Cost and Value Management in Projects, 2nd Edition

Chapter 6Cash Flow Management

Learning Objectives

After completing this lesson, you should be able to:

• Describe the concept of cash flow.
• Demonstrate the relationship between project worth and cash flow.
• Show the relationship between the work breakdown structure (WBS) and project costs.
• Explain various types of payment arrangements that impact cash flow.
• Discuss the impact of changes to the project and how they are handled in the context of cash flow.
• Explain how to use quantitative techniques, net present value (NPV), and price adjustments in the context of cash flow analysis.

Cash flow is critical to any business, but from a project organization's point of view, effective cash flow management can mean the difference between project success and failure. This is because the amount of cash inflow and outflow, and the timing of these flows during the course of a project, can have a significant influence on project costs and schedule.

In this chapter, we focus on why managing cash flow is vital to project success. You will learn about the various aspects of cash flow management, including payment arrangements and plans that influence cash flow, and will gain an appreciation of its importance in the context of managing cost and enhancing value in projects.

6.1 THE CONCEPT OF CASH FLOW

Simply defined, cash flow is the movement of funds in and out of a business, while cash flow management focuses on the timing of moving funds. The term cash flow is used to describe the net ...