ascertain the cash flow of the
organizationโs entire project portfolio.
Cash flow management is as much an art as it is about knowledge and skill. As the project
matures, the project manager needs to leverage the knowledge gained in the preceding months
with regards to cash outflows. A proactive approach works well. Globally, projects see a higher
level of involvement by senior management when it comes to capital allocation decisions,
performance tracking, and risk management. The involvement of suppliers and contracts during
periodic cash flow planning helps to make the cash flow management plan more robust and
versatile. Project leaders need to ensure that monitoring of the cash flow management strategy
takes place through the project lifecycle and not just during the design and planning phases.
Fig-2 : Cumulative % Cash Flow Curve
12. Page 12 of 12
Asim Prasad
Mr. Asim Prasad is a graduate in Mechanical Engineering from Indian Institute of Technology,
Kanpur, India. Presently he is working as Chief Manager at GAIL India Limited, Corporate Office,
New Delhi. He has nearly 19 years of varied experience in the natural gas value chain comprising
the Operation and Maintenance of natural gas pipeline / compressor stations; Project
Management of Liquefied and Natural Gas Pipelines; Gas Marketing etc.
Mr. Prasad has been involved in the execution of several prestigious projects of GAIL namely the
Jamnagar Loni LPG Pipeline Project (Rs 1200 Crore), DahejVijaipur Pipeline Project (Rs 2936
Crore), DahejPanvelDabhol Pipeline Project (Rs 1900 Crore) etc. He was one of the project team
members for the GAILs prestigious Dahej-Vijaipur Pipeline project, which received Silver Medal
for Excellence in Project Management in the Mega Project Category from International
Project Management Association, Germany in Oct 2006. Likewise theDahejPanvelDabhol
Pipeline Project also achieved the highest status of finalist in the awards category of Project
Excellence in Mega Sized Projects from International Project Management Association, Germany
in Helsinki in June 2009 where Mr. Prasad was one of the project team members. In Sep 2011,
the Vijaipur-DadriBawana Pipeline project (Rs 3500 Crore) won the PMI India Project of the Year
Award , where Mr Prasad was the project team member, head of Project Management Office and
authored the award application.
Mr Prasad has presented and published papers in conferences / seminars of national
/international repute. During his professional career, Mr. Prasad completed Post Graduate
Diploma in Project Management and Masters in Business Administration. He obtained
Certification in Project Management, Certification in Project Risk Management from Institute of
Project Management Certification and Certification in Complex Project Management. Mr. Prasad
holds membership of number of professional institutes including PMI, USA.
The present assignment of Mr. Prasad incorporates Last Mile Consumer Connectivity for natural
gas customers, Customer Market Development and Market Penetration along Operational
(10,600 Kms) and Upcomming (4500 kms) natural gas pipeline projects having an approved cost
of Rs 25000 Crore approx. under execution in GAIL.
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