DTU ProjectLab - User contributions [en-gb]

Talk:Meetings Management

2018-02-24T17:43:22Z

S172569: /* Feedback 2 | Reviewer name: Lukasz Marczuk */

==Abstract Feedback==

'''Text clarity''' Text is coherent

'''Language''' Good, but try to write shorter and more concise scentences

'''Description of the tool/theory/concept''' Easy to follow

'''Purpose explanation''' Elaborate on the purpose of the article - what will the reader get out of this/learn? Briefly explain the structure of the article in the abstract to set reader expectations

'''References''' Missing appropriate references to mandatory list of references

'''Relevance of article''' Consider the following:

<ol>
<li> Who is the reader? Project Manager or Sponsor etc?
<li> Add more context around project management e.g. meetings the Project Manager organizes and leads with the project steering group
<li> Ensure depth of the article so it contributes to the project management community more than a normal web search
</ol>

==Feedback 1 | Reviewer name: ''Marianne Delp (reviewed 18/02)''==
===Question 1 ===
'''Quality of the summary:'''

Does the summary make the key focus, insights and/or contribution of the article clear?

What would you suggest to improve?

===Answer 1===
''Difficult to answer and come with improvements since the wiki-article only contains abstract and a couple of sentences about the meeting roles and The 3 Stages of Meetings. But one question here could be that you mention 'Meeting Management' can be used in project management, but can it also be implemented in project and program management? Why/Why not? Or conclude that your article focuses is only on Project Management.''

===Question 2 ===
'''Structure and logic of the article:'''

Is the argument clear?

Is there a logical flow to the article?

Does one part build upon the other?

Is the article consistent in its argument and free of contradictions?

What would you suggest to improve?

===Answer 2===
''Difficult to answer and come with improvements since the wiki-article only contains abstract and a couple of sentences about the meeting roles and The 3 Stages of Meetings''

===Question 3 ===
'''Grammar and style:'''

Is the writing free of grammatical and spelling errors?

Is the language precise without unnecessary fill words?

What would you suggest to improve?

===Answer 3===
''Grammar is good, and good length of sentences. Presise language. No improvement suggestions here.''

===Question 4 ===
'''Figures and tables:'''

Are figures and tables clear?

Do they summarize the key points of the article in a meaningful way?

What would you suggest to improve?

===Answer 4===
''No figures in the article''

===Question 5 ===
'''Interest and relevance:'''

Is the article of high practical and / or academic relevance?

Is it made clear in the article why / how it is relevant?

What would you suggest to improve?

===Answer 5===
''This is well explained in the abstract. Good! '

===Question 6 ===
'''Depth of treatment:'''

Is the article interesting for a practitioner or academic to read?

Does it make a significant contribution beyond a cursory web search?

What would you suggest to improve?

===Answer 6===
''Relevant for practitioner to read! Improvements are to add more sources, that you'll probably do when the article is finished'

===Question 7 ===
'''Annotated bibliography:'''

Does the article properly cite and acknowledge previous work?

Does it briefly summarize the key references at the end of the article?

Is it based on empirical data instead of opinion?

What would you suggest to improve?

===Answer 7===
''The two sources referred to in the article seems legit and reliable. One of the sources is referring to American empirical data regarding the subject - good!''

==Feedback 2 | Reviewer name: ''Lukasz Marczuk''==
===Question 1 · TEXT===
'''Quality of the summary:'''

Does the summary make the key focus, insights and/or contribution of the article clear?

What would you suggest to improve?

===Answer 1===
''The summary is conducted well, it is difficult to verify how it contributes to the entire article, since it is not finished.''

===Question 2 · TEXT===
'''Structure and logic of the article:'''

Is the argument clear?

Is there a logical flow to the article?

Does one part build upon the other?

Is the article consistent in its argument and free of contradictions?

What would you suggest to improve?

===Answer 2===
''The introduced structure seems logical and well planed, unfortunately it is not possible to verify further, due to lack of content.''

===Question 3 · TEXT===
'''Grammar and style:'''

Is the writing free of grammatical and spelling errors?

Is the language precise without unnecessary fill words?

What would you suggest to improve?

===Answer 3===
''Since article is not finished, it is not possible to verify it. For the exiting part, no errors were detected.''

===Question 4 · TEXT===
'''Figures and tables:'''

Are figures and tables clear?

Do they summarize the key points of the article in a meaningful way?

What would you suggest to improve?

===Answer 4===
''There are no figures nor tables present in the article.''

===Question 5 · TEXT===
'''Interest and relevance:'''

Is the article of high practical and / or academic relevance?

Is it made clear in the article why / how it is relevant?

What would you suggest to improve?

===Answer 5===
''Article not finished.''

===Question 6 · TEXT===
'''Depth of treatment:'''

Is the article interesting for a practitioner or academic to read?

Does it make a significant contribution beyond a cursory web search?

What would you suggest to improve?

===Answer 6===
''Article not finished.''

===Question 7 · TEXT===
'''Annotated bibliography:'''

Does the article properly cite and acknowledge previous work?

Does it briefly summarize the key references at the end of the article?

Is it based on empirical data instead of opinion?

What would you suggest to improve?

===Answer 7===
''Article not finished.''

Cash flow & payment milestones

2018-02-24T17:35:58Z

S172569: /* Cash Flow Analysis */

==Abstract==

Project Cost Management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.<ref name = "besefi">Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)''. Newtown Square, Pennsylvania: Project Management Institute, Inc. </ref>. Two main concerns, that are crucial in Project Cost Management are '''cash flow''' and '''payment milestones'''.

Cash flow, its monitoring and analysis is a subject that has been on the agenda for any existing or conducted project or portfolio. Diversity of scale and scope of the projects makes cash flow rather complex and multidimensional issue. Recommended approach for getting a good understanding of this issue is to study cases, projects and portfolios of relevant scale, scope and area to currently investigated project. Similarly it is with payment milestones, which are part of cash flow organisation and planning.

This article will contain two chapters, one for each issue. Apart from diversification of definitions of cash flow <ref> "Cash Flow." Accessed on February 2018. https://www.investopedia.com/terms/c/cashflow.asp</ref> and payment milestones for project, program and portfolio, this article will focus on practical information for Project Managers, and present some real life relevant techniques and tools. For cash flow, the focus will be set on '''Gantt chart''' method, and for payment milestones, there will be two methods introduced: '''Program Evaluation and Review Technique''' (PERT) and '''Critical Path Method''' (CPM). It will also answer the question "''Why cash flow and payment milestones are so important in Project Cost Management?''" and how to approach them.

==Introduction==

===Cash Flow definition===

Cash flow is a term used to describe money movement (flow) in business in defined time period. Cash flow is determined by the following factors: time, nominal amount, currency and account <ref name = "CashFlow"/>.There are two main subdivisions of this term - cash flow in and cash flow out.

'''Cash flow in''' stands for money that is coming into the business. It may come from investors, who are investing or financing the company, from gathered capital that business owner has, or from profits that business is making from selling products or services.

'''Cash flow out''' stands for money that is going out of the business. It may go for covering the wages of hired workers, bills like rental payment or mortgage for facilities or services, and other expenses like taxation.

The difference between cash flow in and cash flow out is called '''net cash flow'''.

[[File:Cashflow.png|center|thumb|500px|Cash Flow scheme <ref name="CashFlowPicture" />]]

===Milestones definition===

Each project has a determined timeframe, or duration. '''Milestones''' are key reference points, or events on this timeline, that are crucial for measuring the project progress and achieving the final outcome. In project management milestones can be called signal anchors <ref name=" SignalAnchors"/> and are used for marking following deliverables:
*Start of the project
*End of the project
*Start of determined phase of the project
*End of determined phase of the project
*Reviews
*Budget checks

Milestones are fixed points, so in contrast to the timeline, they do not have duration, they are fixed dates.

[[File:Milestones.png|center|thumb|500px|Milestones scheme]]

'''Payment milestones''' are another kind of milestones, that are strictly dedicated to finances. They are fixed dates, when certain percent of money is being payed or received. The bigger the project, the bigger the budget, and therefore the more payment milestones present.

Civil Engineering Procedure, 7th edition, published by the Institution of Civil Engineers <ref name="CivilEng"/>, defines the term ‘milestone payment’ or ‘planned progress payment’ as:

''Payment to a contractor in a series of lump sums, each paid upon his achieving a ‘milestone’ – meaning a defined stage of progress. Use of the word milestone usually means that the payment is based upon progress in completing what the promoter (client) wants. Payment based upon achieving defined percentages of a contractor’s programme of activities is also known as a ‘planned payment’ scheme.''

==Cash flow and payment milestones in Project Cost Management==

===Cash Flow Analysis===

Referring to popular saying that "Cash is King" - money is one of the most important resources in business <ref name="CashisKing"/>
and requires proper control and analysis. Skillful financial data management allows to extract from cash flow several measures crucial for Project Cost Management. Some of them are:
*'''Project value''' or rate of return. It is basically a profit of an investment. Cash flow is implemented in some financial models, such as IRR or NPV.
*'''Project liquidity'''. It can be determined how easily the financial obligations can be met during the project.
*'''Project risk evaluation'''. It can be determined what is the uncertainty about deviation from expected earnings or expected outcome.

There are several tools and methods of cash flow analysis. One of the most common and universal method is '''Gantt chart'''. It is a method useful for an instant overview of project profitability over time, comparison of planned and actual flows of cash and for better balancing of cash flows across all projects.<ref name="easyredmine"/>. At gantt.com following description of a Gantt chart can be found<ref name="gant"/>:

''A Gantt chart, commonly used in project management, is one of the most popular and useful ways of showing activities (tasks or events) displayed against time. On the left of the chart is a list of the activities and along the top is a suitable time scale. Each activity is represented by a bar; the position and length of the bar reflects the start date, duration and end date of the activity. This allows you to see at a glance:
*''What the various activities are''
*''When each activity begins and ends''
*''How long each activity is scheduled to last''
*''Where activities overlap with other activities, and by how much''
*''The start and end date of the whole project
''
It is possible to crate Gantt charts in programs like Microsoft Excel or Numbers for Mac, however there are several online tools dedicated for this particular method. One of them is easyREDMINE <ref name="easyredmine"/> offering straight forward design and guide for those less experience with this method.

[[File:EasyRedmine.jpg|center|thumb|1000px|easyREDMINE Gantt chart <ref name="easyredmine" />]]

For more tools and explanation of Cash Flow analysis, Iowa State University website can be visited <ref name="Iowa" />, as well as Planning Engineer. <ref name="PlanningEngineer" />

===Payment Milestones in Project Cost Management===

Payment milestones are significant element of every project or portfolio schedule. Solid financial planning allows for smooth project flow and simplifies controlling process. To prepare such plan, and create adequate and efficient milestones, there can be several techniques or methods used. One of them is '''Program Evaluation and Review Technique''' (PERT). PERT is project management tool used to schedule, organize, and coordinate tasks within a project. More detailed description of PERT is as follows:

"''PERT is a method of analysing the tasks involved in completing a given project, especially the time needed to complete each task, and to identify the minimum time needed to complete the total project. It incorporates uncertainty by making it possible to schedule a project while not knowing precisely the details and durations of all the activities. It is more of an event-oriented technique rather than start- and completion-oriented and is used more in projects where time is the major factor rather than cost. It is applied to very large-scale, one-time, complex, non-routine infrastructure and Research and Development projects.''" <ref name="PERT"/>

Another method that can be used for Payment Milestones establishment is '''Critical Path Method''' (CPM).

"''The critical path method is a step-by-step project management technique to identify activities on the critical path. It is an approach to project scheduling that breaks the project into several work tasks, displays them in a flow chart, and then calculates the project duration based on estimated durations for each task. It identifies tasks that are critical, time-wise, in completing the project.''" <ref name="CPM"/>

Both methods were established in 1950's and since then, were refined and modified for modern projects expectations. Application of such techniques in project gives its schedule organised and divided into intervals structure, which makes it easier to follow. It also gives better overview on most important activities, that are usually critical to complete within schedule.

==Implementation in real life projects==

For better understanding of presented above techniques and methods, it is recommended to review a real-life project case. A good example would be case of construction project, described in Chapter 12 <ref name="chapter12" /> of book "Project Management for Construction" by Chris Hendrickson <ref name="Hendrickson" />. It gives a broad overview on cost control, monitoring and accounting of a variety of construction projects. Hendrickson starts with project budget establishment, going through forecasting for activity cost control, where he gets into details, presenting and explaining useful formulas with examples. Next, he talks about financial accounting systems and cost accounts, which is an introduction to control of project cash flows. In this chapter, an example of a cash flow status report can be found, with its decent explanation. The next sections are dedicated to schedule control and schedule and budget updates, where Hendrickson talks about milestones and project segmentation.

Hendrickson in his book, and in this particular chapter provides practical examples with real data, which can be adjusted and duplicated for other project purposes. It is important for any future or current Project Manager to have a good background knowledge and experience with different cases that were solved in the past. This gives not only a good overview on how financial planning and controlling can be conducted, but also highlights critical areas, where most issues occur.

==Importance of Cash Flow and Payment Milestones==

Why keeping track of cash flow is important in project management?
There may be two outcomes coming from the cash flow analysis - either cash flow is positive or negative. To achieve positive cash flow, there are two main factors to focus on: organisation and planning.

In case of any project, or portfolio of projects, project manager has to be aware of how much money is coming in, and how much money is being spent. Proportionally to the size and scope of the project, or portfolio, those income and outcome is more complex for bigger projects. To control complicated money flow, it is necessary to have a financial plan. This is where payment milestones come handy. If at the beginning of the project a system of money verification will be established, it will be possible and rather straight forward to follow and control it. Awareness of when is the right moment to spend money gives project manager more chance of staying within the budget frame, and keeping project financial condition in good shape.

In case when there is no proper organisation and planning in cash flow, there is a big danger of spending too much money on some project stages, which can cause lack of resources for other stages. The outcome may be either stretching the budget, which is optimistic variant. More realistic is, that there will be delays in some stages of project, which will project on the schedule and overall project outcome.

==Annotated Bibliography==

'''Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)'''

''A Guide to the Project Management Body of Knowledge (PMBOK® Guide) – Fifth Edition provides guidelines for managing individual projects and defines project management related concepts. It also describes the project management life cycle and its related processes, as well as the project life cycle.''

''The PMBOK® Guide contains the globally recognized standard and guide for the project management profession. A standard is a formal document that describes established norms, methods, processes, and practices. As with other professions, the knowledge contained in this standard has evolved from the recognized good practices of project management practitioners who have contributed to the development of this standard.''<ref name = "besefi">Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)''. Newtown Square, Pennsylvania: Project Management Institute, Inc. </ref>

'''Simon A. Burtonshaw-Gunn. "Risk and Financial Management in Construction." Gower Publishing Limited, 2009.'''

''In today’s climate the need for a closer understanding of the relationship between the two inter-related topics of risk management and finance on construction projects is becoming increasingly crucial to achieving the objectives of the investor, the end-user and the constructor and its supply chain, especially as interest in PFI and PPP arrangements continues to grow around the world. Risk and Financial Management in Construction shows the relationship between the Construction Project Manager’s task of balancing time, cost and quality and the need to satisfy the client’s requirements efficiently, effectively and professionally whilst at the same time contributing to the contractor’s future sustainability. The book covers Risk Management describing the tools and methods to reduce the occurrence and consequences of risk, and the financial management of construction projects from raising funding, to contract strategy and through to estimating, budgeting and cost control. It includes a chapter covering international project risk, bringing together the issues of risk management, prime contracting, and PFI funding for construction projects undertaken away from the contractors main home market. Risk and Financial Management in Construction is aimed at those practising in, or studying to enter, the project management profession in providing a strategic and operational knowledge of these subjects allowing the reader easy access to the key points through a wide selection of models, checklists and easy to find lists in all of the key areas.'' <ref name="SimonA" />

'''Chris Hendrickson. "Project Management for Construction. Fundamental Concepts for Owners, Engineers, Architects and Builders." Prentice Hall, 2000. ISBN 0-13-731266-0'''

''This book develops a specific viewpoint in discussing the participants, the processes and the techniques of project management for construction. This viewpoint is that of owners who desire completion of projects in a timely, cost effective fashion. While this book is devoted to a particular viewpoint with respect to project management for construction, it is not solely intended for owners and their direct representatives. By understanding the entire process, all participants can respond more effectively to the owner's needs in their own work, in marketing their services, and in communicating with other participants. In addition, the specific techniques and tools discussed in this book (such as economic evaluation, scheduling, management information systems, etc.) can be readily applied to any portion of the process.'' <ref name="Hendrickson" />

==References==

<references>

<ref name="CashFlow"> "Cash Flow". Accessed in February 2018. https://en.wikipedia.org/wiki/Cash_flow:.</ref>
<ref name="CashFlowPicture"> "Cash Flow Scheme", BBC, Accessed in February 2018. https://www.bbc.co.uk/education/guides/z67mpv4/revision </ref>
<ref name="SignalAnchors"> "Signal Anchors". Accessed in February 2018. https://en.wikipedia.org/wiki/Milestone_(project_management) </ref>
<ref name="CashisKing"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., 2009. https://books.google.dk/books?id=r4R3gDES5lMC&pg=PA158&lpg=PA158&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management&source=bl&ots=pXc4hlRRCk&sig=8Ma_EihrAuCnJ4lHyi_P7cKf2IQ&hl=en&sa=X&ved=0ahUKEwievtuBh6bZAhWSKCwKHQL-CMMQ6AEIfDAH#v=onepage&q=cash%20flow%20and%20payment%20milestones%20in%20Project%20Cost%20Management&f=false </ref>
<ref name="easyredmine"> "EasyREDMINE" https://www.easyredmine.com/software/project-finances/2747-cash-flow-in-gantt-chart </ref>
<ref name="Iowa"> "Iowa State University website". Accessed in February 2018. https://www.extension.iastate.edu/agdm/wholefarm/html/c3-14.html </ref>
<ref name="PlanningEngineer"> "Planning Engineer website". Accessed in 2018. https://planningengineer.net/create-gantt-chart-and-cash-flow-using-excel-with-sample-file/ </ref>
<ref name="PERT"> "Program evaluation and review technique (PERT)". Accessed in February 2018. https://en.wikipedia.org/wiki/Program_evaluation_and_review_technique </ref>
<ref name="CPM"> "Critical path method (CPM)". Accessed on February 2018. https://www.smartsheet.com/critical-path-method </ref>
<ref name="chapter12"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', Prentice Hall, 2000. Chapter 12, http://pmbook.ce.cmu.edu/12_Cost_Control,_Monitoring,_and_Accounting.html </ref>
<ref name="Hendrickson"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', Prentice Hall, 2000. http://pmbook.ce.cmu.edu </ref>
<ref name="gant"> Website providing information about Gantt charts. http://www.gantt.com/ </ref>
<ref name="SimonA"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., 2009. https://books.google.dk/books?id=sE5BDgAAQBAJ&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management </ref>
<ref name="CivilEng"> Institution of Civil Engineers, "Civil Engineering Procedure", 7th edition, ICE Publishing, 2015.

Cash flow & payment milestones

2018-02-24T17:35:01Z

S172569: /* References */

==Abstract==

Project Cost Management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.<ref name = "besefi">Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)''. Newtown Square, Pennsylvania: Project Management Institute, Inc. </ref>. Two main concerns, that are crucial in Project Cost Management are '''cash flow''' and '''payment milestones'''.

Cash flow, its monitoring and analysis is a subject that has been on the agenda for any existing or conducted project or portfolio. Diversity of scale and scope of the projects makes cash flow rather complex and multidimensional issue. Recommended approach for getting a good understanding of this issue is to study cases, projects and portfolios of relevant scale, scope and area to currently investigated project. Similarly it is with payment milestones, which are part of cash flow organisation and planning.

This article will contain two chapters, one for each issue. Apart from diversification of definitions of cash flow <ref> "Cash Flow." Accessed on February 2018. https://www.investopedia.com/terms/c/cashflow.asp</ref> and payment milestones for project, program and portfolio, this article will focus on practical information for Project Managers, and present some real life relevant techniques and tools. For cash flow, the focus will be set on '''Gantt chart''' method, and for payment milestones, there will be two methods introduced: '''Program Evaluation and Review Technique''' (PERT) and '''Critical Path Method''' (CPM). It will also answer the question "''Why cash flow and payment milestones are so important in Project Cost Management?''" and how to approach them.

==Introduction==

===Cash Flow definition===

Cash flow is a term used to describe money movement (flow) in business in defined time period. Cash flow is determined by the following factors: time, nominal amount, currency and account <ref name = "CashFlow"/>.There are two main subdivisions of this term - cash flow in and cash flow out.

'''Cash flow in''' stands for money that is coming into the business. It may come from investors, who are investing or financing the company, from gathered capital that business owner has, or from profits that business is making from selling products or services.

'''Cash flow out''' stands for money that is going out of the business. It may go for covering the wages of hired workers, bills like rental payment or mortgage for facilities or services, and other expenses like taxation.

The difference between cash flow in and cash flow out is called '''net cash flow'''.

[[File:Cashflow.png|center|thumb|500px|Cash Flow scheme <ref name="CashFlowPicture" />]]

===Milestones definition===

Each project has a determined timeframe, or duration. '''Milestones''' are key reference points, or events on this timeline, that are crucial for measuring the project progress and achieving the final outcome. In project management milestones can be called signal anchors <ref name=" SignalAnchors"/> and are used for marking following deliverables:
*Start of the project
*End of the project
*Start of determined phase of the project
*End of determined phase of the project
*Reviews
*Budget checks

Milestones are fixed points, so in contrast to the timeline, they do not have duration, they are fixed dates.

[[File:Milestones.png|center|thumb|500px|Milestones scheme]]

'''Payment milestones''' are another kind of milestones, that are strictly dedicated to finances. They are fixed dates, when certain percent of money is being payed or received. The bigger the project, the bigger the budget, and therefore the more payment milestones present.

Civil Engineering Procedure, 7th edition, published by the Institution of Civil Engineers <ref name="CivilEng"/>, defines the term ‘milestone payment’ or ‘planned progress payment’ as:

''Payment to a contractor in a series of lump sums, each paid upon his achieving a ‘milestone’ – meaning a defined stage of progress. Use of the word milestone usually means that the payment is based upon progress in completing what the promoter (client) wants. Payment based upon achieving defined percentages of a contractor’s programme of activities is also known as a ‘planned payment’ scheme.''

==Cash flow and payment milestones in Project Cost Management==

===Cash Flow Analysis===

Referring to popular saying that "Cash is King" - money is one of the most important resources in business <ref name="CashisKing"/>
and requires proper control and analysis. Skillful financial data management allows to extract from cash flow several measures crucial for Project Cost Management. Some of them are:
*'''Project value''' or rate of return. It is basically a profit of an investment. Cash flow is implemented in some financial models, such as IRR or NPV.
*'''Project liquidity'''. It can be determined how easily the financial obligations can be met during the project.
*'''Project risk evaluation'''. It can be determined what is the uncertainty about deviation from expected earnings or expected outcome.

There are several tools and methods of cash flow analysis. One of the most common and universal method is '''Gantt chart'''. It is a method useful for an instant overview of project profitability over time, comparison of planned and actual flows of cash and for better balancing of cash flows across all projects.<ref name="easyredmine"/>. At gantt.com following description of a Gantt chart can be found<ref name="gant"/>:

''A Gantt chart, commonly used in project management, is one of the most popular and useful ways of showing activities (tasks or events) displayed against time. On the left of the chart is a list of the activities and along the top is a suitable time scale. Each activity is represented by a bar; the position and length of the bar reflects the start date, duration and end date of the activity. This allows you to see at a glance:
*''What the various activities are''
*''When each activity begins and ends''
*''How long each activity is scheduled to last''
*''Where activities overlap with other activities, and by how much''
*''The start and end date of the whole project
''
It is possible to crate Gantt charts in programs like Microsoft Excel or Numbers for Mac, however there are several online tools dedicated for this particular method. One of them is easyREDMINE <ref name="easyredmine"/> offering straight forward design and guide for those less experience with this method.

[[File:EasyRedmine.jpg|center|thumb|1000px|easyREDMINE Gantt chart <ref name="easyredmine" />]]

For more tools and explanation of Cash Flow analysis, Iowa State University website can be visited <ref name="Iowa" />, as well as Planning Engineer <ref name="PlanningEngineer" />

===Payment Milestones in Project Cost Management===

Payment milestones are significant element of every project or portfolio schedule. Solid financial planning allows for smooth project flow and simplifies controlling process. To prepare such plan, and create adequate and efficient milestones, there can be several techniques or methods used. One of them is '''Program Evaluation and Review Technique''' (PERT). PERT is project management tool used to schedule, organize, and coordinate tasks within a project. More detailed description of PERT is as follows:

"''PERT is a method of analysing the tasks involved in completing a given project, especially the time needed to complete each task, and to identify the minimum time needed to complete the total project. It incorporates uncertainty by making it possible to schedule a project while not knowing precisely the details and durations of all the activities. It is more of an event-oriented technique rather than start- and completion-oriented and is used more in projects where time is the major factor rather than cost. It is applied to very large-scale, one-time, complex, non-routine infrastructure and Research and Development projects.''" <ref name="PERT"/>

Another method that can be used for Payment Milestones establishment is '''Critical Path Method''' (CPM).

"''The critical path method is a step-by-step project management technique to identify activities on the critical path. It is an approach to project scheduling that breaks the project into several work tasks, displays them in a flow chart, and then calculates the project duration based on estimated durations for each task. It identifies tasks that are critical, time-wise, in completing the project.''" <ref name="CPM"/>

Both methods were established in 1950's and since then, were refined and modified for modern projects expectations. Application of such techniques in project gives its schedule organised and divided into intervals structure, which makes it easier to follow. It also gives better overview on most important activities, that are usually critical to complete within schedule.

==Implementation in real life projects==

For better understanding of presented above techniques and methods, it is recommended to review a real-life project case. A good example would be case of construction project, described in Chapter 12 <ref name="chapter12" /> of book "Project Management for Construction" by Chris Hendrickson <ref name="Hendrickson" />. It gives a broad overview on cost control, monitoring and accounting of a variety of construction projects. Hendrickson starts with project budget establishment, going through forecasting for activity cost control, where he gets into details, presenting and explaining useful formulas with examples. Next, he talks about financial accounting systems and cost accounts, which is an introduction to control of project cash flows. In this chapter, an example of a cash flow status report can be found, with its decent explanation. The next sections are dedicated to schedule control and schedule and budget updates, where Hendrickson talks about milestones and project segmentation.

Hendrickson in his book, and in this particular chapter provides practical examples with real data, which can be adjusted and duplicated for other project purposes. It is important for any future or current Project Manager to have a good background knowledge and experience with different cases that were solved in the past. This gives not only a good overview on how financial planning and controlling can be conducted, but also highlights critical areas, where most issues occur.

==Importance of Cash Flow and Payment Milestones==

Why keeping track of cash flow is important in project management?
There may be two outcomes coming from the cash flow analysis - either cash flow is positive or negative. To achieve positive cash flow, there are two main factors to focus on: organisation and planning.

In case of any project, or portfolio of projects, project manager has to be aware of how much money is coming in, and how much money is being spent. Proportionally to the size and scope of the project, or portfolio, those income and outcome is more complex for bigger projects. To control complicated money flow, it is necessary to have a financial plan. This is where payment milestones come handy. If at the beginning of the project a system of money verification will be established, it will be possible and rather straight forward to follow and control it. Awareness of when is the right moment to spend money gives project manager more chance of staying within the budget frame, and keeping project financial condition in good shape.

In case when there is no proper organisation and planning in cash flow, there is a big danger of spending too much money on some project stages, which can cause lack of resources for other stages. The outcome may be either stretching the budget, which is optimistic variant. More realistic is, that there will be delays in some stages of project, which will project on the schedule and overall project outcome.

==Annotated Bibliography==

'''Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)'''

''A Guide to the Project Management Body of Knowledge (PMBOK® Guide) – Fifth Edition provides guidelines for managing individual projects and defines project management related concepts. It also describes the project management life cycle and its related processes, as well as the project life cycle.''

''The PMBOK® Guide contains the globally recognized standard and guide for the project management profession. A standard is a formal document that describes established norms, methods, processes, and practices. As with other professions, the knowledge contained in this standard has evolved from the recognized good practices of project management practitioners who have contributed to the development of this standard.''<ref name = "besefi">Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)''. Newtown Square, Pennsylvania: Project Management Institute, Inc. </ref>

'''Simon A. Burtonshaw-Gunn. "Risk and Financial Management in Construction." Gower Publishing Limited, 2009.'''

''In today’s climate the need for a closer understanding of the relationship between the two inter-related topics of risk management and finance on construction projects is becoming increasingly crucial to achieving the objectives of the investor, the end-user and the constructor and its supply chain, especially as interest in PFI and PPP arrangements continues to grow around the world. Risk and Financial Management in Construction shows the relationship between the Construction Project Manager’s task of balancing time, cost and quality and the need to satisfy the client’s requirements efficiently, effectively and professionally whilst at the same time contributing to the contractor’s future sustainability. The book covers Risk Management describing the tools and methods to reduce the occurrence and consequences of risk, and the financial management of construction projects from raising funding, to contract strategy and through to estimating, budgeting and cost control. It includes a chapter covering international project risk, bringing together the issues of risk management, prime contracting, and PFI funding for construction projects undertaken away from the contractors main home market. Risk and Financial Management in Construction is aimed at those practising in, or studying to enter, the project management profession in providing a strategic and operational knowledge of these subjects allowing the reader easy access to the key points through a wide selection of models, checklists and easy to find lists in all of the key areas.'' <ref name="SimonA" />

'''Chris Hendrickson. "Project Management for Construction. Fundamental Concepts for Owners, Engineers, Architects and Builders." Prentice Hall, 2000. ISBN 0-13-731266-0'''

''This book develops a specific viewpoint in discussing the participants, the processes and the techniques of project management for construction. This viewpoint is that of owners who desire completion of projects in a timely, cost effective fashion. While this book is devoted to a particular viewpoint with respect to project management for construction, it is not solely intended for owners and their direct representatives. By understanding the entire process, all participants can respond more effectively to the owner's needs in their own work, in marketing their services, and in communicating with other participants. In addition, the specific techniques and tools discussed in this book (such as economic evaluation, scheduling, management information systems, etc.) can be readily applied to any portion of the process.'' <ref name="Hendrickson" />

==References==

<references>

<ref name="CashFlow"> "Cash Flow". Accessed in February 2018. https://en.wikipedia.org/wiki/Cash_flow:.</ref>
<ref name="CashFlowPicture"> "Cash Flow Scheme", BBC, Accessed in February 2018. https://www.bbc.co.uk/education/guides/z67mpv4/revision </ref>
<ref name="SignalAnchors"> "Signal Anchors". Accessed in February 2018. https://en.wikipedia.org/wiki/Milestone_(project_management) </ref>
<ref name="CashisKing"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., 2009. https://books.google.dk/books?id=r4R3gDES5lMC&pg=PA158&lpg=PA158&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management&source=bl&ots=pXc4hlRRCk&sig=8Ma_EihrAuCnJ4lHyi_P7cKf2IQ&hl=en&sa=X&ved=0ahUKEwievtuBh6bZAhWSKCwKHQL-CMMQ6AEIfDAH#v=onepage&q=cash%20flow%20and%20payment%20milestones%20in%20Project%20Cost%20Management&f=false </ref>
<ref name="easyredmine"> "EasyREDMINE" https://www.easyredmine.com/software/project-finances/2747-cash-flow-in-gantt-chart </ref>
<ref name="Iowa"> "Iowa State University website". Accessed in February 2018. https://www.extension.iastate.edu/agdm/wholefarm/html/c3-14.html </ref>
<ref name="PlanningEngineer"> "Planning Engineer website". Accessed in 2018. https://planningengineer.net/create-gantt-chart-and-cash-flow-using-excel-with-sample-file/ </ref>
<ref name="PERT"> "Program evaluation and review technique (PERT)". Accessed in February 2018. https://en.wikipedia.org/wiki/Program_evaluation_and_review_technique </ref>
<ref name="CPM"> "Critical path method (CPM)". Accessed on February 2018. https://www.smartsheet.com/critical-path-method </ref>
<ref name="chapter12"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', Prentice Hall, 2000. Chapter 12, http://pmbook.ce.cmu.edu/12_Cost_Control,_Monitoring,_and_Accounting.html </ref>
<ref name="Hendrickson"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', Prentice Hall, 2000. http://pmbook.ce.cmu.edu </ref>
<ref name="gant"> Website providing information about Gantt charts. http://www.gantt.com/ </ref>
<ref name="SimonA"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., 2009. https://books.google.dk/books?id=sE5BDgAAQBAJ&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management </ref>
<ref name="CivilEng"> Institution of Civil Engineers, "Civil Engineering Procedure", 7th edition, ICE Publishing, 2015.

Cash flow & payment milestones

2018-02-24T17:33:04Z

S172569: /* Milestones definition */

==Abstract==

Project Cost Management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.<ref name = "besefi">Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)''. Newtown Square, Pennsylvania: Project Management Institute, Inc. </ref>. Two main concerns, that are crucial in Project Cost Management are '''cash flow''' and '''payment milestones'''.

Cash flow, its monitoring and analysis is a subject that has been on the agenda for any existing or conducted project or portfolio. Diversity of scale and scope of the projects makes cash flow rather complex and multidimensional issue. Recommended approach for getting a good understanding of this issue is to study cases, projects and portfolios of relevant scale, scope and area to currently investigated project. Similarly it is with payment milestones, which are part of cash flow organisation and planning.

This article will contain two chapters, one for each issue. Apart from diversification of definitions of cash flow <ref> "Cash Flow." Accessed on February 2018. https://www.investopedia.com/terms/c/cashflow.asp</ref> and payment milestones for project, program and portfolio, this article will focus on practical information for Project Managers, and present some real life relevant techniques and tools. For cash flow, the focus will be set on '''Gantt chart''' method, and for payment milestones, there will be two methods introduced: '''Program Evaluation and Review Technique''' (PERT) and '''Critical Path Method''' (CPM). It will also answer the question "''Why cash flow and payment milestones are so important in Project Cost Management?''" and how to approach them.

==Introduction==

===Cash Flow definition===

Cash flow is a term used to describe money movement (flow) in business in defined time period. Cash flow is determined by the following factors: time, nominal amount, currency and account <ref name = "CashFlow"/>.There are two main subdivisions of this term - cash flow in and cash flow out.

'''Cash flow in''' stands for money that is coming into the business. It may come from investors, who are investing or financing the company, from gathered capital that business owner has, or from profits that business is making from selling products or services.

'''Cash flow out''' stands for money that is going out of the business. It may go for covering the wages of hired workers, bills like rental payment or mortgage for facilities or services, and other expenses like taxation.

The difference between cash flow in and cash flow out is called '''net cash flow'''.

[[File:Cashflow.png|center|thumb|500px|Cash Flow scheme <ref name="CashFlowPicture" />]]

===Milestones definition===

Each project has a determined timeframe, or duration. '''Milestones''' are key reference points, or events on this timeline, that are crucial for measuring the project progress and achieving the final outcome. In project management milestones can be called signal anchors <ref name=" SignalAnchors"/> and are used for marking following deliverables:
*Start of the project
*End of the project
*Start of determined phase of the project
*End of determined phase of the project
*Reviews
*Budget checks

Milestones are fixed points, so in contrast to the timeline, they do not have duration, they are fixed dates.

[[File:Milestones.png|center|thumb|500px|Milestones scheme]]

'''Payment milestones''' are another kind of milestones, that are strictly dedicated to finances. They are fixed dates, when certain percent of money is being payed or received. The bigger the project, the bigger the budget, and therefore the more payment milestones present.

Civil Engineering Procedure, 7th edition, published by the Institution of Civil Engineers <ref name="CivilEng"/>, defines the term ‘milestone payment’ or ‘planned progress payment’ as:

''Payment to a contractor in a series of lump sums, each paid upon his achieving a ‘milestone’ – meaning a defined stage of progress. Use of the word milestone usually means that the payment is based upon progress in completing what the promoter (client) wants. Payment based upon achieving defined percentages of a contractor’s programme of activities is also known as a ‘planned payment’ scheme.''

==Cash flow and payment milestones in Project Cost Management==

===Cash Flow Analysis===

Referring to popular saying that "Cash is King" - money is one of the most important resources in business <ref name="CashisKing"/>
and requires proper control and analysis. Skillful financial data management allows to extract from cash flow several measures crucial for Project Cost Management. Some of them are:
*'''Project value''' or rate of return. It is basically a profit of an investment. Cash flow is implemented in some financial models, such as IRR or NPV.
*'''Project liquidity'''. It can be determined how easily the financial obligations can be met during the project.
*'''Project risk evaluation'''. It can be determined what is the uncertainty about deviation from expected earnings or expected outcome.

There are several tools and methods of cash flow analysis. One of the most common and universal method is '''Gantt chart'''. It is a method useful for an instant overview of project profitability over time, comparison of planned and actual flows of cash and for better balancing of cash flows across all projects.<ref name="easyredmine"/>. At gantt.com following description of a Gantt chart can be found<ref name="gant"/>:

''A Gantt chart, commonly used in project management, is one of the most popular and useful ways of showing activities (tasks or events) displayed against time. On the left of the chart is a list of the activities and along the top is a suitable time scale. Each activity is represented by a bar; the position and length of the bar reflects the start date, duration and end date of the activity. This allows you to see at a glance:
*''What the various activities are''
*''When each activity begins and ends''
*''How long each activity is scheduled to last''
*''Where activities overlap with other activities, and by how much''
*''The start and end date of the whole project
''
It is possible to crate Gantt charts in programs like Microsoft Excel or Numbers for Mac, however there are several online tools dedicated for this particular method. One of them is easyREDMINE <ref name="easyredmine"/> offering straight forward design and guide for those less experience with this method.

[[File:EasyRedmine.jpg|center|thumb|1000px|easyREDMINE Gantt chart <ref name="easyredmine" />]]

For more tools and explanation of Cash Flow analysis, Iowa State University website can be visited <ref name="Iowa" />, as well as Planning Engineer <ref name="PlanningEngineer" />

===Payment Milestones in Project Cost Management===

Payment milestones are significant element of every project or portfolio schedule. Solid financial planning allows for smooth project flow and simplifies controlling process. To prepare such plan, and create adequate and efficient milestones, there can be several techniques or methods used. One of them is '''Program Evaluation and Review Technique''' (PERT). PERT is project management tool used to schedule, organize, and coordinate tasks within a project. More detailed description of PERT is as follows:

"''PERT is a method of analysing the tasks involved in completing a given project, especially the time needed to complete each task, and to identify the minimum time needed to complete the total project. It incorporates uncertainty by making it possible to schedule a project while not knowing precisely the details and durations of all the activities. It is more of an event-oriented technique rather than start- and completion-oriented and is used more in projects where time is the major factor rather than cost. It is applied to very large-scale, one-time, complex, non-routine infrastructure and Research and Development projects.''" <ref name="PERT"/>

Another method that can be used for Payment Milestones establishment is '''Critical Path Method''' (CPM).

"''The critical path method is a step-by-step project management technique to identify activities on the critical path. It is an approach to project scheduling that breaks the project into several work tasks, displays them in a flow chart, and then calculates the project duration based on estimated durations for each task. It identifies tasks that are critical, time-wise, in completing the project.''" <ref name="CPM"/>

Both methods were established in 1950's and since then, were refined and modified for modern projects expectations. Application of such techniques in project gives its schedule organised and divided into intervals structure, which makes it easier to follow. It also gives better overview on most important activities, that are usually critical to complete within schedule.

==Implementation in real life projects==

For better understanding of presented above techniques and methods, it is recommended to review a real-life project case. A good example would be case of construction project, described in Chapter 12 <ref name="chapter12" /> of book "Project Management for Construction" by Chris Hendrickson <ref name="Hendrickson" />. It gives a broad overview on cost control, monitoring and accounting of a variety of construction projects. Hendrickson starts with project budget establishment, going through forecasting for activity cost control, where he gets into details, presenting and explaining useful formulas with examples. Next, he talks about financial accounting systems and cost accounts, which is an introduction to control of project cash flows. In this chapter, an example of a cash flow status report can be found, with its decent explanation. The next sections are dedicated to schedule control and schedule and budget updates, where Hendrickson talks about milestones and project segmentation.

Hendrickson in his book, and in this particular chapter provides practical examples with real data, which can be adjusted and duplicated for other project purposes. It is important for any future or current Project Manager to have a good background knowledge and experience with different cases that were solved in the past. This gives not only a good overview on how financial planning and controlling can be conducted, but also highlights critical areas, where most issues occur.

==Importance of Cash Flow and Payment Milestones==

Why keeping track of cash flow is important in project management?
There may be two outcomes coming from the cash flow analysis - either cash flow is positive or negative. To achieve positive cash flow, there are two main factors to focus on: organisation and planning.

In case of any project, or portfolio of projects, project manager has to be aware of how much money is coming in, and how much money is being spent. Proportionally to the size and scope of the project, or portfolio, those income and outcome is more complex for bigger projects. To control complicated money flow, it is necessary to have a financial plan. This is where payment milestones come handy. If at the beginning of the project a system of money verification will be established, it will be possible and rather straight forward to follow and control it. Awareness of when is the right moment to spend money gives project manager more chance of staying within the budget frame, and keeping project financial condition in good shape.

In case when there is no proper organisation and planning in cash flow, there is a big danger of spending too much money on some project stages, which can cause lack of resources for other stages. The outcome may be either stretching the budget, which is optimistic variant. More realistic is, that there will be delays in some stages of project, which will project on the schedule and overall project outcome.

==Annotated Bibliography==

'''Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)'''

''A Guide to the Project Management Body of Knowledge (PMBOK® Guide) – Fifth Edition provides guidelines for managing individual projects and defines project management related concepts. It also describes the project management life cycle and its related processes, as well as the project life cycle.''

''The PMBOK® Guide contains the globally recognized standard and guide for the project management profession. A standard is a formal document that describes established norms, methods, processes, and practices. As with other professions, the knowledge contained in this standard has evolved from the recognized good practices of project management practitioners who have contributed to the development of this standard.''<ref name = "besefi">Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)''. Newtown Square, Pennsylvania: Project Management Institute, Inc. </ref>

'''Simon A. Burtonshaw-Gunn. "Risk and Financial Management in Construction." Gower Publishing Limited, 2009.'''

''In today’s climate the need for a closer understanding of the relationship between the two inter-related topics of risk management and finance on construction projects is becoming increasingly crucial to achieving the objectives of the investor, the end-user and the constructor and its supply chain, especially as interest in PFI and PPP arrangements continues to grow around the world. Risk and Financial Management in Construction shows the relationship between the Construction Project Manager’s task of balancing time, cost and quality and the need to satisfy the client’s requirements efficiently, effectively and professionally whilst at the same time contributing to the contractor’s future sustainability. The book covers Risk Management describing the tools and methods to reduce the occurrence and consequences of risk, and the financial management of construction projects from raising funding, to contract strategy and through to estimating, budgeting and cost control. It includes a chapter covering international project risk, bringing together the issues of risk management, prime contracting, and PFI funding for construction projects undertaken away from the contractors main home market. Risk and Financial Management in Construction is aimed at those practising in, or studying to enter, the project management profession in providing a strategic and operational knowledge of these subjects allowing the reader easy access to the key points through a wide selection of models, checklists and easy to find lists in all of the key areas.'' <ref name="SimonA" />

'''Chris Hendrickson. "Project Management for Construction. Fundamental Concepts for Owners, Engineers, Architects and Builders." Prentice Hall, 2000. ISBN 0-13-731266-0'''

''This book develops a specific viewpoint in discussing the participants, the processes and the techniques of project management for construction. This viewpoint is that of owners who desire completion of projects in a timely, cost effective fashion. While this book is devoted to a particular viewpoint with respect to project management for construction, it is not solely intended for owners and their direct representatives. By understanding the entire process, all participants can respond more effectively to the owner's needs in their own work, in marketing their services, and in communicating with other participants. In addition, the specific techniques and tools discussed in this book (such as economic evaluation, scheduling, management information systems, etc.) can be readily applied to any portion of the process.'' <ref name="Hendrickson" />

==References==

<references>

<ref name="CashFlow"> "Cash Flow". Accessed in February 2018. https://en.wikipedia.org/wiki/Cash_flow:.</ref>
<ref name="CashFlowPicture"> "Cash Flow Scheme", BBC, Accessed in February 2018. https://www.bbc.co.uk/education/guides/z67mpv4/revision </ref>
<ref name="SignalAnchors"> "Signal Anchors". Accessed in February 2018. https://en.wikipedia.org/wiki/Milestone_(project_management) </ref>
<ref name="CashisKing"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., 2009. https://books.google.dk/books?id=r4R3gDES5lMC&pg=PA158&lpg=PA158&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management&source=bl&ots=pXc4hlRRCk&sig=8Ma_EihrAuCnJ4lHyi_P7cKf2IQ&hl=en&sa=X&ved=0ahUKEwievtuBh6bZAhWSKCwKHQL-CMMQ6AEIfDAH#v=onepage&q=cash%20flow%20and%20payment%20milestones%20in%20Project%20Cost%20Management&f=false </ref>
<ref name="easyredmine"> "EasyREDMINE" https://www.easyredmine.com/software/project-finances/2747-cash-flow-in-gantt-chart </ref>
<ref name="Iowa"> "Iowa State University website". Accessed in February 2018. https://www.extension.iastate.edu/agdm/wholefarm/html/c3-14.html </ref>
<ref name="PlanningEngineer"> "Planning Engineer website". Accessed in 2018. https://planningengineer.net/create-gantt-chart-and-cash-flow-using-excel-with-sample-file/ </ref>
<ref name="PERT"> "Program evaluation and review technique (PERT)". Accessed in February 2018. https://en.wikipedia.org/wiki/Program_evaluation_and_review_technique </ref>
<ref name="CPM"> "Critical path method (CPM)". Accessed on February 2018. https://www.smartsheet.com/critical-path-method </ref>
<ref name="chapter12"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', Prentice Hall, 2000. Chapter 12, http://pmbook.ce.cmu.edu/12_Cost_Control,_Monitoring,_and_Accounting.html </ref>
<ref name="Hendrickson"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', Prentice Hall, 2000. http://pmbook.ce.cmu.edu </ref>
<ref name="gant"> Website providing information about Gantt charts. http://www.gantt.com/ </ref>
<ref name="SimonA"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., 2009. https://books.google.dk/books?id=sE5BDgAAQBAJ&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management </ref>

Cash flow & payment milestones

2018-02-24T17:29:19Z

S172569: /* Annotated Bibliography */

==Abstract==

Project Cost Management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.<ref name = "besefi">Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)''. Newtown Square, Pennsylvania: Project Management Institute, Inc. </ref>. Two main concerns, that are crucial in Project Cost Management are '''cash flow''' and '''payment milestones'''.

Cash flow, its monitoring and analysis is a subject that has been on the agenda for any existing or conducted project or portfolio. Diversity of scale and scope of the projects makes cash flow rather complex and multidimensional issue. Recommended approach for getting a good understanding of this issue is to study cases, projects and portfolios of relevant scale, scope and area to currently investigated project. Similarly it is with payment milestones, which are part of cash flow organisation and planning.

This article will contain two chapters, one for each issue. Apart from diversification of definitions of cash flow <ref> "Cash Flow." Accessed on February 2018. https://www.investopedia.com/terms/c/cashflow.asp</ref> and payment milestones for project, program and portfolio, this article will focus on practical information for Project Managers, and present some real life relevant techniques and tools. For cash flow, the focus will be set on '''Gantt chart''' method, and for payment milestones, there will be two methods introduced: '''Program Evaluation and Review Technique''' (PERT) and '''Critical Path Method''' (CPM). It will also answer the question "''Why cash flow and payment milestones are so important in Project Cost Management?''" and how to approach them.

==Introduction==

===Cash Flow definition===

Cash flow is a term used to describe money movement (flow) in business in defined time period. Cash flow is determined by the following factors: time, nominal amount, currency and account <ref name = "CashFlow"/>.There are two main subdivisions of this term - cash flow in and cash flow out.

'''Cash flow in''' stands for money that is coming into the business. It may come from investors, who are investing or financing the company, from gathered capital that business owner has, or from profits that business is making from selling products or services.

'''Cash flow out''' stands for money that is going out of the business. It may go for covering the wages of hired workers, bills like rental payment or mortgage for facilities or services, and other expenses like taxation.

The difference between cash flow in and cash flow out is called '''net cash flow'''.

[[File:Cashflow.png|center|thumb|500px|Cash Flow scheme <ref name="CashFlowPicture" />]]

===Milestones definition===

Each project has a determined timeframe, or duration. '''Milestones''' are key reference points, or events on this timeline, that are crucial for measuring the project progress and achieving the final outcome. In project management milestones can be called signal anchors <ref name=" SignalAnchors"/> and are used for marking following deliverables:
*Start of the project
*End of the project
*Start of determined phase of the project
*End of determined phase of the project
*Reviews
*Budget checks

Milestones are fixed points, so in contrast to the timeline, they do not have duration, they are fixed dates.

[[File:Milestones.png|center|thumb|500px|Milestones scheme]]

'''Payment milestones''' are another kind of milestones, that are strictly dedicated to finances. They are fixed dates, when certain percent of money is being payed or received. The bigger the project, the bigger the budget, and therefore the more payment milestones present.

==Cash flow and payment milestones in Project Cost Management==

===Cash Flow Analysis===

Referring to popular saying that "Cash is King" - money is one of the most important resources in business <ref name="CashisKing"/>
and requires proper control and analysis. Skillful financial data management allows to extract from cash flow several measures crucial for Project Cost Management. Some of them are:
*'''Project value''' or rate of return. It is basically a profit of an investment. Cash flow is implemented in some financial models, such as IRR or NPV.
*'''Project liquidity'''. It can be determined how easily the financial obligations can be met during the project.
*'''Project risk evaluation'''. It can be determined what is the uncertainty about deviation from expected earnings or expected outcome.

There are several tools and methods of cash flow analysis. One of the most common and universal method is '''Gantt chart'''. It is a method useful for an instant overview of project profitability over time, comparison of planned and actual flows of cash and for better balancing of cash flows across all projects.<ref name="easyredmine"/>. At gantt.com following description of a Gantt chart can be found<ref name="gant"/>:

''A Gantt chart, commonly used in project management, is one of the most popular and useful ways of showing activities (tasks or events) displayed against time. On the left of the chart is a list of the activities and along the top is a suitable time scale. Each activity is represented by a bar; the position and length of the bar reflects the start date, duration and end date of the activity. This allows you to see at a glance:
*''What the various activities are''
*''When each activity begins and ends''
*''How long each activity is scheduled to last''
*''Where activities overlap with other activities, and by how much''
*''The start and end date of the whole project
''
It is possible to crate Gantt charts in programs like Microsoft Excel or Numbers for Mac, however there are several online tools dedicated for this particular method. One of them is easyREDMINE <ref name="easyredmine"/> offering straight forward design and guide for those less experience with this method.

[[File:EasyRedmine.jpg|center|thumb|1000px|easyREDMINE Gantt chart <ref name="easyredmine" />]]

For more tools and explanation of Cash Flow analysis, Iowa State University website can be visited <ref name="Iowa" />, as well as Planning Engineer <ref name="PlanningEngineer" />

===Payment Milestones in Project Cost Management===

Payment milestones are significant element of every project or portfolio schedule. Solid financial planning allows for smooth project flow and simplifies controlling process. To prepare such plan, and create adequate and efficient milestones, there can be several techniques or methods used. One of them is '''Program Evaluation and Review Technique''' (PERT). PERT is project management tool used to schedule, organize, and coordinate tasks within a project. More detailed description of PERT is as follows:

"''PERT is a method of analysing the tasks involved in completing a given project, especially the time needed to complete each task, and to identify the minimum time needed to complete the total project. It incorporates uncertainty by making it possible to schedule a project while not knowing precisely the details and durations of all the activities. It is more of an event-oriented technique rather than start- and completion-oriented and is used more in projects where time is the major factor rather than cost. It is applied to very large-scale, one-time, complex, non-routine infrastructure and Research and Development projects.''" <ref name="PERT"/>

Another method that can be used for Payment Milestones establishment is '''Critical Path Method''' (CPM).

"''The critical path method is a step-by-step project management technique to identify activities on the critical path. It is an approach to project scheduling that breaks the project into several work tasks, displays them in a flow chart, and then calculates the project duration based on estimated durations for each task. It identifies tasks that are critical, time-wise, in completing the project.''" <ref name="CPM"/>

Both methods were established in 1950's and since then, were refined and modified for modern projects expectations. Application of such techniques in project gives its schedule organised and divided into intervals structure, which makes it easier to follow. It also gives better overview on most important activities, that are usually critical to complete within schedule.

==Implementation in real life projects==

For better understanding of presented above techniques and methods, it is recommended to review a real-life project case. A good example would be case of construction project, described in Chapter 12 <ref name="chapter12" /> of book "Project Management for Construction" by Chris Hendrickson <ref name="Hendrickson" />. It gives a broad overview on cost control, monitoring and accounting of a variety of construction projects. Hendrickson starts with project budget establishment, going through forecasting for activity cost control, where he gets into details, presenting and explaining useful formulas with examples. Next, he talks about financial accounting systems and cost accounts, which is an introduction to control of project cash flows. In this chapter, an example of a cash flow status report can be found, with its decent explanation. The next sections are dedicated to schedule control and schedule and budget updates, where Hendrickson talks about milestones and project segmentation.

Hendrickson in his book, and in this particular chapter provides practical examples with real data, which can be adjusted and duplicated for other project purposes. It is important for any future or current Project Manager to have a good background knowledge and experience with different cases that were solved in the past. This gives not only a good overview on how financial planning and controlling can be conducted, but also highlights critical areas, where most issues occur.

==Importance of Cash Flow and Payment Milestones==

Why keeping track of cash flow is important in project management?
There may be two outcomes coming from the cash flow analysis - either cash flow is positive or negative. To achieve positive cash flow, there are two main factors to focus on: organisation and planning.

In case of any project, or portfolio of projects, project manager has to be aware of how much money is coming in, and how much money is being spent. Proportionally to the size and scope of the project, or portfolio, those income and outcome is more complex for bigger projects. To control complicated money flow, it is necessary to have a financial plan. This is where payment milestones come handy. If at the beginning of the project a system of money verification will be established, it will be possible and rather straight forward to follow and control it. Awareness of when is the right moment to spend money gives project manager more chance of staying within the budget frame, and keeping project financial condition in good shape.

In case when there is no proper organisation and planning in cash flow, there is a big danger of spending too much money on some project stages, which can cause lack of resources for other stages. The outcome may be either stretching the budget, which is optimistic variant. More realistic is, that there will be delays in some stages of project, which will project on the schedule and overall project outcome.

==Annotated Bibliography==

'''Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)'''

''A Guide to the Project Management Body of Knowledge (PMBOK® Guide) – Fifth Edition provides guidelines for managing individual projects and defines project management related concepts. It also describes the project management life cycle and its related processes, as well as the project life cycle.''

''The PMBOK® Guide contains the globally recognized standard and guide for the project management profession. A standard is a formal document that describes established norms, methods, processes, and practices. As with other professions, the knowledge contained in this standard has evolved from the recognized good practices of project management practitioners who have contributed to the development of this standard.''<ref name = "besefi">Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)''. Newtown Square, Pennsylvania: Project Management Institute, Inc. </ref>

'''Simon A. Burtonshaw-Gunn. "Risk and Financial Management in Construction." Gower Publishing Limited, 2009.'''

''In today’s climate the need for a closer understanding of the relationship between the two inter-related topics of risk management and finance on construction projects is becoming increasingly crucial to achieving the objectives of the investor, the end-user and the constructor and its supply chain, especially as interest in PFI and PPP arrangements continues to grow around the world. Risk and Financial Management in Construction shows the relationship between the Construction Project Manager’s task of balancing time, cost and quality and the need to satisfy the client’s requirements efficiently, effectively and professionally whilst at the same time contributing to the contractor’s future sustainability. The book covers Risk Management describing the tools and methods to reduce the occurrence and consequences of risk, and the financial management of construction projects from raising funding, to contract strategy and through to estimating, budgeting and cost control. It includes a chapter covering international project risk, bringing together the issues of risk management, prime contracting, and PFI funding for construction projects undertaken away from the contractors main home market. Risk and Financial Management in Construction is aimed at those practising in, or studying to enter, the project management profession in providing a strategic and operational knowledge of these subjects allowing the reader easy access to the key points through a wide selection of models, checklists and easy to find lists in all of the key areas.'' <ref name="SimonA" />

'''Chris Hendrickson. "Project Management for Construction. Fundamental Concepts for Owners, Engineers, Architects and Builders." Prentice Hall, 2000. ISBN 0-13-731266-0'''

''This book develops a specific viewpoint in discussing the participants, the processes and the techniques of project management for construction. This viewpoint is that of owners who desire completion of projects in a timely, cost effective fashion. While this book is devoted to a particular viewpoint with respect to project management for construction, it is not solely intended for owners and their direct representatives. By understanding the entire process, all participants can respond more effectively to the owner's needs in their own work, in marketing their services, and in communicating with other participants. In addition, the specific techniques and tools discussed in this book (such as economic evaluation, scheduling, management information systems, etc.) can be readily applied to any portion of the process.'' <ref name="Hendrickson" />

==References==

<references>

<ref name="CashFlow"> "Cash Flow". Accessed in February 2018. https://en.wikipedia.org/wiki/Cash_flow:.</ref>
<ref name="CashFlowPicture"> "Cash Flow Scheme", BBC, Accessed in February 2018. https://www.bbc.co.uk/education/guides/z67mpv4/revision </ref>
<ref name="SignalAnchors"> "Signal Anchors". Accessed in February 2018. https://en.wikipedia.org/wiki/Milestone_(project_management) </ref>
<ref name="CashisKing"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., 2009. https://books.google.dk/books?id=r4R3gDES5lMC&pg=PA158&lpg=PA158&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management&source=bl&ots=pXc4hlRRCk&sig=8Ma_EihrAuCnJ4lHyi_P7cKf2IQ&hl=en&sa=X&ved=0ahUKEwievtuBh6bZAhWSKCwKHQL-CMMQ6AEIfDAH#v=onepage&q=cash%20flow%20and%20payment%20milestones%20in%20Project%20Cost%20Management&f=false </ref>
<ref name="easyredmine"> "EasyREDMINE" https://www.easyredmine.com/software/project-finances/2747-cash-flow-in-gantt-chart </ref>
<ref name="Iowa"> "Iowa State University website". Accessed in February 2018. https://www.extension.iastate.edu/agdm/wholefarm/html/c3-14.html </ref>
<ref name="PlanningEngineer"> "Planning Engineer website". Accessed in 2018. https://planningengineer.net/create-gantt-chart-and-cash-flow-using-excel-with-sample-file/ </ref>
<ref name="PERT"> "Program evaluation and review technique (PERT)". Accessed in February 2018. https://en.wikipedia.org/wiki/Program_evaluation_and_review_technique </ref>
<ref name="CPM"> "Critical path method (CPM)". Accessed on February 2018. https://www.smartsheet.com/critical-path-method </ref>
<ref name="chapter12"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', Prentice Hall, 2000. Chapter 12, http://pmbook.ce.cmu.edu/12_Cost_Control,_Monitoring,_and_Accounting.html </ref>
<ref name="Hendrickson"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', Prentice Hall, 2000. http://pmbook.ce.cmu.edu </ref>
<ref name="gant"> Website providing information about Gantt charts. http://www.gantt.com/ </ref>
<ref name="SimonA"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., 2009. https://books.google.dk/books?id=sE5BDgAAQBAJ&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management </ref>

Cash flow & payment milestones

2018-02-24T17:29:02Z

S172569: /* Abstract */

==Abstract==

Project Cost Management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.<ref name = "besefi">Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)''. Newtown Square, Pennsylvania: Project Management Institute, Inc. </ref>. Two main concerns, that are crucial in Project Cost Management are '''cash flow''' and '''payment milestones'''.

Cash flow, its monitoring and analysis is a subject that has been on the agenda for any existing or conducted project or portfolio. Diversity of scale and scope of the projects makes cash flow rather complex and multidimensional issue. Recommended approach for getting a good understanding of this issue is to study cases, projects and portfolios of relevant scale, scope and area to currently investigated project. Similarly it is with payment milestones, which are part of cash flow organisation and planning.

This article will contain two chapters, one for each issue. Apart from diversification of definitions of cash flow <ref> "Cash Flow." Accessed on February 2018. https://www.investopedia.com/terms/c/cashflow.asp</ref> and payment milestones for project, program and portfolio, this article will focus on practical information for Project Managers, and present some real life relevant techniques and tools. For cash flow, the focus will be set on '''Gantt chart''' method, and for payment milestones, there will be two methods introduced: '''Program Evaluation and Review Technique''' (PERT) and '''Critical Path Method''' (CPM). It will also answer the question "''Why cash flow and payment milestones are so important in Project Cost Management?''" and how to approach them.

==Introduction==

===Cash Flow definition===

Cash flow is a term used to describe money movement (flow) in business in defined time period. Cash flow is determined by the following factors: time, nominal amount, currency and account <ref name = "CashFlow"/>.There are two main subdivisions of this term - cash flow in and cash flow out.

'''Cash flow in''' stands for money that is coming into the business. It may come from investors, who are investing or financing the company, from gathered capital that business owner has, or from profits that business is making from selling products or services.

'''Cash flow out''' stands for money that is going out of the business. It may go for covering the wages of hired workers, bills like rental payment or mortgage for facilities or services, and other expenses like taxation.

The difference between cash flow in and cash flow out is called '''net cash flow'''.

[[File:Cashflow.png|center|thumb|500px|Cash Flow scheme <ref name="CashFlowPicture" />]]

===Milestones definition===

Each project has a determined timeframe, or duration. '''Milestones''' are key reference points, or events on this timeline, that are crucial for measuring the project progress and achieving the final outcome. In project management milestones can be called signal anchors <ref name=" SignalAnchors"/> and are used for marking following deliverables:
*Start of the project
*End of the project
*Start of determined phase of the project
*End of determined phase of the project
*Reviews
*Budget checks

Milestones are fixed points, so in contrast to the timeline, they do not have duration, they are fixed dates.

[[File:Milestones.png|center|thumb|500px|Milestones scheme]]

'''Payment milestones''' are another kind of milestones, that are strictly dedicated to finances. They are fixed dates, when certain percent of money is being payed or received. The bigger the project, the bigger the budget, and therefore the more payment milestones present.

==Cash flow and payment milestones in Project Cost Management==

===Cash Flow Analysis===

Referring to popular saying that "Cash is King" - money is one of the most important resources in business <ref name="CashisKing"/>
and requires proper control and analysis. Skillful financial data management allows to extract from cash flow several measures crucial for Project Cost Management. Some of them are:
*'''Project value''' or rate of return. It is basically a profit of an investment. Cash flow is implemented in some financial models, such as IRR or NPV.
*'''Project liquidity'''. It can be determined how easily the financial obligations can be met during the project.
*'''Project risk evaluation'''. It can be determined what is the uncertainty about deviation from expected earnings or expected outcome.

There are several tools and methods of cash flow analysis. One of the most common and universal method is '''Gantt chart'''. It is a method useful for an instant overview of project profitability over time, comparison of planned and actual flows of cash and for better balancing of cash flows across all projects.<ref name="easyredmine"/>. At gantt.com following description of a Gantt chart can be found<ref name="gant"/>:

''A Gantt chart, commonly used in project management, is one of the most popular and useful ways of showing activities (tasks or events) displayed against time. On the left of the chart is a list of the activities and along the top is a suitable time scale. Each activity is represented by a bar; the position and length of the bar reflects the start date, duration and end date of the activity. This allows you to see at a glance:
*''What the various activities are''
*''When each activity begins and ends''
*''How long each activity is scheduled to last''
*''Where activities overlap with other activities, and by how much''
*''The start and end date of the whole project
''
It is possible to crate Gantt charts in programs like Microsoft Excel or Numbers for Mac, however there are several online tools dedicated for this particular method. One of them is easyREDMINE <ref name="easyredmine"/> offering straight forward design and guide for those less experience with this method.

[[File:EasyRedmine.jpg|center|thumb|1000px|easyREDMINE Gantt chart <ref name="easyredmine" />]]

For more tools and explanation of Cash Flow analysis, Iowa State University website can be visited <ref name="Iowa" />, as well as Planning Engineer <ref name="PlanningEngineer" />

===Payment Milestones in Project Cost Management===

Payment milestones are significant element of every project or portfolio schedule. Solid financial planning allows for smooth project flow and simplifies controlling process. To prepare such plan, and create adequate and efficient milestones, there can be several techniques or methods used. One of them is '''Program Evaluation and Review Technique''' (PERT). PERT is project management tool used to schedule, organize, and coordinate tasks within a project. More detailed description of PERT is as follows:

"''PERT is a method of analysing the tasks involved in completing a given project, especially the time needed to complete each task, and to identify the minimum time needed to complete the total project. It incorporates uncertainty by making it possible to schedule a project while not knowing precisely the details and durations of all the activities. It is more of an event-oriented technique rather than start- and completion-oriented and is used more in projects where time is the major factor rather than cost. It is applied to very large-scale, one-time, complex, non-routine infrastructure and Research and Development projects.''" <ref name="PERT"/>

Another method that can be used for Payment Milestones establishment is '''Critical Path Method''' (CPM).

"''The critical path method is a step-by-step project management technique to identify activities on the critical path. It is an approach to project scheduling that breaks the project into several work tasks, displays them in a flow chart, and then calculates the project duration based on estimated durations for each task. It identifies tasks that are critical, time-wise, in completing the project.''" <ref name="CPM"/>

Both methods were established in 1950's and since then, were refined and modified for modern projects expectations. Application of such techniques in project gives its schedule organised and divided into intervals structure, which makes it easier to follow. It also gives better overview on most important activities, that are usually critical to complete within schedule.

==Implementation in real life projects==

For better understanding of presented above techniques and methods, it is recommended to review a real-life project case. A good example would be case of construction project, described in Chapter 12 <ref name="chapter12" /> of book "Project Management for Construction" by Chris Hendrickson <ref name="Hendrickson" />. It gives a broad overview on cost control, monitoring and accounting of a variety of construction projects. Hendrickson starts with project budget establishment, going through forecasting for activity cost control, where he gets into details, presenting and explaining useful formulas with examples. Next, he talks about financial accounting systems and cost accounts, which is an introduction to control of project cash flows. In this chapter, an example of a cash flow status report can be found, with its decent explanation. The next sections are dedicated to schedule control and schedule and budget updates, where Hendrickson talks about milestones and project segmentation.

Hendrickson in his book, and in this particular chapter provides practical examples with real data, which can be adjusted and duplicated for other project purposes. It is important for any future or current Project Manager to have a good background knowledge and experience with different cases that were solved in the past. This gives not only a good overview on how financial planning and controlling can be conducted, but also highlights critical areas, where most issues occur.

==Importance of Cash Flow and Payment Milestones==

Why keeping track of cash flow is important in project management?
There may be two outcomes coming from the cash flow analysis - either cash flow is positive or negative. To achieve positive cash flow, there are two main factors to focus on: organisation and planning.

In case of any project, or portfolio of projects, project manager has to be aware of how much money is coming in, and how much money is being spent. Proportionally to the size and scope of the project, or portfolio, those income and outcome is more complex for bigger projects. To control complicated money flow, it is necessary to have a financial plan. This is where payment milestones come handy. If at the beginning of the project a system of money verification will be established, it will be possible and rather straight forward to follow and control it. Awareness of when is the right moment to spend money gives project manager more chance of staying within the budget frame, and keeping project financial condition in good shape.

In case when there is no proper organisation and planning in cash flow, there is a big danger of spending too much money on some project stages, which can cause lack of resources for other stages. The outcome may be either stretching the budget, which is optimistic variant. More realistic is, that there will be delays in some stages of project, which will project on the schedule and overall project outcome.

==Annotated Bibliography==

'''Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)'''

''A Guide to the Project Management Body of Knowledge (PMBOK® Guide) – Fifth Edition provides guidelines for managing individual projects and defines project management related concepts. It also describes the project management life cycle and its related processes, as well as the project life cycle.''

''The PMBOK® Guide contains the globally recognized standard and guide for the project management profession. A standard is a formal document that describes established norms, methods, processes, and practices. As with other professions, the knowledge contained in this standard has evolved from the recognized good practices of project management practitioners who have contributed to the development of this standard.''<ref name = "besefi">Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)''. Newtown Square, Pennsylvania: Project Management Institute, Inc </ref>

'''Simon A. Burtonshaw-Gunn. "Risk and Financial Management in Construction." Gower Publishing Limited, 2009.'''

''In today’s climate the need for a closer understanding of the relationship between the two inter-related topics of risk management and finance on construction projects is becoming increasingly crucial to achieving the objectives of the investor, the end-user and the constructor and its supply chain, especially as interest in PFI and PPP arrangements continues to grow around the world. Risk and Financial Management in Construction shows the relationship between the Construction Project Manager’s task of balancing time, cost and quality and the need to satisfy the client’s requirements efficiently, effectively and professionally whilst at the same time contributing to the contractor’s future sustainability. The book covers Risk Management describing the tools and methods to reduce the occurrence and consequences of risk, and the financial management of construction projects from raising funding, to contract strategy and through to estimating, budgeting and cost control. It includes a chapter covering international project risk, bringing together the issues of risk management, prime contracting, and PFI funding for construction projects undertaken away from the contractors main home market. Risk and Financial Management in Construction is aimed at those practising in, or studying to enter, the project management profession in providing a strategic and operational knowledge of these subjects allowing the reader easy access to the key points through a wide selection of models, checklists and easy to find lists in all of the key areas.'' <ref name="SimonA" />

'''Chris Hendrickson. "Project Management for Construction. Fundamental Concepts for Owners, Engineers, Architects and Builders." Prentice Hall, 2000. ISBN 0-13-731266-0'''

''This book develops a specific viewpoint in discussing the participants, the processes and the techniques of project management for construction. This viewpoint is that of owners who desire completion of projects in a timely, cost effective fashion. While this book is devoted to a particular viewpoint with respect to project management for construction, it is not solely intended for owners and their direct representatives. By understanding the entire process, all participants can respond more effectively to the owner's needs in their own work, in marketing their services, and in communicating with other participants. In addition, the specific techniques and tools discussed in this book (such as economic evaluation, scheduling, management information systems, etc.) can be readily applied to any portion of the process.'' <ref name="Hendrickson" />

==References==

<references>

<ref name="CashFlow"> "Cash Flow". Accessed in February 2018. https://en.wikipedia.org/wiki/Cash_flow:.</ref>
<ref name="CashFlowPicture"> "Cash Flow Scheme", BBC, Accessed in February 2018. https://www.bbc.co.uk/education/guides/z67mpv4/revision </ref>
<ref name="SignalAnchors"> "Signal Anchors". Accessed in February 2018. https://en.wikipedia.org/wiki/Milestone_(project_management) </ref>
<ref name="CashisKing"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., 2009. https://books.google.dk/books?id=r4R3gDES5lMC&pg=PA158&lpg=PA158&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management&source=bl&ots=pXc4hlRRCk&sig=8Ma_EihrAuCnJ4lHyi_P7cKf2IQ&hl=en&sa=X&ved=0ahUKEwievtuBh6bZAhWSKCwKHQL-CMMQ6AEIfDAH#v=onepage&q=cash%20flow%20and%20payment%20milestones%20in%20Project%20Cost%20Management&f=false </ref>
<ref name="easyredmine"> "EasyREDMINE" https://www.easyredmine.com/software/project-finances/2747-cash-flow-in-gantt-chart </ref>
<ref name="Iowa"> "Iowa State University website". Accessed in February 2018. https://www.extension.iastate.edu/agdm/wholefarm/html/c3-14.html </ref>
<ref name="PlanningEngineer"> "Planning Engineer website". Accessed in 2018. https://planningengineer.net/create-gantt-chart-and-cash-flow-using-excel-with-sample-file/ </ref>
<ref name="PERT"> "Program evaluation and review technique (PERT)". Accessed in February 2018. https://en.wikipedia.org/wiki/Program_evaluation_and_review_technique </ref>
<ref name="CPM"> "Critical path method (CPM)". Accessed on February 2018. https://www.smartsheet.com/critical-path-method </ref>
<ref name="chapter12"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', Prentice Hall, 2000. Chapter 12, http://pmbook.ce.cmu.edu/12_Cost_Control,_Monitoring,_and_Accounting.html </ref>
<ref name="Hendrickson"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', Prentice Hall, 2000. http://pmbook.ce.cmu.edu </ref>
<ref name="gant"> Website providing information about Gantt charts. http://www.gantt.com/ </ref>
<ref name="SimonA"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., 2009. https://books.google.dk/books?id=sE5BDgAAQBAJ&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management </ref>

Cash flow & payment milestones

2018-02-24T17:27:53Z

S172569: /* Annotated Bibliography */

==Abstract==

Project Cost Management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.<ref name = "besefi">Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)''. Newtown Square, Pennsylvania: Project Management Institute, Inc </ref>. Two main concerns, that are crucial in Project Cost Management are '''cash flow''' and '''payment milestones'''.

Cash flow, its monitoring and analysis is a subject that has been on the agenda for any existing or conducted project or portfolio. Diversity of scale and scope of the projects makes cash flow rather complex and multidimensional issue. Recommended approach for getting a good understanding of this issue is to study cases, projects and portfolios of relevant scale, scope and area to currently investigated project. Similarly it is with payment milestones, which are part of cash flow organisation and planning.

This article will contain two chapters, one for each issue. Apart from diversification of definitions of cash flow <ref> "Cash Flow." Accessed on February 2018. https://www.investopedia.com/terms/c/cashflow.asp</ref> and payment milestones for project, program and portfolio, this article will focus on practical information for Project Managers, and present some real life relevant techniques and tools. For cash flow, the focus will be set on '''Gantt chart''' method, and for payment milestones, there will be two methods introduced: '''Program Evaluation and Review Technique''' (PERT) and '''Critical Path Method''' (CPM). It will also answer the question "''Why cash flow and payment milestones are so important in Project Cost Management?''" and how to approach them.

==Introduction==

===Cash Flow definition===

Cash flow is a term used to describe money movement (flow) in business in defined time period. Cash flow is determined by the following factors: time, nominal amount, currency and account <ref name = "CashFlow"/>.There are two main subdivisions of this term - cash flow in and cash flow out.

'''Cash flow in''' stands for money that is coming into the business. It may come from investors, who are investing or financing the company, from gathered capital that business owner has, or from profits that business is making from selling products or services.

'''Cash flow out''' stands for money that is going out of the business. It may go for covering the wages of hired workers, bills like rental payment or mortgage for facilities or services, and other expenses like taxation.

The difference between cash flow in and cash flow out is called '''net cash flow'''.

[[File:Cashflow.png|center|thumb|500px|Cash Flow scheme <ref name="CashFlowPicture" />]]

===Milestones definition===

Each project has a determined timeframe, or duration. '''Milestones''' are key reference points, or events on this timeline, that are crucial for measuring the project progress and achieving the final outcome. In project management milestones can be called signal anchors <ref name=" SignalAnchors"/> and are used for marking following deliverables:
*Start of the project
*End of the project
*Start of determined phase of the project
*End of determined phase of the project
*Reviews
*Budget checks

Milestones are fixed points, so in contrast to the timeline, they do not have duration, they are fixed dates.

[[File:Milestones.png|center|thumb|500px|Milestones scheme]]

'''Payment milestones''' are another kind of milestones, that are strictly dedicated to finances. They are fixed dates, when certain percent of money is being payed or received. The bigger the project, the bigger the budget, and therefore the more payment milestones present.

==Cash flow and payment milestones in Project Cost Management==

===Cash Flow Analysis===

Referring to popular saying that "Cash is King" - money is one of the most important resources in business <ref name="CashisKing"/>
and requires proper control and analysis. Skillful financial data management allows to extract from cash flow several measures crucial for Project Cost Management. Some of them are:
*'''Project value''' or rate of return. It is basically a profit of an investment. Cash flow is implemented in some financial models, such as IRR or NPV.
*'''Project liquidity'''. It can be determined how easily the financial obligations can be met during the project.
*'''Project risk evaluation'''. It can be determined what is the uncertainty about deviation from expected earnings or expected outcome.

There are several tools and methods of cash flow analysis. One of the most common and universal method is '''Gantt chart'''. It is a method useful for an instant overview of project profitability over time, comparison of planned and actual flows of cash and for better balancing of cash flows across all projects.<ref name="easyredmine"/>. At gantt.com following description of a Gantt chart can be found<ref name="gant"/>:

''A Gantt chart, commonly used in project management, is one of the most popular and useful ways of showing activities (tasks or events) displayed against time. On the left of the chart is a list of the activities and along the top is a suitable time scale. Each activity is represented by a bar; the position and length of the bar reflects the start date, duration and end date of the activity. This allows you to see at a glance:
*''What the various activities are''
*''When each activity begins and ends''
*''How long each activity is scheduled to last''
*''Where activities overlap with other activities, and by how much''
*''The start and end date of the whole project
''
It is possible to crate Gantt charts in programs like Microsoft Excel or Numbers for Mac, however there are several online tools dedicated for this particular method. One of them is easyREDMINE <ref name="easyredmine"/> offering straight forward design and guide for those less experience with this method.

[[File:EasyRedmine.jpg|center|thumb|1000px|easyREDMINE Gantt chart <ref name="easyredmine" />]]

For more tools and explanation of Cash Flow analysis, Iowa State University website can be visited <ref name="Iowa" />, as well as Planning Engineer <ref name="PlanningEngineer" />

===Payment Milestones in Project Cost Management===

Payment milestones are significant element of every project or portfolio schedule. Solid financial planning allows for smooth project flow and simplifies controlling process. To prepare such plan, and create adequate and efficient milestones, there can be several techniques or methods used. One of them is '''Program Evaluation and Review Technique''' (PERT). PERT is project management tool used to schedule, organize, and coordinate tasks within a project. More detailed description of PERT is as follows:

"''PERT is a method of analysing the tasks involved in completing a given project, especially the time needed to complete each task, and to identify the minimum time needed to complete the total project. It incorporates uncertainty by making it possible to schedule a project while not knowing precisely the details and durations of all the activities. It is more of an event-oriented technique rather than start- and completion-oriented and is used more in projects where time is the major factor rather than cost. It is applied to very large-scale, one-time, complex, non-routine infrastructure and Research and Development projects.''" <ref name="PERT"/>

Another method that can be used for Payment Milestones establishment is '''Critical Path Method''' (CPM).

"''The critical path method is a step-by-step project management technique to identify activities on the critical path. It is an approach to project scheduling that breaks the project into several work tasks, displays them in a flow chart, and then calculates the project duration based on estimated durations for each task. It identifies tasks that are critical, time-wise, in completing the project.''" <ref name="CPM"/>

Both methods were established in 1950's and since then, were refined and modified for modern projects expectations. Application of such techniques in project gives its schedule organised and divided into intervals structure, which makes it easier to follow. It also gives better overview on most important activities, that are usually critical to complete within schedule.

==Implementation in real life projects==

For better understanding of presented above techniques and methods, it is recommended to review a real-life project case. A good example would be case of construction project, described in Chapter 12 <ref name="chapter12" /> of book "Project Management for Construction" by Chris Hendrickson <ref name="Hendrickson" />. It gives a broad overview on cost control, monitoring and accounting of a variety of construction projects. Hendrickson starts with project budget establishment, going through forecasting for activity cost control, where he gets into details, presenting and explaining useful formulas with examples. Next, he talks about financial accounting systems and cost accounts, which is an introduction to control of project cash flows. In this chapter, an example of a cash flow status report can be found, with its decent explanation. The next sections are dedicated to schedule control and schedule and budget updates, where Hendrickson talks about milestones and project segmentation.

Hendrickson in his book, and in this particular chapter provides practical examples with real data, which can be adjusted and duplicated for other project purposes. It is important for any future or current Project Manager to have a good background knowledge and experience with different cases that were solved in the past. This gives not only a good overview on how financial planning and controlling can be conducted, but also highlights critical areas, where most issues occur.

==Importance of Cash Flow and Payment Milestones==

Why keeping track of cash flow is important in project management?
There may be two outcomes coming from the cash flow analysis - either cash flow is positive or negative. To achieve positive cash flow, there are two main factors to focus on: organisation and planning.

In case of any project, or portfolio of projects, project manager has to be aware of how much money is coming in, and how much money is being spent. Proportionally to the size and scope of the project, or portfolio, those income and outcome is more complex for bigger projects. To control complicated money flow, it is necessary to have a financial plan. This is where payment milestones come handy. If at the beginning of the project a system of money verification will be established, it will be possible and rather straight forward to follow and control it. Awareness of when is the right moment to spend money gives project manager more chance of staying within the budget frame, and keeping project financial condition in good shape.

In case when there is no proper organisation and planning in cash flow, there is a big danger of spending too much money on some project stages, which can cause lack of resources for other stages. The outcome may be either stretching the budget, which is optimistic variant. More realistic is, that there will be delays in some stages of project, which will project on the schedule and overall project outcome.

==Annotated Bibliography==

'''Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)'''

''A Guide to the Project Management Body of Knowledge (PMBOK® Guide) – Fifth Edition provides guidelines for managing individual projects and defines project management related concepts. It also describes the project management life cycle and its related processes, as well as the project life cycle.''

''The PMBOK® Guide contains the globally recognized standard and guide for the project management profession. A standard is a formal document that describes established norms, methods, processes, and practices. As with other professions, the knowledge contained in this standard has evolved from the recognized good practices of project management practitioners who have contributed to the development of this standard.''<ref name = "besefi">Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)''. Newtown Square, Pennsylvania: Project Management Institute, Inc </ref>

'''Simon A. Burtonshaw-Gunn. "Risk and Financial Management in Construction." Gower Publishing Limited, 2009.'''

''In today’s climate the need for a closer understanding of the relationship between the two inter-related topics of risk management and finance on construction projects is becoming increasingly crucial to achieving the objectives of the investor, the end-user and the constructor and its supply chain, especially as interest in PFI and PPP arrangements continues to grow around the world. Risk and Financial Management in Construction shows the relationship between the Construction Project Manager’s task of balancing time, cost and quality and the need to satisfy the client’s requirements efficiently, effectively and professionally whilst at the same time contributing to the contractor’s future sustainability. The book covers Risk Management describing the tools and methods to reduce the occurrence and consequences of risk, and the financial management of construction projects from raising funding, to contract strategy and through to estimating, budgeting and cost control. It includes a chapter covering international project risk, bringing together the issues of risk management, prime contracting, and PFI funding for construction projects undertaken away from the contractors main home market. Risk and Financial Management in Construction is aimed at those practising in, or studying to enter, the project management profession in providing a strategic and operational knowledge of these subjects allowing the reader easy access to the key points through a wide selection of models, checklists and easy to find lists in all of the key areas.'' <ref name="SimonA" />

'''Chris Hendrickson. "Project Management for Construction. Fundamental Concepts for Owners, Engineers, Architects and Builders." Prentice Hall, 2000. ISBN 0-13-731266-0'''

''This book develops a specific viewpoint in discussing the participants, the processes and the techniques of project management for construction. This viewpoint is that of owners who desire completion of projects in a timely, cost effective fashion. While this book is devoted to a particular viewpoint with respect to project management for construction, it is not solely intended for owners and their direct representatives. By understanding the entire process, all participants can respond more effectively to the owner's needs in their own work, in marketing their services, and in communicating with other participants. In addition, the specific techniques and tools discussed in this book (such as economic evaluation, scheduling, management information systems, etc.) can be readily applied to any portion of the process.'' <ref name="Hendrickson" />

==References==

<references>

<ref name="CashFlow"> "Cash Flow". Accessed in February 2018. https://en.wikipedia.org/wiki/Cash_flow:.</ref>
<ref name="CashFlowPicture"> "Cash Flow Scheme", BBC, Accessed in February 2018. https://www.bbc.co.uk/education/guides/z67mpv4/revision </ref>
<ref name="SignalAnchors"> "Signal Anchors". Accessed in February 2018. https://en.wikipedia.org/wiki/Milestone_(project_management) </ref>
<ref name="CashisKing"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., 2009. https://books.google.dk/books?id=r4R3gDES5lMC&pg=PA158&lpg=PA158&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management&source=bl&ots=pXc4hlRRCk&sig=8Ma_EihrAuCnJ4lHyi_P7cKf2IQ&hl=en&sa=X&ved=0ahUKEwievtuBh6bZAhWSKCwKHQL-CMMQ6AEIfDAH#v=onepage&q=cash%20flow%20and%20payment%20milestones%20in%20Project%20Cost%20Management&f=false </ref>
<ref name="easyredmine"> "EasyREDMINE" https://www.easyredmine.com/software/project-finances/2747-cash-flow-in-gantt-chart </ref>
<ref name="Iowa"> "Iowa State University website". Accessed in February 2018. https://www.extension.iastate.edu/agdm/wholefarm/html/c3-14.html </ref>
<ref name="PlanningEngineer"> "Planning Engineer website". Accessed in 2018. https://planningengineer.net/create-gantt-chart-and-cash-flow-using-excel-with-sample-file/ </ref>
<ref name="PERT"> "Program evaluation and review technique (PERT)". Accessed in February 2018. https://en.wikipedia.org/wiki/Program_evaluation_and_review_technique </ref>
<ref name="CPM"> "Critical path method (CPM)". Accessed on February 2018. https://www.smartsheet.com/critical-path-method </ref>
<ref name="chapter12"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', Prentice Hall, 2000. Chapter 12, http://pmbook.ce.cmu.edu/12_Cost_Control,_Monitoring,_and_Accounting.html </ref>
<ref name="Hendrickson"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', Prentice Hall, 2000. http://pmbook.ce.cmu.edu </ref>
<ref name="gant"> Website providing information about Gantt charts. http://www.gantt.com/ </ref>
<ref name="SimonA"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., 2009. https://books.google.dk/books?id=sE5BDgAAQBAJ&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management </ref>

Cash flow & payment milestones

2018-02-24T17:26:11Z

S172569: /* Annotated Bibliography */

==Abstract==

Project Cost Management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.<ref name = "besefi">Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)''. Newtown Square, Pennsylvania: Project Management Institute, Inc </ref>. Two main concerns, that are crucial in Project Cost Management are '''cash flow''' and '''payment milestones'''.

Cash flow, its monitoring and analysis is a subject that has been on the agenda for any existing or conducted project or portfolio. Diversity of scale and scope of the projects makes cash flow rather complex and multidimensional issue. Recommended approach for getting a good understanding of this issue is to study cases, projects and portfolios of relevant scale, scope and area to currently investigated project. Similarly it is with payment milestones, which are part of cash flow organisation and planning.

This article will contain two chapters, one for each issue. Apart from diversification of definitions of cash flow <ref> "Cash Flow." Accessed on February 2018. https://www.investopedia.com/terms/c/cashflow.asp</ref> and payment milestones for project, program and portfolio, this article will focus on practical information for Project Managers, and present some real life relevant techniques and tools. For cash flow, the focus will be set on '''Gantt chart''' method, and for payment milestones, there will be two methods introduced: '''Program Evaluation and Review Technique''' (PERT) and '''Critical Path Method''' (CPM). It will also answer the question "''Why cash flow and payment milestones are so important in Project Cost Management?''" and how to approach them.

==Introduction==

===Cash Flow definition===

Cash flow is a term used to describe money movement (flow) in business in defined time period. Cash flow is determined by the following factors: time, nominal amount, currency and account <ref name = "CashFlow"/>.There are two main subdivisions of this term - cash flow in and cash flow out.

'''Cash flow in''' stands for money that is coming into the business. It may come from investors, who are investing or financing the company, from gathered capital that business owner has, or from profits that business is making from selling products or services.

'''Cash flow out''' stands for money that is going out of the business. It may go for covering the wages of hired workers, bills like rental payment or mortgage for facilities or services, and other expenses like taxation.

The difference between cash flow in and cash flow out is called '''net cash flow'''.

[[File:Cashflow.png|center|thumb|500px|Cash Flow scheme <ref name="CashFlowPicture" />]]

===Milestones definition===

Each project has a determined timeframe, or duration. '''Milestones''' are key reference points, or events on this timeline, that are crucial for measuring the project progress and achieving the final outcome. In project management milestones can be called signal anchors <ref name=" SignalAnchors"/> and are used for marking following deliverables:
*Start of the project
*End of the project
*Start of determined phase of the project
*End of determined phase of the project
*Reviews
*Budget checks

Milestones are fixed points, so in contrast to the timeline, they do not have duration, they are fixed dates.

[[File:Milestones.png|center|thumb|500px|Milestones scheme]]

'''Payment milestones''' are another kind of milestones, that are strictly dedicated to finances. They are fixed dates, when certain percent of money is being payed or received. The bigger the project, the bigger the budget, and therefore the more payment milestones present.

==Cash flow and payment milestones in Project Cost Management==

===Cash Flow Analysis===

Referring to popular saying that "Cash is King" - money is one of the most important resources in business <ref name="CashisKing"/>
and requires proper control and analysis. Skillful financial data management allows to extract from cash flow several measures crucial for Project Cost Management. Some of them are:
*'''Project value''' or rate of return. It is basically a profit of an investment. Cash flow is implemented in some financial models, such as IRR or NPV.
*'''Project liquidity'''. It can be determined how easily the financial obligations can be met during the project.
*'''Project risk evaluation'''. It can be determined what is the uncertainty about deviation from expected earnings or expected outcome.

There are several tools and methods of cash flow analysis. One of the most common and universal method is '''Gantt chart'''. It is a method useful for an instant overview of project profitability over time, comparison of planned and actual flows of cash and for better balancing of cash flows across all projects.<ref name="easyredmine"/>. At gantt.com following description of a Gantt chart can be found<ref name="gant"/>:

''A Gantt chart, commonly used in project management, is one of the most popular and useful ways of showing activities (tasks or events) displayed against time. On the left of the chart is a list of the activities and along the top is a suitable time scale. Each activity is represented by a bar; the position and length of the bar reflects the start date, duration and end date of the activity. This allows you to see at a glance:
*''What the various activities are''
*''When each activity begins and ends''
*''How long each activity is scheduled to last''
*''Where activities overlap with other activities, and by how much''
*''The start and end date of the whole project
''
It is possible to crate Gantt charts in programs like Microsoft Excel or Numbers for Mac, however there are several online tools dedicated for this particular method. One of them is easyREDMINE <ref name="easyredmine"/> offering straight forward design and guide for those less experience with this method.

[[File:EasyRedmine.jpg|center|thumb|1000px|easyREDMINE Gantt chart <ref name="easyredmine" />]]

For more tools and explanation of Cash Flow analysis, Iowa State University website can be visited <ref name="Iowa" />, as well as Planning Engineer <ref name="PlanningEngineer" />

===Payment Milestones in Project Cost Management===

Payment milestones are significant element of every project or portfolio schedule. Solid financial planning allows for smooth project flow and simplifies controlling process. To prepare such plan, and create adequate and efficient milestones, there can be several techniques or methods used. One of them is '''Program Evaluation and Review Technique''' (PERT). PERT is project management tool used to schedule, organize, and coordinate tasks within a project. More detailed description of PERT is as follows:

"''PERT is a method of analysing the tasks involved in completing a given project, especially the time needed to complete each task, and to identify the minimum time needed to complete the total project. It incorporates uncertainty by making it possible to schedule a project while not knowing precisely the details and durations of all the activities. It is more of an event-oriented technique rather than start- and completion-oriented and is used more in projects where time is the major factor rather than cost. It is applied to very large-scale, one-time, complex, non-routine infrastructure and Research and Development projects.''" <ref name="PERT"/>

Another method that can be used for Payment Milestones establishment is '''Critical Path Method''' (CPM).

"''The critical path method is a step-by-step project management technique to identify activities on the critical path. It is an approach to project scheduling that breaks the project into several work tasks, displays them in a flow chart, and then calculates the project duration based on estimated durations for each task. It identifies tasks that are critical, time-wise, in completing the project.''" <ref name="CPM"/>

Both methods were established in 1950's and since then, were refined and modified for modern projects expectations. Application of such techniques in project gives its schedule organised and divided into intervals structure, which makes it easier to follow. It also gives better overview on most important activities, that are usually critical to complete within schedule.

==Implementation in real life projects==

For better understanding of presented above techniques and methods, it is recommended to review a real-life project case. A good example would be case of construction project, described in Chapter 12 <ref name="chapter12" /> of book "Project Management for Construction" by Chris Hendrickson <ref name="Hendrickson" />. It gives a broad overview on cost control, monitoring and accounting of a variety of construction projects. Hendrickson starts with project budget establishment, going through forecasting for activity cost control, where he gets into details, presenting and explaining useful formulas with examples. Next, he talks about financial accounting systems and cost accounts, which is an introduction to control of project cash flows. In this chapter, an example of a cash flow status report can be found, with its decent explanation. The next sections are dedicated to schedule control and schedule and budget updates, where Hendrickson talks about milestones and project segmentation.

Hendrickson in his book, and in this particular chapter provides practical examples with real data, which can be adjusted and duplicated for other project purposes. It is important for any future or current Project Manager to have a good background knowledge and experience with different cases that were solved in the past. This gives not only a good overview on how financial planning and controlling can be conducted, but also highlights critical areas, where most issues occur.

==Importance of Cash Flow and Payment Milestones==

Why keeping track of cash flow is important in project management?
There may be two outcomes coming from the cash flow analysis - either cash flow is positive or negative. To achieve positive cash flow, there are two main factors to focus on: organisation and planning.

In case of any project, or portfolio of projects, project manager has to be aware of how much money is coming in, and how much money is being spent. Proportionally to the size and scope of the project, or portfolio, those income and outcome is more complex for bigger projects. To control complicated money flow, it is necessary to have a financial plan. This is where payment milestones come handy. If at the beginning of the project a system of money verification will be established, it will be possible and rather straight forward to follow and control it. Awareness of when is the right moment to spend money gives project manager more chance of staying within the budget frame, and keeping project financial condition in good shape.

In case when there is no proper organisation and planning in cash flow, there is a big danger of spending too much money on some project stages, which can cause lack of resources for other stages. The outcome may be either stretching the budget, which is optimistic variant. More realistic is, that there will be delays in some stages of project, which will project on the schedule and overall project outcome.

==Annotated Bibliography==

'''Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)'''

''A Guide to the Project Management Body of Knowledge (PMBOK® Guide) – Fifth Edition provides guidelines for managing individual projects and defines project management related concepts. It also describes the project management life cycle and its related processes, as well as the project life cycle.''

''The PMBOK® Guide contains the globally recognized standard and guide for the project management profession. A standard is a formal document that describes established norms, methods, processes, and practices. As with other professions, the knowledge contained in this standard has evolved from the recognized good practices of project management practitioners who have contributed to the development of this standard.''

'''Simon A. Burtonshaw-Gunn. "Risk and Financial Management in Construction." Gower Publishing Limited, 2009.'''

''In today’s climate the need for a closer understanding of the relationship between the two inter-related topics of risk management and finance on construction projects is becoming increasingly crucial to achieving the objectives of the investor, the end-user and the constructor and its supply chain, especially as interest in PFI and PPP arrangements continues to grow around the world. Risk and Financial Management in Construction shows the relationship between the Construction Project Manager’s task of balancing time, cost and quality and the need to satisfy the client’s requirements efficiently, effectively and professionally whilst at the same time contributing to the contractor’s future sustainability. The book covers Risk Management describing the tools and methods to reduce the occurrence and consequences of risk, and the financial management of construction projects from raising funding, to contract strategy and through to estimating, budgeting and cost control. It includes a chapter covering international project risk, bringing together the issues of risk management, prime contracting, and PFI funding for construction projects undertaken away from the contractors main home market. Risk and Financial Management in Construction is aimed at those practising in, or studying to enter, the project management profession in providing a strategic and operational knowledge of these subjects allowing the reader easy access to the key points through a wide selection of models, checklists and easy to find lists in all of the key areas.'' <ref name="SimonA" />

'''Chris Hendrickson. "Project Management for Construction. Fundamental Concepts for Owners, Engineers, Architects and Builders." Prentice Hall, 2000. ISBN 0-13-731266-0'''

''This book develops a specific viewpoint in discussing the participants, the processes and the techniques of project management for construction. This viewpoint is that of owners who desire completion of projects in a timely, cost effective fashion. While this book is devoted to a particular viewpoint with respect to project management for construction, it is not solely intended for owners and their direct representatives. By understanding the entire process, all participants can respond more effectively to the owner's needs in their own work, in marketing their services, and in communicating with other participants. In addition, the specific techniques and tools discussed in this book (such as economic evaluation, scheduling, management information systems, etc.) can be readily applied to any portion of the process.'' <ref name="Hendrickson" />

==References==

<references>

<ref name="CashFlow"> "Cash Flow". Accessed in February 2018. https://en.wikipedia.org/wiki/Cash_flow:.</ref>
<ref name="CashFlowPicture"> "Cash Flow Scheme", BBC, Accessed in February 2018. https://www.bbc.co.uk/education/guides/z67mpv4/revision </ref>
<ref name="SignalAnchors"> "Signal Anchors". Accessed in February 2018. https://en.wikipedia.org/wiki/Milestone_(project_management) </ref>
<ref name="CashisKing"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., 2009. https://books.google.dk/books?id=r4R3gDES5lMC&pg=PA158&lpg=PA158&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management&source=bl&ots=pXc4hlRRCk&sig=8Ma_EihrAuCnJ4lHyi_P7cKf2IQ&hl=en&sa=X&ved=0ahUKEwievtuBh6bZAhWSKCwKHQL-CMMQ6AEIfDAH#v=onepage&q=cash%20flow%20and%20payment%20milestones%20in%20Project%20Cost%20Management&f=false </ref>
<ref name="easyredmine"> "EasyREDMINE" https://www.easyredmine.com/software/project-finances/2747-cash-flow-in-gantt-chart </ref>
<ref name="Iowa"> "Iowa State University website". Accessed in February 2018. https://www.extension.iastate.edu/agdm/wholefarm/html/c3-14.html </ref>
<ref name="PlanningEngineer"> "Planning Engineer website". Accessed in 2018. https://planningengineer.net/create-gantt-chart-and-cash-flow-using-excel-with-sample-file/ </ref>
<ref name="PERT"> "Program evaluation and review technique (PERT)". Accessed in February 2018. https://en.wikipedia.org/wiki/Program_evaluation_and_review_technique </ref>
<ref name="CPM"> "Critical path method (CPM)". Accessed on February 2018. https://www.smartsheet.com/critical-path-method </ref>
<ref name="chapter12"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', Prentice Hall, 2000. Chapter 12, http://pmbook.ce.cmu.edu/12_Cost_Control,_Monitoring,_and_Accounting.html </ref>
<ref name="Hendrickson"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', Prentice Hall, 2000. http://pmbook.ce.cmu.edu </ref>
<ref name="gant"> Website providing information about Gantt charts. http://www.gantt.com/ </ref>
<ref name="SimonA"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., 2009. https://books.google.dk/books?id=sE5BDgAAQBAJ&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management </ref>

Cash flow & payment milestones

2018-02-24T17:25:45Z

S172569: /* Annotated Bibliography */

==Abstract==

Project Cost Management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.<ref name = "besefi">Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)''. Newtown Square, Pennsylvania: Project Management Institute, Inc </ref>. Two main concerns, that are crucial in Project Cost Management are '''cash flow''' and '''payment milestones'''.

Cash flow, its monitoring and analysis is a subject that has been on the agenda for any existing or conducted project or portfolio. Diversity of scale and scope of the projects makes cash flow rather complex and multidimensional issue. Recommended approach for getting a good understanding of this issue is to study cases, projects and portfolios of relevant scale, scope and area to currently investigated project. Similarly it is with payment milestones, which are part of cash flow organisation and planning.

This article will contain two chapters, one for each issue. Apart from diversification of definitions of cash flow <ref> "Cash Flow." Accessed on February 2018. https://www.investopedia.com/terms/c/cashflow.asp</ref> and payment milestones for project, program and portfolio, this article will focus on practical information for Project Managers, and present some real life relevant techniques and tools. For cash flow, the focus will be set on '''Gantt chart''' method, and for payment milestones, there will be two methods introduced: '''Program Evaluation and Review Technique''' (PERT) and '''Critical Path Method''' (CPM). It will also answer the question "''Why cash flow and payment milestones are so important in Project Cost Management?''" and how to approach them.

==Introduction==

===Cash Flow definition===

Cash flow is a term used to describe money movement (flow) in business in defined time period. Cash flow is determined by the following factors: time, nominal amount, currency and account <ref name = "CashFlow"/>.There are two main subdivisions of this term - cash flow in and cash flow out.

'''Cash flow in''' stands for money that is coming into the business. It may come from investors, who are investing or financing the company, from gathered capital that business owner has, or from profits that business is making from selling products or services.

'''Cash flow out''' stands for money that is going out of the business. It may go for covering the wages of hired workers, bills like rental payment or mortgage for facilities or services, and other expenses like taxation.

The difference between cash flow in and cash flow out is called '''net cash flow'''.

[[File:Cashflow.png|center|thumb|500px|Cash Flow scheme <ref name="CashFlowPicture" />]]

===Milestones definition===

Each project has a determined timeframe, or duration. '''Milestones''' are key reference points, or events on this timeline, that are crucial for measuring the project progress and achieving the final outcome. In project management milestones can be called signal anchors <ref name=" SignalAnchors"/> and are used for marking following deliverables:
*Start of the project
*End of the project
*Start of determined phase of the project
*End of determined phase of the project
*Reviews
*Budget checks

Milestones are fixed points, so in contrast to the timeline, they do not have duration, they are fixed dates.

[[File:Milestones.png|center|thumb|500px|Milestones scheme]]

'''Payment milestones''' are another kind of milestones, that are strictly dedicated to finances. They are fixed dates, when certain percent of money is being payed or received. The bigger the project, the bigger the budget, and therefore the more payment milestones present.

==Cash flow and payment milestones in Project Cost Management==

===Cash Flow Analysis===

Referring to popular saying that "Cash is King" - money is one of the most important resources in business <ref name="CashisKing"/>
and requires proper control and analysis. Skillful financial data management allows to extract from cash flow several measures crucial for Project Cost Management. Some of them are:
*'''Project value''' or rate of return. It is basically a profit of an investment. Cash flow is implemented in some financial models, such as IRR or NPV.
*'''Project liquidity'''. It can be determined how easily the financial obligations can be met during the project.
*'''Project risk evaluation'''. It can be determined what is the uncertainty about deviation from expected earnings or expected outcome.

There are several tools and methods of cash flow analysis. One of the most common and universal method is '''Gantt chart'''. It is a method useful for an instant overview of project profitability over time, comparison of planned and actual flows of cash and for better balancing of cash flows across all projects.<ref name="easyredmine"/>. At gantt.com following description of a Gantt chart can be found<ref name="gant"/>:

''A Gantt chart, commonly used in project management, is one of the most popular and useful ways of showing activities (tasks or events) displayed against time. On the left of the chart is a list of the activities and along the top is a suitable time scale. Each activity is represented by a bar; the position and length of the bar reflects the start date, duration and end date of the activity. This allows you to see at a glance:
*''What the various activities are''
*''When each activity begins and ends''
*''How long each activity is scheduled to last''
*''Where activities overlap with other activities, and by how much''
*''The start and end date of the whole project
''
It is possible to crate Gantt charts in programs like Microsoft Excel or Numbers for Mac, however there are several online tools dedicated for this particular method. One of them is easyREDMINE <ref name="easyredmine"/> offering straight forward design and guide for those less experience with this method.

[[File:EasyRedmine.jpg|center|thumb|1000px|easyREDMINE Gantt chart <ref name="easyredmine" />]]

For more tools and explanation of Cash Flow analysis, Iowa State University website can be visited <ref name="Iowa" />, as well as Planning Engineer <ref name="PlanningEngineer" />

===Payment Milestones in Project Cost Management===

Payment milestones are significant element of every project or portfolio schedule. Solid financial planning allows for smooth project flow and simplifies controlling process. To prepare such plan, and create adequate and efficient milestones, there can be several techniques or methods used. One of them is '''Program Evaluation and Review Technique''' (PERT). PERT is project management tool used to schedule, organize, and coordinate tasks within a project. More detailed description of PERT is as follows:

"''PERT is a method of analysing the tasks involved in completing a given project, especially the time needed to complete each task, and to identify the minimum time needed to complete the total project. It incorporates uncertainty by making it possible to schedule a project while not knowing precisely the details and durations of all the activities. It is more of an event-oriented technique rather than start- and completion-oriented and is used more in projects where time is the major factor rather than cost. It is applied to very large-scale, one-time, complex, non-routine infrastructure and Research and Development projects.''" <ref name="PERT"/>

Another method that can be used for Payment Milestones establishment is '''Critical Path Method''' (CPM).

"''The critical path method is a step-by-step project management technique to identify activities on the critical path. It is an approach to project scheduling that breaks the project into several work tasks, displays them in a flow chart, and then calculates the project duration based on estimated durations for each task. It identifies tasks that are critical, time-wise, in completing the project.''" <ref name="CPM"/>

Both methods were established in 1950's and since then, were refined and modified for modern projects expectations. Application of such techniques in project gives its schedule organised and divided into intervals structure, which makes it easier to follow. It also gives better overview on most important activities, that are usually critical to complete within schedule.

==Implementation in real life projects==

For better understanding of presented above techniques and methods, it is recommended to review a real-life project case. A good example would be case of construction project, described in Chapter 12 <ref name="chapter12" /> of book "Project Management for Construction" by Chris Hendrickson <ref name="Hendrickson" />. It gives a broad overview on cost control, monitoring and accounting of a variety of construction projects. Hendrickson starts with project budget establishment, going through forecasting for activity cost control, where he gets into details, presenting and explaining useful formulas with examples. Next, he talks about financial accounting systems and cost accounts, which is an introduction to control of project cash flows. In this chapter, an example of a cash flow status report can be found, with its decent explanation. The next sections are dedicated to schedule control and schedule and budget updates, where Hendrickson talks about milestones and project segmentation.

Hendrickson in his book, and in this particular chapter provides practical examples with real data, which can be adjusted and duplicated for other project purposes. It is important for any future or current Project Manager to have a good background knowledge and experience with different cases that were solved in the past. This gives not only a good overview on how financial planning and controlling can be conducted, but also highlights critical areas, where most issues occur.

==Importance of Cash Flow and Payment Milestones==

Why keeping track of cash flow is important in project management?
There may be two outcomes coming from the cash flow analysis - either cash flow is positive or negative. To achieve positive cash flow, there are two main factors to focus on: organisation and planning.

In case of any project, or portfolio of projects, project manager has to be aware of how much money is coming in, and how much money is being spent. Proportionally to the size and scope of the project, or portfolio, those income and outcome is more complex for bigger projects. To control complicated money flow, it is necessary to have a financial plan. This is where payment milestones come handy. If at the beginning of the project a system of money verification will be established, it will be possible and rather straight forward to follow and control it. Awareness of when is the right moment to spend money gives project manager more chance of staying within the budget frame, and keeping project financial condition in good shape.

In case when there is no proper organisation and planning in cash flow, there is a big danger of spending too much money on some project stages, which can cause lack of resources for other stages. The outcome may be either stretching the budget, which is optimistic variant. More realistic is, that there will be delays in some stages of project, which will project on the schedule and overall project outcome.

==Annotated Bibliography==

'''Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)'''

''A Guide to the Project Management Body of Knowledge (PMBOK® Guide) – Fifth Edition provides guidelines for managing individual projects and defines project management related concepts. It also describes the project management life cycle and its related processes, as well as the project life cycle.

The PMBOK® Guide contains the globally recognized standard and guide for the project management profession. A standard is a formal document that describes established norms, methods, processes, and practices. As with other professions, the knowledge contained in this standard has evolved from the recognized good practices of project management practitioners who have contributed to the development of this standard.''

'''Simon A. Burtonshaw-Gunn. "Risk and Financial Management in Construction." Gower Publishing Limited, 2009.'''

''In today’s climate the need for a closer understanding of the relationship between the two inter-related topics of risk management and finance on construction projects is becoming increasingly crucial to achieving the objectives of the investor, the end-user and the constructor and its supply chain, especially as interest in PFI and PPP arrangements continues to grow around the world. Risk and Financial Management in Construction shows the relationship between the Construction Project Manager’s task of balancing time, cost and quality and the need to satisfy the client’s requirements efficiently, effectively and professionally whilst at the same time contributing to the contractor’s future sustainability. The book covers Risk Management describing the tools and methods to reduce the occurrence and consequences of risk, and the financial management of construction projects from raising funding, to contract strategy and through to estimating, budgeting and cost control. It includes a chapter covering international project risk, bringing together the issues of risk management, prime contracting, and PFI funding for construction projects undertaken away from the contractors main home market. Risk and Financial Management in Construction is aimed at those practising in, or studying to enter, the project management profession in providing a strategic and operational knowledge of these subjects allowing the reader easy access to the key points through a wide selection of models, checklists and easy to find lists in all of the key areas.'' <ref name="SimonA" />

'''Chris Hendrickson. "Project Management for Construction. Fundamental Concepts for Owners, Engineers, Architects and Builders." Prentice Hall, 2000. ISBN 0-13-731266-0'''

''This book develops a specific viewpoint in discussing the participants, the processes and the techniques of project management for construction. This viewpoint is that of owners who desire completion of projects in a timely, cost effective fashion. While this book is devoted to a particular viewpoint with respect to project management for construction, it is not solely intended for owners and their direct representatives. By understanding the entire process, all participants can respond more effectively to the owner's needs in their own work, in marketing their services, and in communicating with other participants. In addition, the specific techniques and tools discussed in this book (such as economic evaluation, scheduling, management information systems, etc.) can be readily applied to any portion of the process.'' <ref name="Hendrickson" />

==References==

<references>

<ref name="CashFlow"> "Cash Flow". Accessed in February 2018. https://en.wikipedia.org/wiki/Cash_flow:.</ref>
<ref name="CashFlowPicture"> "Cash Flow Scheme", BBC, Accessed in February 2018. https://www.bbc.co.uk/education/guides/z67mpv4/revision </ref>
<ref name="SignalAnchors"> "Signal Anchors". Accessed in February 2018. https://en.wikipedia.org/wiki/Milestone_(project_management) </ref>
<ref name="CashisKing"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., 2009. https://books.google.dk/books?id=r4R3gDES5lMC&pg=PA158&lpg=PA158&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management&source=bl&ots=pXc4hlRRCk&sig=8Ma_EihrAuCnJ4lHyi_P7cKf2IQ&hl=en&sa=X&ved=0ahUKEwievtuBh6bZAhWSKCwKHQL-CMMQ6AEIfDAH#v=onepage&q=cash%20flow%20and%20payment%20milestones%20in%20Project%20Cost%20Management&f=false </ref>
<ref name="easyredmine"> "EasyREDMINE" https://www.easyredmine.com/software/project-finances/2747-cash-flow-in-gantt-chart </ref>
<ref name="Iowa"> "Iowa State University website". Accessed in February 2018. https://www.extension.iastate.edu/agdm/wholefarm/html/c3-14.html </ref>
<ref name="PlanningEngineer"> "Planning Engineer website". Accessed in 2018. https://planningengineer.net/create-gantt-chart-and-cash-flow-using-excel-with-sample-file/ </ref>
<ref name="PERT"> "Program evaluation and review technique (PERT)". Accessed in February 2018. https://en.wikipedia.org/wiki/Program_evaluation_and_review_technique </ref>
<ref name="CPM"> "Critical path method (CPM)". Accessed on February 2018. https://www.smartsheet.com/critical-path-method </ref>
<ref name="chapter12"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', Prentice Hall, 2000. Chapter 12, http://pmbook.ce.cmu.edu/12_Cost_Control,_Monitoring,_and_Accounting.html </ref>
<ref name="Hendrickson"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', Prentice Hall, 2000. http://pmbook.ce.cmu.edu </ref>
<ref name="gant"> Website providing information about Gantt charts. http://www.gantt.com/ </ref>
<ref name="SimonA"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., 2009. https://books.google.dk/books?id=sE5BDgAAQBAJ&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management </ref>

Cash flow & payment milestones

2018-02-24T17:24:09Z

S172569: /* Abstract */

==Abstract==

Project Cost Management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.<ref name = "besefi">Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)''. Newtown Square, Pennsylvania: Project Management Institute, Inc </ref>. Two main concerns, that are crucial in Project Cost Management are '''cash flow''' and '''payment milestones'''.

Cash flow, its monitoring and analysis is a subject that has been on the agenda for any existing or conducted project or portfolio. Diversity of scale and scope of the projects makes cash flow rather complex and multidimensional issue. Recommended approach for getting a good understanding of this issue is to study cases, projects and portfolios of relevant scale, scope and area to currently investigated project. Similarly it is with payment milestones, which are part of cash flow organisation and planning.

This article will contain two chapters, one for each issue. Apart from diversification of definitions of cash flow <ref> "Cash Flow." Accessed on February 2018. https://www.investopedia.com/terms/c/cashflow.asp</ref> and payment milestones for project, program and portfolio, this article will focus on practical information for Project Managers, and present some real life relevant techniques and tools. For cash flow, the focus will be set on '''Gantt chart''' method, and for payment milestones, there will be two methods introduced: '''Program Evaluation and Review Technique''' (PERT) and '''Critical Path Method''' (CPM). It will also answer the question "''Why cash flow and payment milestones are so important in Project Cost Management?''" and how to approach them.

==Introduction==

===Cash Flow definition===

Cash flow is a term used to describe money movement (flow) in business in defined time period. Cash flow is determined by the following factors: time, nominal amount, currency and account <ref name = "CashFlow"/>.There are two main subdivisions of this term - cash flow in and cash flow out.

'''Cash flow in''' stands for money that is coming into the business. It may come from investors, who are investing or financing the company, from gathered capital that business owner has, or from profits that business is making from selling products or services.

'''Cash flow out''' stands for money that is going out of the business. It may go for covering the wages of hired workers, bills like rental payment or mortgage for facilities or services, and other expenses like taxation.

The difference between cash flow in and cash flow out is called '''net cash flow'''.

[[File:Cashflow.png|center|thumb|500px|Cash Flow scheme <ref name="CashFlowPicture" />]]

===Milestones definition===

Each project has a determined timeframe, or duration. '''Milestones''' are key reference points, or events on this timeline, that are crucial for measuring the project progress and achieving the final outcome. In project management milestones can be called signal anchors <ref name=" SignalAnchors"/> and are used for marking following deliverables:
*Start of the project
*End of the project
*Start of determined phase of the project
*End of determined phase of the project
*Reviews
*Budget checks

Milestones are fixed points, so in contrast to the timeline, they do not have duration, they are fixed dates.

[[File:Milestones.png|center|thumb|500px|Milestones scheme]]

'''Payment milestones''' are another kind of milestones, that are strictly dedicated to finances. They are fixed dates, when certain percent of money is being payed or received. The bigger the project, the bigger the budget, and therefore the more payment milestones present.

==Cash flow and payment milestones in Project Cost Management==

===Cash Flow Analysis===

Referring to popular saying that "Cash is King" - money is one of the most important resources in business <ref name="CashisKing"/>
and requires proper control and analysis. Skillful financial data management allows to extract from cash flow several measures crucial for Project Cost Management. Some of them are:
*'''Project value''' or rate of return. It is basically a profit of an investment. Cash flow is implemented in some financial models, such as IRR or NPV.
*'''Project liquidity'''. It can be determined how easily the financial obligations can be met during the project.
*'''Project risk evaluation'''. It can be determined what is the uncertainty about deviation from expected earnings or expected outcome.

There are several tools and methods of cash flow analysis. One of the most common and universal method is '''Gantt chart'''. It is a method useful for an instant overview of project profitability over time, comparison of planned and actual flows of cash and for better balancing of cash flows across all projects.<ref name="easyredmine"/>. At gantt.com following description of a Gantt chart can be found<ref name="gant"/>:

''A Gantt chart, commonly used in project management, is one of the most popular and useful ways of showing activities (tasks or events) displayed against time. On the left of the chart is a list of the activities and along the top is a suitable time scale. Each activity is represented by a bar; the position and length of the bar reflects the start date, duration and end date of the activity. This allows you to see at a glance:
*''What the various activities are''
*''When each activity begins and ends''
*''How long each activity is scheduled to last''
*''Where activities overlap with other activities, and by how much''
*''The start and end date of the whole project
''
It is possible to crate Gantt charts in programs like Microsoft Excel or Numbers for Mac, however there are several online tools dedicated for this particular method. One of them is easyREDMINE <ref name="easyredmine"/> offering straight forward design and guide for those less experience with this method.

[[File:EasyRedmine.jpg|center|thumb|1000px|easyREDMINE Gantt chart <ref name="easyredmine" />]]

For more tools and explanation of Cash Flow analysis, Iowa State University website can be visited <ref name="Iowa" />, as well as Planning Engineer <ref name="PlanningEngineer" />

===Payment Milestones in Project Cost Management===

Payment milestones are significant element of every project or portfolio schedule. Solid financial planning allows for smooth project flow and simplifies controlling process. To prepare such plan, and create adequate and efficient milestones, there can be several techniques or methods used. One of them is '''Program Evaluation and Review Technique''' (PERT). PERT is project management tool used to schedule, organize, and coordinate tasks within a project. More detailed description of PERT is as follows:

"''PERT is a method of analysing the tasks involved in completing a given project, especially the time needed to complete each task, and to identify the minimum time needed to complete the total project. It incorporates uncertainty by making it possible to schedule a project while not knowing precisely the details and durations of all the activities. It is more of an event-oriented technique rather than start- and completion-oriented and is used more in projects where time is the major factor rather than cost. It is applied to very large-scale, one-time, complex, non-routine infrastructure and Research and Development projects.''" <ref name="PERT"/>

Another method that can be used for Payment Milestones establishment is '''Critical Path Method''' (CPM).

"''The critical path method is a step-by-step project management technique to identify activities on the critical path. It is an approach to project scheduling that breaks the project into several work tasks, displays them in a flow chart, and then calculates the project duration based on estimated durations for each task. It identifies tasks that are critical, time-wise, in completing the project.''" <ref name="CPM"/>

Both methods were established in 1950's and since then, were refined and modified for modern projects expectations. Application of such techniques in project gives its schedule organised and divided into intervals structure, which makes it easier to follow. It also gives better overview on most important activities, that are usually critical to complete within schedule.

==Implementation in real life projects==

For better understanding of presented above techniques and methods, it is recommended to review a real-life project case. A good example would be case of construction project, described in Chapter 12 <ref name="chapter12" /> of book "Project Management for Construction" by Chris Hendrickson <ref name="Hendrickson" />. It gives a broad overview on cost control, monitoring and accounting of a variety of construction projects. Hendrickson starts with project budget establishment, going through forecasting for activity cost control, where he gets into details, presenting and explaining useful formulas with examples. Next, he talks about financial accounting systems and cost accounts, which is an introduction to control of project cash flows. In this chapter, an example of a cash flow status report can be found, with its decent explanation. The next sections are dedicated to schedule control and schedule and budget updates, where Hendrickson talks about milestones and project segmentation.

Hendrickson in his book, and in this particular chapter provides practical examples with real data, which can be adjusted and duplicated for other project purposes. It is important for any future or current Project Manager to have a good background knowledge and experience with different cases that were solved in the past. This gives not only a good overview on how financial planning and controlling can be conducted, but also highlights critical areas, where most issues occur.

==Importance of Cash Flow and Payment Milestones==

Why keeping track of cash flow is important in project management?
There may be two outcomes coming from the cash flow analysis - either cash flow is positive or negative. To achieve positive cash flow, there are two main factors to focus on: organisation and planning.

In case of any project, or portfolio of projects, project manager has to be aware of how much money is coming in, and how much money is being spent. Proportionally to the size and scope of the project, or portfolio, those income and outcome is more complex for bigger projects. To control complicated money flow, it is necessary to have a financial plan. This is where payment milestones come handy. If at the beginning of the project a system of money verification will be established, it will be possible and rather straight forward to follow and control it. Awareness of when is the right moment to spend money gives project manager more chance of staying within the budget frame, and keeping project financial condition in good shape.

In case when there is no proper organisation and planning in cash flow, there is a big danger of spending too much money on some project stages, which can cause lack of resources for other stages. The outcome may be either stretching the budget, which is optimistic variant. More realistic is, that there will be delays in some stages of project, which will project on the schedule and overall project outcome.

==Annotated Bibliography==

'''Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)'''

'''Simon A. Burtonshaw-Gunn. "Risk and Financial Management in Construction." Gower Publishing Limited, 2009.'''

''In today’s climate the need for a closer understanding of the relationship between the two inter-related topics of risk management and finance on construction projects is becoming increasingly crucial to achieving the objectives of the investor, the end-user and the constructor and its supply chain, especially as interest in PFI and PPP arrangements continues to grow around the world. Risk and Financial Management in Construction shows the relationship between the Construction Project Manager’s task of balancing time, cost and quality and the need to satisfy the client’s requirements efficiently, effectively and professionally whilst at the same time contributing to the contractor’s future sustainability. The book covers Risk Management describing the tools and methods to reduce the occurrence and consequences of risk, and the financial management of construction projects from raising funding, to contract strategy and through to estimating, budgeting and cost control. It includes a chapter covering international project risk, bringing together the issues of risk management, prime contracting, and PFI funding for construction projects undertaken away from the contractors main home market. Risk and Financial Management in Construction is aimed at those practising in, or studying to enter, the project management profession in providing a strategic and operational knowledge of these subjects allowing the reader easy access to the key points through a wide selection of models, checklists and easy to find lists in all of the key areas.'' <ref name="SimonA" />

'''Chris Hendrickson. "Project Management for Construction. Fundamental Concepts for Owners, Engineers, Architects and Builders." Prentice Hall, 2000. ISBN 0-13-731266-0'''

''This book develops a specific viewpoint in discussing the participants, the processes and the techniques of project management for construction. This viewpoint is that of owners who desire completion of projects in a timely, cost effective fashion. While this book is devoted to a particular viewpoint with respect to project management for construction, it is not solely intended for owners and their direct representatives. By understanding the entire process, all participants can respond more effectively to the owner's needs in their own work, in marketing their services, and in communicating with other participants. In addition, the specific techniques and tools discussed in this book (such as economic evaluation, scheduling, management information systems, etc.) can be readily applied to any portion of the process.'' <ref name="Hendrickson" />

==References==

<references>

<ref name="CashFlow"> "Cash Flow". Accessed in February 2018. https://en.wikipedia.org/wiki/Cash_flow:.</ref>
<ref name="CashFlowPicture"> "Cash Flow Scheme", BBC, Accessed in February 2018. https://www.bbc.co.uk/education/guides/z67mpv4/revision </ref>
<ref name="SignalAnchors"> "Signal Anchors". Accessed in February 2018. https://en.wikipedia.org/wiki/Milestone_(project_management) </ref>
<ref name="CashisKing"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., 2009. https://books.google.dk/books?id=r4R3gDES5lMC&pg=PA158&lpg=PA158&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management&source=bl&ots=pXc4hlRRCk&sig=8Ma_EihrAuCnJ4lHyi_P7cKf2IQ&hl=en&sa=X&ved=0ahUKEwievtuBh6bZAhWSKCwKHQL-CMMQ6AEIfDAH#v=onepage&q=cash%20flow%20and%20payment%20milestones%20in%20Project%20Cost%20Management&f=false </ref>
<ref name="easyredmine"> "EasyREDMINE" https://www.easyredmine.com/software/project-finances/2747-cash-flow-in-gantt-chart </ref>
<ref name="Iowa"> "Iowa State University website". Accessed in February 2018. https://www.extension.iastate.edu/agdm/wholefarm/html/c3-14.html </ref>
<ref name="PlanningEngineer"> "Planning Engineer website". Accessed in 2018. https://planningengineer.net/create-gantt-chart-and-cash-flow-using-excel-with-sample-file/ </ref>
<ref name="PERT"> "Program evaluation and review technique (PERT)". Accessed in February 2018. https://en.wikipedia.org/wiki/Program_evaluation_and_review_technique </ref>
<ref name="CPM"> "Critical path method (CPM)". Accessed on February 2018. https://www.smartsheet.com/critical-path-method </ref>
<ref name="chapter12"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', Prentice Hall, 2000. Chapter 12, http://pmbook.ce.cmu.edu/12_Cost_Control,_Monitoring,_and_Accounting.html </ref>
<ref name="Hendrickson"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', Prentice Hall, 2000. http://pmbook.ce.cmu.edu </ref>
<ref name="gant"> Website providing information about Gantt charts. http://www.gantt.com/ </ref>
<ref name="SimonA"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., 2009. https://books.google.dk/books?id=sE5BDgAAQBAJ&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management </ref>

Cash flow & payment milestones

2018-02-24T17:23:51Z

S172569: /* Abstract */

==Abstract==

Project Cost Management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.<ref name = "besefi">Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)''. Newtown Square, Pennsylvania: Project Management Institute, Inc </ref>. Two main concerns, that are crucial in Project Cost Management are '''cash flow''' and '''payment milestones'''.

Cash flow, its monitoring and analysis is a subject that has been on the agenda for any existing or conducted project or portfolio. Diversity of scale and scope of the projects makes cash flow rather complex and multidimensional issue. Recommended approach for getting a good understanding of this issue is to study cases, projects and portfolios of relevant scale, scope and area to currently investigated project. Similarly it is with payment milestones, which are part of cash flow organisation and planning.

This article will contain two chapters, one for each issue. Apart from diversification of definitions of cash flow <ref> "Cash Flow." Accessed on February 2018 from https://www.investopedia.com/terms/c/cashflow.asp</ref> and payment milestones for project, program and portfolio, this article will focus on practical information for Project Managers, and present some real life relevant techniques and tools. For cash flow, the focus will be set on '''Gantt chart''' method, and for payment milestones, there will be two methods introduced: '''Program Evaluation and Review Technique''' (PERT) and '''Critical Path Method''' (CPM). It will also answer the question "''Why cash flow and payment milestones are so important in Project Cost Management?''" and how to approach them.

==Introduction==

===Cash Flow definition===

Cash flow is a term used to describe money movement (flow) in business in defined time period. Cash flow is determined by the following factors: time, nominal amount, currency and account <ref name = "CashFlow"/>.There are two main subdivisions of this term - cash flow in and cash flow out.

'''Cash flow in''' stands for money that is coming into the business. It may come from investors, who are investing or financing the company, from gathered capital that business owner has, or from profits that business is making from selling products or services.

'''Cash flow out''' stands for money that is going out of the business. It may go for covering the wages of hired workers, bills like rental payment or mortgage for facilities or services, and other expenses like taxation.

The difference between cash flow in and cash flow out is called '''net cash flow'''.

[[File:Cashflow.png|center|thumb|500px|Cash Flow scheme <ref name="CashFlowPicture" />]]

===Milestones definition===

Each project has a determined timeframe, or duration. '''Milestones''' are key reference points, or events on this timeline, that are crucial for measuring the project progress and achieving the final outcome. In project management milestones can be called signal anchors <ref name=" SignalAnchors"/> and are used for marking following deliverables:
*Start of the project
*End of the project
*Start of determined phase of the project
*End of determined phase of the project
*Reviews
*Budget checks

Milestones are fixed points, so in contrast to the timeline, they do not have duration, they are fixed dates.

[[File:Milestones.png|center|thumb|500px|Milestones scheme]]

'''Payment milestones''' are another kind of milestones, that are strictly dedicated to finances. They are fixed dates, when certain percent of money is being payed or received. The bigger the project, the bigger the budget, and therefore the more payment milestones present.

==Cash flow and payment milestones in Project Cost Management==

===Cash Flow Analysis===

Referring to popular saying that "Cash is King" - money is one of the most important resources in business <ref name="CashisKing"/>
and requires proper control and analysis. Skillful financial data management allows to extract from cash flow several measures crucial for Project Cost Management. Some of them are:
*'''Project value''' or rate of return. It is basically a profit of an investment. Cash flow is implemented in some financial models, such as IRR or NPV.
*'''Project liquidity'''. It can be determined how easily the financial obligations can be met during the project.
*'''Project risk evaluation'''. It can be determined what is the uncertainty about deviation from expected earnings or expected outcome.

There are several tools and methods of cash flow analysis. One of the most common and universal method is '''Gantt chart'''. It is a method useful for an instant overview of project profitability over time, comparison of planned and actual flows of cash and for better balancing of cash flows across all projects.<ref name="easyredmine"/>. At gantt.com following description of a Gantt chart can be found<ref name="gant"/>:

''A Gantt chart, commonly used in project management, is one of the most popular and useful ways of showing activities (tasks or events) displayed against time. On the left of the chart is a list of the activities and along the top is a suitable time scale. Each activity is represented by a bar; the position and length of the bar reflects the start date, duration and end date of the activity. This allows you to see at a glance:
*''What the various activities are''
*''When each activity begins and ends''
*''How long each activity is scheduled to last''
*''Where activities overlap with other activities, and by how much''
*''The start and end date of the whole project
''
It is possible to crate Gantt charts in programs like Microsoft Excel or Numbers for Mac, however there are several online tools dedicated for this particular method. One of them is easyREDMINE <ref name="easyredmine"/> offering straight forward design and guide for those less experience with this method.

[[File:EasyRedmine.jpg|center|thumb|1000px|easyREDMINE Gantt chart <ref name="easyredmine" />]]

For more tools and explanation of Cash Flow analysis, Iowa State University website can be visited <ref name="Iowa" />, as well as Planning Engineer <ref name="PlanningEngineer" />

===Payment Milestones in Project Cost Management===

Payment milestones are significant element of every project or portfolio schedule. Solid financial planning allows for smooth project flow and simplifies controlling process. To prepare such plan, and create adequate and efficient milestones, there can be several techniques or methods used. One of them is '''Program Evaluation and Review Technique''' (PERT). PERT is project management tool used to schedule, organize, and coordinate tasks within a project. More detailed description of PERT is as follows:

"''PERT is a method of analysing the tasks involved in completing a given project, especially the time needed to complete each task, and to identify the minimum time needed to complete the total project. It incorporates uncertainty by making it possible to schedule a project while not knowing precisely the details and durations of all the activities. It is more of an event-oriented technique rather than start- and completion-oriented and is used more in projects where time is the major factor rather than cost. It is applied to very large-scale, one-time, complex, non-routine infrastructure and Research and Development projects.''" <ref name="PERT"/>

Another method that can be used for Payment Milestones establishment is '''Critical Path Method''' (CPM).

"''The critical path method is a step-by-step project management technique to identify activities on the critical path. It is an approach to project scheduling that breaks the project into several work tasks, displays them in a flow chart, and then calculates the project duration based on estimated durations for each task. It identifies tasks that are critical, time-wise, in completing the project.''" <ref name="CPM"/>

Both methods were established in 1950's and since then, were refined and modified for modern projects expectations. Application of such techniques in project gives its schedule organised and divided into intervals structure, which makes it easier to follow. It also gives better overview on most important activities, that are usually critical to complete within schedule.

==Implementation in real life projects==

For better understanding of presented above techniques and methods, it is recommended to review a real-life project case. A good example would be case of construction project, described in Chapter 12 <ref name="chapter12" /> of book "Project Management for Construction" by Chris Hendrickson <ref name="Hendrickson" />. It gives a broad overview on cost control, monitoring and accounting of a variety of construction projects. Hendrickson starts with project budget establishment, going through forecasting for activity cost control, where he gets into details, presenting and explaining useful formulas with examples. Next, he talks about financial accounting systems and cost accounts, which is an introduction to control of project cash flows. In this chapter, an example of a cash flow status report can be found, with its decent explanation. The next sections are dedicated to schedule control and schedule and budget updates, where Hendrickson talks about milestones and project segmentation.

Hendrickson in his book, and in this particular chapter provides practical examples with real data, which can be adjusted and duplicated for other project purposes. It is important for any future or current Project Manager to have a good background knowledge and experience with different cases that were solved in the past. This gives not only a good overview on how financial planning and controlling can be conducted, but also highlights critical areas, where most issues occur.

==Importance of Cash Flow and Payment Milestones==

Why keeping track of cash flow is important in project management?
There may be two outcomes coming from the cash flow analysis - either cash flow is positive or negative. To achieve positive cash flow, there are two main factors to focus on: organisation and planning.

In case of any project, or portfolio of projects, project manager has to be aware of how much money is coming in, and how much money is being spent. Proportionally to the size and scope of the project, or portfolio, those income and outcome is more complex for bigger projects. To control complicated money flow, it is necessary to have a financial plan. This is where payment milestones come handy. If at the beginning of the project a system of money verification will be established, it will be possible and rather straight forward to follow and control it. Awareness of when is the right moment to spend money gives project manager more chance of staying within the budget frame, and keeping project financial condition in good shape.

In case when there is no proper organisation and planning in cash flow, there is a big danger of spending too much money on some project stages, which can cause lack of resources for other stages. The outcome may be either stretching the budget, which is optimistic variant. More realistic is, that there will be delays in some stages of project, which will project on the schedule and overall project outcome.

==Annotated Bibliography==

'''Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)'''

'''Simon A. Burtonshaw-Gunn. "Risk and Financial Management in Construction." Gower Publishing Limited, 2009.'''

''In today’s climate the need for a closer understanding of the relationship between the two inter-related topics of risk management and finance on construction projects is becoming increasingly crucial to achieving the objectives of the investor, the end-user and the constructor and its supply chain, especially as interest in PFI and PPP arrangements continues to grow around the world. Risk and Financial Management in Construction shows the relationship between the Construction Project Manager’s task of balancing time, cost and quality and the need to satisfy the client’s requirements efficiently, effectively and professionally whilst at the same time contributing to the contractor’s future sustainability. The book covers Risk Management describing the tools and methods to reduce the occurrence and consequences of risk, and the financial management of construction projects from raising funding, to contract strategy and through to estimating, budgeting and cost control. It includes a chapter covering international project risk, bringing together the issues of risk management, prime contracting, and PFI funding for construction projects undertaken away from the contractors main home market. Risk and Financial Management in Construction is aimed at those practising in, or studying to enter, the project management profession in providing a strategic and operational knowledge of these subjects allowing the reader easy access to the key points through a wide selection of models, checklists and easy to find lists in all of the key areas.'' <ref name="SimonA" />

'''Chris Hendrickson. "Project Management for Construction. Fundamental Concepts for Owners, Engineers, Architects and Builders." Prentice Hall, 2000. ISBN 0-13-731266-0'''

''This book develops a specific viewpoint in discussing the participants, the processes and the techniques of project management for construction. This viewpoint is that of owners who desire completion of projects in a timely, cost effective fashion. While this book is devoted to a particular viewpoint with respect to project management for construction, it is not solely intended for owners and their direct representatives. By understanding the entire process, all participants can respond more effectively to the owner's needs in their own work, in marketing their services, and in communicating with other participants. In addition, the specific techniques and tools discussed in this book (such as economic evaluation, scheduling, management information systems, etc.) can be readily applied to any portion of the process.'' <ref name="Hendrickson" />

==References==

<references>

<ref name="CashFlow"> "Cash Flow". Accessed in February 2018. https://en.wikipedia.org/wiki/Cash_flow:.</ref>
<ref name="CashFlowPicture"> "Cash Flow Scheme", BBC, Accessed in February 2018. https://www.bbc.co.uk/education/guides/z67mpv4/revision </ref>
<ref name="SignalAnchors"> "Signal Anchors". Accessed in February 2018. https://en.wikipedia.org/wiki/Milestone_(project_management) </ref>
<ref name="CashisKing"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., 2009. https://books.google.dk/books?id=r4R3gDES5lMC&pg=PA158&lpg=PA158&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management&source=bl&ots=pXc4hlRRCk&sig=8Ma_EihrAuCnJ4lHyi_P7cKf2IQ&hl=en&sa=X&ved=0ahUKEwievtuBh6bZAhWSKCwKHQL-CMMQ6AEIfDAH#v=onepage&q=cash%20flow%20and%20payment%20milestones%20in%20Project%20Cost%20Management&f=false </ref>
<ref name="easyredmine"> "EasyREDMINE" https://www.easyredmine.com/software/project-finances/2747-cash-flow-in-gantt-chart </ref>
<ref name="Iowa"> "Iowa State University website". Accessed in February 2018. https://www.extension.iastate.edu/agdm/wholefarm/html/c3-14.html </ref>
<ref name="PlanningEngineer"> "Planning Engineer website". Accessed in 2018. https://planningengineer.net/create-gantt-chart-and-cash-flow-using-excel-with-sample-file/ </ref>
<ref name="PERT"> "Program evaluation and review technique (PERT)". Accessed in February 2018. https://en.wikipedia.org/wiki/Program_evaluation_and_review_technique </ref>
<ref name="CPM"> "Critical path method (CPM)". Accessed on February 2018. https://www.smartsheet.com/critical-path-method </ref>
<ref name="chapter12"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', Prentice Hall, 2000. Chapter 12, http://pmbook.ce.cmu.edu/12_Cost_Control,_Monitoring,_and_Accounting.html </ref>
<ref name="Hendrickson"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', Prentice Hall, 2000. http://pmbook.ce.cmu.edu </ref>
<ref name="gant"> Website providing information about Gantt charts. http://www.gantt.com/ </ref>
<ref name="SimonA"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., 2009. https://books.google.dk/books?id=sE5BDgAAQBAJ&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management </ref>

Cash flow & payment milestones

2018-02-24T17:23:18Z

S172569: /* References */

==Abstract==

Project Cost Management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.<ref name = "besefi">Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)''. Newtown Square, Pennsylvania: Project Management Institute, Inc </ref>. Two main concerns, that are crucial in Project Cost Management are '''cash flow''' and '''payment milestones'''.

Cash flow, its monitoring and analysis is a subject that has been on the agenda for any existing or conducted project or portfolio. Diversity of scale and scope of the projects makes cash flow rather complex and multidimensional issue. Recommended approach for getting a good understanding of this issue is to study cases, projects and portfolios of relevant scale, scope and area to currently investigated project. Similarly it is with payment milestones, which are part of cash flow organisation and planning.

This article will contain two chapters, one for each issue. Apart from diversification of definitions of cash flow <ref> Cash Flow. February 2018 from https://www.investopedia.com/terms/c/cashflow.asp</ref> and payment milestones for project, program and portfolio, this article will focus on practical information for Project Managers, and present some real life relevant techniques and tools. For cash flow, the focus will be set on '''Gantt chart''' method, and for payment milestones, there will be two methods introduced: '''Program Evaluation and Review Technique''' (PERT) and '''Critical Path Method''' (CPM). It will also answer the question "''Why cash flow and payment milestones are so important in Project Cost Management?''" and how to approach them.

==Introduction==

===Cash Flow definition===

Cash flow is a term used to describe money movement (flow) in business in defined time period. Cash flow is determined by the following factors: time, nominal amount, currency and account <ref name = "CashFlow"/>.There are two main subdivisions of this term - cash flow in and cash flow out.

'''Cash flow in''' stands for money that is coming into the business. It may come from investors, who are investing or financing the company, from gathered capital that business owner has, or from profits that business is making from selling products or services.

'''Cash flow out''' stands for money that is going out of the business. It may go for covering the wages of hired workers, bills like rental payment or mortgage for facilities or services, and other expenses like taxation.

The difference between cash flow in and cash flow out is called '''net cash flow'''.

[[File:Cashflow.png|center|thumb|500px|Cash Flow scheme <ref name="CashFlowPicture" />]]

===Milestones definition===

Each project has a determined timeframe, or duration. '''Milestones''' are key reference points, or events on this timeline, that are crucial for measuring the project progress and achieving the final outcome. In project management milestones can be called signal anchors <ref name=" SignalAnchors"/> and are used for marking following deliverables:
*Start of the project
*End of the project
*Start of determined phase of the project
*End of determined phase of the project
*Reviews
*Budget checks

Milestones are fixed points, so in contrast to the timeline, they do not have duration, they are fixed dates.

[[File:Milestones.png|center|thumb|500px|Milestones scheme]]

'''Payment milestones''' are another kind of milestones, that are strictly dedicated to finances. They are fixed dates, when certain percent of money is being payed or received. The bigger the project, the bigger the budget, and therefore the more payment milestones present.

==Cash flow and payment milestones in Project Cost Management==

===Cash Flow Analysis===

Referring to popular saying that "Cash is King" - money is one of the most important resources in business <ref name="CashisKing"/>
and requires proper control and analysis. Skillful financial data management allows to extract from cash flow several measures crucial for Project Cost Management. Some of them are:
*'''Project value''' or rate of return. It is basically a profit of an investment. Cash flow is implemented in some financial models, such as IRR or NPV.
*'''Project liquidity'''. It can be determined how easily the financial obligations can be met during the project.
*'''Project risk evaluation'''. It can be determined what is the uncertainty about deviation from expected earnings or expected outcome.

There are several tools and methods of cash flow analysis. One of the most common and universal method is '''Gantt chart'''. It is a method useful for an instant overview of project profitability over time, comparison of planned and actual flows of cash and for better balancing of cash flows across all projects.<ref name="easyredmine"/>. At gantt.com following description of a Gantt chart can be found<ref name="gant"/>:

''A Gantt chart, commonly used in project management, is one of the most popular and useful ways of showing activities (tasks or events) displayed against time. On the left of the chart is a list of the activities and along the top is a suitable time scale. Each activity is represented by a bar; the position and length of the bar reflects the start date, duration and end date of the activity. This allows you to see at a glance:
*''What the various activities are''
*''When each activity begins and ends''
*''How long each activity is scheduled to last''
*''Where activities overlap with other activities, and by how much''
*''The start and end date of the whole project
''
It is possible to crate Gantt charts in programs like Microsoft Excel or Numbers for Mac, however there are several online tools dedicated for this particular method. One of them is easyREDMINE <ref name="easyredmine"/> offering straight forward design and guide for those less experience with this method.

[[File:EasyRedmine.jpg|center|thumb|1000px|easyREDMINE Gantt chart <ref name="easyredmine" />]]

For more tools and explanation of Cash Flow analysis, Iowa State University website can be visited <ref name="Iowa" />, as well as Planning Engineer <ref name="PlanningEngineer" />

===Payment Milestones in Project Cost Management===

Payment milestones are significant element of every project or portfolio schedule. Solid financial planning allows for smooth project flow and simplifies controlling process. To prepare such plan, and create adequate and efficient milestones, there can be several techniques or methods used. One of them is '''Program Evaluation and Review Technique''' (PERT). PERT is project management tool used to schedule, organize, and coordinate tasks within a project. More detailed description of PERT is as follows:

"''PERT is a method of analysing the tasks involved in completing a given project, especially the time needed to complete each task, and to identify the minimum time needed to complete the total project. It incorporates uncertainty by making it possible to schedule a project while not knowing precisely the details and durations of all the activities. It is more of an event-oriented technique rather than start- and completion-oriented and is used more in projects where time is the major factor rather than cost. It is applied to very large-scale, one-time, complex, non-routine infrastructure and Research and Development projects.''" <ref name="PERT"/>

Another method that can be used for Payment Milestones establishment is '''Critical Path Method''' (CPM).

"''The critical path method is a step-by-step project management technique to identify activities on the critical path. It is an approach to project scheduling that breaks the project into several work tasks, displays them in a flow chart, and then calculates the project duration based on estimated durations for each task. It identifies tasks that are critical, time-wise, in completing the project.''" <ref name="CPM"/>

Both methods were established in 1950's and since then, were refined and modified for modern projects expectations. Application of such techniques in project gives its schedule organised and divided into intervals structure, which makes it easier to follow. It also gives better overview on most important activities, that are usually critical to complete within schedule.

==Implementation in real life projects==

For better understanding of presented above techniques and methods, it is recommended to review a real-life project case. A good example would be case of construction project, described in Chapter 12 <ref name="chapter12" /> of book "Project Management for Construction" by Chris Hendrickson <ref name="Hendrickson" />. It gives a broad overview on cost control, monitoring and accounting of a variety of construction projects. Hendrickson starts with project budget establishment, going through forecasting for activity cost control, where he gets into details, presenting and explaining useful formulas with examples. Next, he talks about financial accounting systems and cost accounts, which is an introduction to control of project cash flows. In this chapter, an example of a cash flow status report can be found, with its decent explanation. The next sections are dedicated to schedule control and schedule and budget updates, where Hendrickson talks about milestones and project segmentation.

Hendrickson in his book, and in this particular chapter provides practical examples with real data, which can be adjusted and duplicated for other project purposes. It is important for any future or current Project Manager to have a good background knowledge and experience with different cases that were solved in the past. This gives not only a good overview on how financial planning and controlling can be conducted, but also highlights critical areas, where most issues occur.

==Importance of Cash Flow and Payment Milestones==

Why keeping track of cash flow is important in project management?
There may be two outcomes coming from the cash flow analysis - either cash flow is positive or negative. To achieve positive cash flow, there are two main factors to focus on: organisation and planning.

In case of any project, or portfolio of projects, project manager has to be aware of how much money is coming in, and how much money is being spent. Proportionally to the size and scope of the project, or portfolio, those income and outcome is more complex for bigger projects. To control complicated money flow, it is necessary to have a financial plan. This is where payment milestones come handy. If at the beginning of the project a system of money verification will be established, it will be possible and rather straight forward to follow and control it. Awareness of when is the right moment to spend money gives project manager more chance of staying within the budget frame, and keeping project financial condition in good shape.

In case when there is no proper organisation and planning in cash flow, there is a big danger of spending too much money on some project stages, which can cause lack of resources for other stages. The outcome may be either stretching the budget, which is optimistic variant. More realistic is, that there will be delays in some stages of project, which will project on the schedule and overall project outcome.

==Annotated Bibliography==

'''Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)'''

'''Simon A. Burtonshaw-Gunn. "Risk and Financial Management in Construction." Gower Publishing Limited, 2009.'''

''In today’s climate the need for a closer understanding of the relationship between the two inter-related topics of risk management and finance on construction projects is becoming increasingly crucial to achieving the objectives of the investor, the end-user and the constructor and its supply chain, especially as interest in PFI and PPP arrangements continues to grow around the world. Risk and Financial Management in Construction shows the relationship between the Construction Project Manager’s task of balancing time, cost and quality and the need to satisfy the client’s requirements efficiently, effectively and professionally whilst at the same time contributing to the contractor’s future sustainability. The book covers Risk Management describing the tools and methods to reduce the occurrence and consequences of risk, and the financial management of construction projects from raising funding, to contract strategy and through to estimating, budgeting and cost control. It includes a chapter covering international project risk, bringing together the issues of risk management, prime contracting, and PFI funding for construction projects undertaken away from the contractors main home market. Risk and Financial Management in Construction is aimed at those practising in, or studying to enter, the project management profession in providing a strategic and operational knowledge of these subjects allowing the reader easy access to the key points through a wide selection of models, checklists and easy to find lists in all of the key areas.'' <ref name="SimonA" />

'''Chris Hendrickson. "Project Management for Construction. Fundamental Concepts for Owners, Engineers, Architects and Builders." Prentice Hall, 2000. ISBN 0-13-731266-0'''

''This book develops a specific viewpoint in discussing the participants, the processes and the techniques of project management for construction. This viewpoint is that of owners who desire completion of projects in a timely, cost effective fashion. While this book is devoted to a particular viewpoint with respect to project management for construction, it is not solely intended for owners and their direct representatives. By understanding the entire process, all participants can respond more effectively to the owner's needs in their own work, in marketing their services, and in communicating with other participants. In addition, the specific techniques and tools discussed in this book (such as economic evaluation, scheduling, management information systems, etc.) can be readily applied to any portion of the process.'' <ref name="Hendrickson" />

==References==

<references>

<ref name="CashFlow"> "Cash Flow". Accessed in February 2018. https://en.wikipedia.org/wiki/Cash_flow:.</ref>
<ref name="CashFlowPicture"> "Cash Flow Scheme", BBC, Accessed in February 2018. https://www.bbc.co.uk/education/guides/z67mpv4/revision </ref>
<ref name="SignalAnchors"> "Signal Anchors". Accessed in February 2018. https://en.wikipedia.org/wiki/Milestone_(project_management) </ref>
<ref name="CashisKing"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., 2009. https://books.google.dk/books?id=r4R3gDES5lMC&pg=PA158&lpg=PA158&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management&source=bl&ots=pXc4hlRRCk&sig=8Ma_EihrAuCnJ4lHyi_P7cKf2IQ&hl=en&sa=X&ved=0ahUKEwievtuBh6bZAhWSKCwKHQL-CMMQ6AEIfDAH#v=onepage&q=cash%20flow%20and%20payment%20milestones%20in%20Project%20Cost%20Management&f=false </ref>
<ref name="easyredmine"> "EasyREDMINE" https://www.easyredmine.com/software/project-finances/2747-cash-flow-in-gantt-chart </ref>
<ref name="Iowa"> "Iowa State University website". Accessed in February 2018. https://www.extension.iastate.edu/agdm/wholefarm/html/c3-14.html </ref>
<ref name="PlanningEngineer"> "Planning Engineer website". Accessed in 2018. https://planningengineer.net/create-gantt-chart-and-cash-flow-using-excel-with-sample-file/ </ref>
<ref name="PERT"> "Program evaluation and review technique (PERT)". Accessed in February 2018. https://en.wikipedia.org/wiki/Program_evaluation_and_review_technique </ref>
<ref name="CPM"> "Critical path method (CPM)". Accessed on February 2018. https://www.smartsheet.com/critical-path-method </ref>
<ref name="chapter12"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', Prentice Hall, 2000. Chapter 12, http://pmbook.ce.cmu.edu/12_Cost_Control,_Monitoring,_and_Accounting.html </ref>
<ref name="Hendrickson"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', Prentice Hall, 2000. http://pmbook.ce.cmu.edu </ref>
<ref name="gant"> Website providing information about Gantt charts. http://www.gantt.com/ </ref>
<ref name="SimonA"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., 2009. https://books.google.dk/books?id=sE5BDgAAQBAJ&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management </ref>

Cash flow & payment milestones

2018-02-24T17:17:47Z

S172569: /* References */

==Abstract==

Project Cost Management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.<ref name = "besefi">Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)''. Newtown Square, Pennsylvania: Project Management Institute, Inc </ref>. Two main concerns, that are crucial in Project Cost Management are '''cash flow''' and '''payment milestones'''.

Cash flow, its monitoring and analysis is a subject that has been on the agenda for any existing or conducted project or portfolio. Diversity of scale and scope of the projects makes cash flow rather complex and multidimensional issue. Recommended approach for getting a good understanding of this issue is to study cases, projects and portfolios of relevant scale, scope and area to currently investigated project. Similarly it is with payment milestones, which are part of cash flow organisation and planning.

This article will contain two chapters, one for each issue. Apart from diversification of definitions of cash flow <ref> Cash Flow. February 2018 from https://www.investopedia.com/terms/c/cashflow.asp</ref> and payment milestones for project, program and portfolio, this article will focus on practical information for Project Managers, and present some real life relevant techniques and tools. For cash flow, the focus will be set on '''Gantt chart''' method, and for payment milestones, there will be two methods introduced: '''Program Evaluation and Review Technique''' (PERT) and '''Critical Path Method''' (CPM). It will also answer the question "''Why cash flow and payment milestones are so important in Project Cost Management?''" and how to approach them.

==Introduction==

===Cash Flow definition===

Cash flow is a term used to describe money movement (flow) in business in defined time period. Cash flow is determined by the following factors: time, nominal amount, currency and account <ref name = "CashFlow"/>.There are two main subdivisions of this term - cash flow in and cash flow out.

'''Cash flow in''' stands for money that is coming into the business. It may come from investors, who are investing or financing the company, from gathered capital that business owner has, or from profits that business is making from selling products or services.

'''Cash flow out''' stands for money that is going out of the business. It may go for covering the wages of hired workers, bills like rental payment or mortgage for facilities or services, and other expenses like taxation.

The difference between cash flow in and cash flow out is called '''net cash flow'''.

[[File:Cashflow.png|center|thumb|500px|Cash Flow scheme <ref name="CashFlowPicture" />]]

===Milestones definition===

Each project has a determined timeframe, or duration. '''Milestones''' are key reference points, or events on this timeline, that are crucial for measuring the project progress and achieving the final outcome. In project management milestones can be called signal anchors <ref name=" SignalAnchors"/> and are used for marking following deliverables:
*Start of the project
*End of the project
*Start of determined phase of the project
*End of determined phase of the project
*Reviews
*Budget checks

Milestones are fixed points, so in contrast to the timeline, they do not have duration, they are fixed dates.

[[File:Milestones.png|center|thumb|500px|Milestones scheme]]

'''Payment milestones''' are another kind of milestones, that are strictly dedicated to finances. They are fixed dates, when certain percent of money is being payed or received. The bigger the project, the bigger the budget, and therefore the more payment milestones present.

==Cash flow and payment milestones in Project Cost Management==

===Cash Flow Analysis===

Referring to popular saying that "Cash is King" - money is one of the most important resources in business <ref name="CashisKing"/>
and requires proper control and analysis. Skillful financial data management allows to extract from cash flow several measures crucial for Project Cost Management. Some of them are:
*'''Project value''' or rate of return. It is basically a profit of an investment. Cash flow is implemented in some financial models, such as IRR or NPV.
*'''Project liquidity'''. It can be determined how easily the financial obligations can be met during the project.
*'''Project risk evaluation'''. It can be determined what is the uncertainty about deviation from expected earnings or expected outcome.

There are several tools and methods of cash flow analysis. One of the most common and universal method is '''Gantt chart'''. It is a method useful for an instant overview of project profitability over time, comparison of planned and actual flows of cash and for better balancing of cash flows across all projects.<ref name="easyredmine"/>. At gantt.com following description of a Gantt chart can be found<ref name="gant"/>:

''A Gantt chart, commonly used in project management, is one of the most popular and useful ways of showing activities (tasks or events) displayed against time. On the left of the chart is a list of the activities and along the top is a suitable time scale. Each activity is represented by a bar; the position and length of the bar reflects the start date, duration and end date of the activity. This allows you to see at a glance:
*''What the various activities are''
*''When each activity begins and ends''
*''How long each activity is scheduled to last''
*''Where activities overlap with other activities, and by how much''
*''The start and end date of the whole project
''
It is possible to crate Gantt charts in programs like Microsoft Excel or Numbers for Mac, however there are several online tools dedicated for this particular method. One of them is easyREDMINE <ref name="easyredmine"/> offering straight forward design and guide for those less experience with this method.

[[File:EasyRedmine.jpg|center|thumb|1000px|easyREDMINE Gantt chart <ref name="easyredmine" />]]

For more tools and explanation of Cash Flow analysis, Iowa State University website can be visited <ref name="Iowa" />, as well as Planning Engineer <ref name="PlanningEngineer" />

===Payment Milestones in Project Cost Management===

Payment milestones are significant element of every project or portfolio schedule. Solid financial planning allows for smooth project flow and simplifies controlling process. To prepare such plan, and create adequate and efficient milestones, there can be several techniques or methods used. One of them is '''Program Evaluation and Review Technique''' (PERT). PERT is project management tool used to schedule, organize, and coordinate tasks within a project. More detailed description of PERT is as follows:

"''PERT is a method of analysing the tasks involved in completing a given project, especially the time needed to complete each task, and to identify the minimum time needed to complete the total project. It incorporates uncertainty by making it possible to schedule a project while not knowing precisely the details and durations of all the activities. It is more of an event-oriented technique rather than start- and completion-oriented and is used more in projects where time is the major factor rather than cost. It is applied to very large-scale, one-time, complex, non-routine infrastructure and Research and Development projects.''" <ref name="PERT"/>

Another method that can be used for Payment Milestones establishment is '''Critical Path Method''' (CPM).

"''The critical path method is a step-by-step project management technique to identify activities on the critical path. It is an approach to project scheduling that breaks the project into several work tasks, displays them in a flow chart, and then calculates the project duration based on estimated durations for each task. It identifies tasks that are critical, time-wise, in completing the project.''" <ref name="CPM"/>

Both methods were established in 1950's and since then, were refined and modified for modern projects expectations. Application of such techniques in project gives its schedule organised and divided into intervals structure, which makes it easier to follow. It also gives better overview on most important activities, that are usually critical to complete within schedule.

==Implementation in real life projects==

For better understanding of presented above techniques and methods, it is recommended to review a real-life project case. A good example would be case of construction project, described in Chapter 12 <ref name="chapter12" /> of book "Project Management for Construction" by Chris Hendrickson <ref name="Hendrickson" />. It gives a broad overview on cost control, monitoring and accounting of a variety of construction projects. Hendrickson starts with project budget establishment, going through forecasting for activity cost control, where he gets into details, presenting and explaining useful formulas with examples. Next, he talks about financial accounting systems and cost accounts, which is an introduction to control of project cash flows. In this chapter, an example of a cash flow status report can be found, with its decent explanation. The next sections are dedicated to schedule control and schedule and budget updates, where Hendrickson talks about milestones and project segmentation.

Hendrickson in his book, and in this particular chapter provides practical examples with real data, which can be adjusted and duplicated for other project purposes. It is important for any future or current Project Manager to have a good background knowledge and experience with different cases that were solved in the past. This gives not only a good overview on how financial planning and controlling can be conducted, but also highlights critical areas, where most issues occur.

==Importance of Cash Flow and Payment Milestones==

Why keeping track of cash flow is important in project management?
There may be two outcomes coming from the cash flow analysis - either cash flow is positive or negative. To achieve positive cash flow, there are two main factors to focus on: organisation and planning.

In case of any project, or portfolio of projects, project manager has to be aware of how much money is coming in, and how much money is being spent. Proportionally to the size and scope of the project, or portfolio, those income and outcome is more complex for bigger projects. To control complicated money flow, it is necessary to have a financial plan. This is where payment milestones come handy. If at the beginning of the project a system of money verification will be established, it will be possible and rather straight forward to follow and control it. Awareness of when is the right moment to spend money gives project manager more chance of staying within the budget frame, and keeping project financial condition in good shape.

In case when there is no proper organisation and planning in cash flow, there is a big danger of spending too much money on some project stages, which can cause lack of resources for other stages. The outcome may be either stretching the budget, which is optimistic variant. More realistic is, that there will be delays in some stages of project, which will project on the schedule and overall project outcome.

==Annotated Bibliography==

'''Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)'''

'''Simon A. Burtonshaw-Gunn. "Risk and Financial Management in Construction." Gower Publishing Limited, 2009.'''

''In today’s climate the need for a closer understanding of the relationship between the two inter-related topics of risk management and finance on construction projects is becoming increasingly crucial to achieving the objectives of the investor, the end-user and the constructor and its supply chain, especially as interest in PFI and PPP arrangements continues to grow around the world. Risk and Financial Management in Construction shows the relationship between the Construction Project Manager’s task of balancing time, cost and quality and the need to satisfy the client’s requirements efficiently, effectively and professionally whilst at the same time contributing to the contractor’s future sustainability. The book covers Risk Management describing the tools and methods to reduce the occurrence and consequences of risk, and the financial management of construction projects from raising funding, to contract strategy and through to estimating, budgeting and cost control. It includes a chapter covering international project risk, bringing together the issues of risk management, prime contracting, and PFI funding for construction projects undertaken away from the contractors main home market. Risk and Financial Management in Construction is aimed at those practising in, or studying to enter, the project management profession in providing a strategic and operational knowledge of these subjects allowing the reader easy access to the key points through a wide selection of models, checklists and easy to find lists in all of the key areas.'' <ref name="SimonA" />

'''Chris Hendrickson. "Project Management for Construction. Fundamental Concepts for Owners, Engineers, Architects and Builders." Prentice Hall, 2000. ISBN 0-13-731266-0'''

''This book develops a specific viewpoint in discussing the participants, the processes and the techniques of project management for construction. This viewpoint is that of owners who desire completion of projects in a timely, cost effective fashion. While this book is devoted to a particular viewpoint with respect to project management for construction, it is not solely intended for owners and their direct representatives. By understanding the entire process, all participants can respond more effectively to the owner's needs in their own work, in marketing their services, and in communicating with other participants. In addition, the specific techniques and tools discussed in this book (such as economic evaluation, scheduling, management information systems, etc.) can be readily applied to any portion of the process.'' <ref name="Hendrickson" />

==References==

<references>

<ref name="CashFlow"> "Cash Flow" February 2018 https://en.wikipedia.org/wiki/Cash_flow:.</ref>
<ref name="CashFlowPicture"> "Cash Flow Scheme", BBC, February 2018 https://www.bbc.co.uk/education/guides/z67mpv4/revision </ref>
<ref name="SignalAnchors"> "Signal Anchors" February 2018 https://en.wikipedia.org/wiki/Milestone_(project_management) </ref>
<ref name="CashisKing"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., 2009. https://books.google.dk/books?id=r4R3gDES5lMC&pg=PA158&lpg=PA158&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management&source=bl&ots=pXc4hlRRCk&sig=8Ma_EihrAuCnJ4lHyi_P7cKf2IQ&hl=en&sa=X&ved=0ahUKEwievtuBh6bZAhWSKCwKHQL-CMMQ6AEIfDAH#v=onepage&q=cash%20flow%20and%20payment%20milestones%20in%20Project%20Cost%20Management&f=false </ref>
<ref name="easyredmine"> "EasyREDMINE" https://www.easyredmine.com/software/project-finances/2747-cash-flow-in-gantt-chart </ref>
<ref name="Iowa"> "Iowa State University website" https://www.extension.iastate.edu/agdm/wholefarm/html/c3-14.html </ref>
<ref name="PlanningEngineer"> "Planning Engineer website" https://planningengineer.net/create-gantt-chart-and-cash-flow-using-excel-with-sample-file/ </ref>
<ref name="PERT"> "PERT" https://en.wikipedia.org/wiki/Program_evaluation_and_review_technique </ref>
<ref name="CPM"> "CPM" https://www.smartsheet.com/critical-path-method </ref>
<ref name="chapter12"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', Prentice Hall, 2000. Chapter 12, http://pmbook.ce.cmu.edu/12_Cost_Control,_Monitoring,_and_Accounting.html </ref>
<ref name="Hendrickson"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', Prentice Hall, 2000. http://pmbook.ce.cmu.edu </ref>
<ref name="gant"> Website providing information about Gantt charts. http://www.gantt.com/ </ref>
<ref name="SimonA"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., 2009. https://books.google.dk/books?id=sE5BDgAAQBAJ&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management </ref>

Cash flow & payment milestones

2018-02-24T17:12:48Z

S172569: /* References */

==Abstract==

Project Cost Management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.<ref name = "besefi">Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)''. Newtown Square, Pennsylvania: Project Management Institute, Inc </ref>. Two main concerns, that are crucial in Project Cost Management are '''cash flow''' and '''payment milestones'''.

Cash flow, its monitoring and analysis is a subject that has been on the agenda for any existing or conducted project or portfolio. Diversity of scale and scope of the projects makes cash flow rather complex and multidimensional issue. Recommended approach for getting a good understanding of this issue is to study cases, projects and portfolios of relevant scale, scope and area to currently investigated project. Similarly it is with payment milestones, which are part of cash flow organisation and planning.

This article will contain two chapters, one for each issue. Apart from diversification of definitions of cash flow <ref> Cash Flow. February 2018 from https://www.investopedia.com/terms/c/cashflow.asp</ref> and payment milestones for project, program and portfolio, this article will focus on practical information for Project Managers, and present some real life relevant techniques and tools. For cash flow, the focus will be set on '''Gantt chart''' method, and for payment milestones, there will be two methods introduced: '''Program Evaluation and Review Technique''' (PERT) and '''Critical Path Method''' (CPM). It will also answer the question "''Why cash flow and payment milestones are so important in Project Cost Management?''" and how to approach them.

==Introduction==

===Cash Flow definition===

Cash flow is a term used to describe money movement (flow) in business in defined time period. Cash flow is determined by the following factors: time, nominal amount, currency and account <ref name = "CashFlow"/>.There are two main subdivisions of this term - cash flow in and cash flow out.

'''Cash flow in''' stands for money that is coming into the business. It may come from investors, who are investing or financing the company, from gathered capital that business owner has, or from profits that business is making from selling products or services.

'''Cash flow out''' stands for money that is going out of the business. It may go for covering the wages of hired workers, bills like rental payment or mortgage for facilities or services, and other expenses like taxation.

The difference between cash flow in and cash flow out is called '''net cash flow'''.

[[File:Cashflow.png|center|thumb|500px|Cash Flow scheme <ref name="CashFlowPicture" />]]

===Milestones definition===

Each project has a determined timeframe, or duration. '''Milestones''' are key reference points, or events on this timeline, that are crucial for measuring the project progress and achieving the final outcome. In project management milestones can be called signal anchors <ref name=" SignalAnchors"/> and are used for marking following deliverables:
*Start of the project
*End of the project
*Start of determined phase of the project
*End of determined phase of the project
*Reviews
*Budget checks

Milestones are fixed points, so in contrast to the timeline, they do not have duration, they are fixed dates.

[[File:Milestones.png|center|thumb|500px|Milestones scheme]]

'''Payment milestones''' are another kind of milestones, that are strictly dedicated to finances. They are fixed dates, when certain percent of money is being payed or received. The bigger the project, the bigger the budget, and therefore the more payment milestones present.

==Cash flow and payment milestones in Project Cost Management==

===Cash Flow Analysis===

Referring to popular saying that "Cash is King" - money is one of the most important resources in business <ref name="CashisKing"/>
and requires proper control and analysis. Skillful financial data management allows to extract from cash flow several measures crucial for Project Cost Management. Some of them are:
*'''Project value''' or rate of return. It is basically a profit of an investment. Cash flow is implemented in some financial models, such as IRR or NPV.
*'''Project liquidity'''. It can be determined how easily the financial obligations can be met during the project.
*'''Project risk evaluation'''. It can be determined what is the uncertainty about deviation from expected earnings or expected outcome.

There are several tools and methods of cash flow analysis. One of the most common and universal method is '''Gantt chart'''. It is a method useful for an instant overview of project profitability over time, comparison of planned and actual flows of cash and for better balancing of cash flows across all projects.<ref name="easyredmine"/>. At gantt.com following description of a Gantt chart can be found<ref name="gant"/>:

''A Gantt chart, commonly used in project management, is one of the most popular and useful ways of showing activities (tasks or events) displayed against time. On the left of the chart is a list of the activities and along the top is a suitable time scale. Each activity is represented by a bar; the position and length of the bar reflects the start date, duration and end date of the activity. This allows you to see at a glance:
*''What the various activities are''
*''When each activity begins and ends''
*''How long each activity is scheduled to last''
*''Where activities overlap with other activities, and by how much''
*''The start and end date of the whole project
''
It is possible to crate Gantt charts in programs like Microsoft Excel or Numbers for Mac, however there are several online tools dedicated for this particular method. One of them is easyREDMINE <ref name="easyredmine"/> offering straight forward design and guide for those less experience with this method.

[[File:EasyRedmine.jpg|center|thumb|1000px|easyREDMINE Gantt chart <ref name="easyredmine" />]]

For more tools and explanation of Cash Flow analysis, Iowa State University website can be visited <ref name="Iowa" />, as well as Planning Engineer <ref name="PlanningEngineer" />

===Payment Milestones in Project Cost Management===

Payment milestones are significant element of every project or portfolio schedule. Solid financial planning allows for smooth project flow and simplifies controlling process. To prepare such plan, and create adequate and efficient milestones, there can be several techniques or methods used. One of them is '''Program Evaluation and Review Technique''' (PERT). PERT is project management tool used to schedule, organize, and coordinate tasks within a project. More detailed description of PERT is as follows:

"''PERT is a method of analysing the tasks involved in completing a given project, especially the time needed to complete each task, and to identify the minimum time needed to complete the total project. It incorporates uncertainty by making it possible to schedule a project while not knowing precisely the details and durations of all the activities. It is more of an event-oriented technique rather than start- and completion-oriented and is used more in projects where time is the major factor rather than cost. It is applied to very large-scale, one-time, complex, non-routine infrastructure and Research and Development projects.''" <ref name="PERT"/>

Another method that can be used for Payment Milestones establishment is '''Critical Path Method''' (CPM).

"''The critical path method is a step-by-step project management technique to identify activities on the critical path. It is an approach to project scheduling that breaks the project into several work tasks, displays them in a flow chart, and then calculates the project duration based on estimated durations for each task. It identifies tasks that are critical, time-wise, in completing the project.''" <ref name="CPM"/>

Both methods were established in 1950's and since then, were refined and modified for modern projects expectations. Application of such techniques in project gives its schedule organised and divided into intervals structure, which makes it easier to follow. It also gives better overview on most important activities, that are usually critical to complete within schedule.

==Implementation in real life projects==

For better understanding of presented above techniques and methods, it is recommended to review a real-life project case. A good example would be case of construction project, described in Chapter 12 <ref name="chapter12" /> of book "Project Management for Construction" by Chris Hendrickson <ref name="Hendrickson" />. It gives a broad overview on cost control, monitoring and accounting of a variety of construction projects. Hendrickson starts with project budget establishment, going through forecasting for activity cost control, where he gets into details, presenting and explaining useful formulas with examples. Next, he talks about financial accounting systems and cost accounts, which is an introduction to control of project cash flows. In this chapter, an example of a cash flow status report can be found, with its decent explanation. The next sections are dedicated to schedule control and schedule and budget updates, where Hendrickson talks about milestones and project segmentation.

Hendrickson in his book, and in this particular chapter provides practical examples with real data, which can be adjusted and duplicated for other project purposes. It is important for any future or current Project Manager to have a good background knowledge and experience with different cases that were solved in the past. This gives not only a good overview on how financial planning and controlling can be conducted, but also highlights critical areas, where most issues occur.

==Importance of Cash Flow and Payment Milestones==

Why keeping track of cash flow is important in project management?
There may be two outcomes coming from the cash flow analysis - either cash flow is positive or negative. To achieve positive cash flow, there are two main factors to focus on: organisation and planning.

In case of any project, or portfolio of projects, project manager has to be aware of how much money is coming in, and how much money is being spent. Proportionally to the size and scope of the project, or portfolio, those income and outcome is more complex for bigger projects. To control complicated money flow, it is necessary to have a financial plan. This is where payment milestones come handy. If at the beginning of the project a system of money verification will be established, it will be possible and rather straight forward to follow and control it. Awareness of when is the right moment to spend money gives project manager more chance of staying within the budget frame, and keeping project financial condition in good shape.

In case when there is no proper organisation and planning in cash flow, there is a big danger of spending too much money on some project stages, which can cause lack of resources for other stages. The outcome may be either stretching the budget, which is optimistic variant. More realistic is, that there will be delays in some stages of project, which will project on the schedule and overall project outcome.

==Annotated Bibliography==

'''Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)'''

'''Simon A. Burtonshaw-Gunn. "Risk and Financial Management in Construction." Gower Publishing Limited, 2009.'''

''In today’s climate the need for a closer understanding of the relationship between the two inter-related topics of risk management and finance on construction projects is becoming increasingly crucial to achieving the objectives of the investor, the end-user and the constructor and its supply chain, especially as interest in PFI and PPP arrangements continues to grow around the world. Risk and Financial Management in Construction shows the relationship between the Construction Project Manager’s task of balancing time, cost and quality and the need to satisfy the client’s requirements efficiently, effectively and professionally whilst at the same time contributing to the contractor’s future sustainability. The book covers Risk Management describing the tools and methods to reduce the occurrence and consequences of risk, and the financial management of construction projects from raising funding, to contract strategy and through to estimating, budgeting and cost control. It includes a chapter covering international project risk, bringing together the issues of risk management, prime contracting, and PFI funding for construction projects undertaken away from the contractors main home market. Risk and Financial Management in Construction is aimed at those practising in, or studying to enter, the project management profession in providing a strategic and operational knowledge of these subjects allowing the reader easy access to the key points through a wide selection of models, checklists and easy to find lists in all of the key areas.'' <ref name="SimonA" />

'''Chris Hendrickson. "Project Management for Construction. Fundamental Concepts for Owners, Engineers, Architects and Builders." Prentice Hall, 2000. ISBN 0-13-731266-0'''

''This book develops a specific viewpoint in discussing the participants, the processes and the techniques of project management for construction. This viewpoint is that of owners who desire completion of projects in a timely, cost effective fashion. While this book is devoted to a particular viewpoint with respect to project management for construction, it is not solely intended for owners and their direct representatives. By understanding the entire process, all participants can respond more effectively to the owner's needs in their own work, in marketing their services, and in communicating with other participants. In addition, the specific techniques and tools discussed in this book (such as economic evaluation, scheduling, management information systems, etc.) can be readily applied to any portion of the process.'' <ref name="Hendrickson" />

==References==

<references>

<ref name="CashFlow"> "Cash Flow" February 2018 https://en.wikipedia.org/wiki/Cash_flow:.</ref>
<ref name="CashFlowPicture"> "Cash Flow Scheme", BBC, February 2018 https://www.bbc.co.uk/education/guides/z67mpv4/revision </ref>
<ref name="SignalAnchors"> "Signal Anchors" February 2018 https://en.wikipedia.org/wiki/Milestone_(project_management) </ref>
<ref name="CashisKing"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., 2009. https://books.google.dk/books?id=r4R3gDES5lMC&pg=PA158&lpg=PA158&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management&source=bl&ots=pXc4hlRRCk&sig=8Ma_EihrAuCnJ4lHyi_P7cKf2IQ&hl=en&sa=X&ved=0ahUKEwievtuBh6bZAhWSKCwKHQL-CMMQ6AEIfDAH#v=onepage&q=cash%20flow%20and%20payment%20milestones%20in%20Project%20Cost%20Management&f=false </ref>
<ref name="easyredmine"> "EasyREDMINE" https://www.easyredmine.com/software/project-finances/2747-cash-flow-in-gantt-chart </ref>
<ref name="Iowa"> "Iowa State University website" https://www.extension.iastate.edu/agdm/wholefarm/html/c3-14.html </ref>
<ref name="PlanningEngineer"> "Planning Engineer website" https://planningengineer.net/create-gantt-chart-and-cash-flow-using-excel-with-sample-file/ </ref>
<ref name="PERT"> "PERT" https://en.wikipedia.org/wiki/Program_evaluation_and_review_technique </ref>
<ref name="CPM"> "CPM" https://www.smartsheet.com/critical-path-method </ref>
<ref name="chapter12"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', (2000), Chapter 12, http://pmbook.ce.cmu.edu/12_Cost_Control,_Monitoring,_and_Accounting.html </ref>
<ref name="Hendrickson"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', (2000), http://pmbook.ce.cmu.edu </ref>
<ref name="gant"> http://www.gantt.com/ </ref>
<ref name="SimonA"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., 2009. https://books.google.dk/books?id=sE5BDgAAQBAJ&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management </ref>

Cash flow & payment milestones

2018-02-24T17:12:06Z

S172569: /* References */

==Abstract==

Project Cost Management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.<ref name = "besefi">Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)''. Newtown Square, Pennsylvania: Project Management Institute, Inc </ref>. Two main concerns, that are crucial in Project Cost Management are '''cash flow''' and '''payment milestones'''.

Cash flow, its monitoring and analysis is a subject that has been on the agenda for any existing or conducted project or portfolio. Diversity of scale and scope of the projects makes cash flow rather complex and multidimensional issue. Recommended approach for getting a good understanding of this issue is to study cases, projects and portfolios of relevant scale, scope and area to currently investigated project. Similarly it is with payment milestones, which are part of cash flow organisation and planning.

This article will contain two chapters, one for each issue. Apart from diversification of definitions of cash flow <ref> Cash Flow. February 2018 from https://www.investopedia.com/terms/c/cashflow.asp</ref> and payment milestones for project, program and portfolio, this article will focus on practical information for Project Managers, and present some real life relevant techniques and tools. For cash flow, the focus will be set on '''Gantt chart''' method, and for payment milestones, there will be two methods introduced: '''Program Evaluation and Review Technique''' (PERT) and '''Critical Path Method''' (CPM). It will also answer the question "''Why cash flow and payment milestones are so important in Project Cost Management?''" and how to approach them.

==Introduction==

===Cash Flow definition===

Cash flow is a term used to describe money movement (flow) in business in defined time period. Cash flow is determined by the following factors: time, nominal amount, currency and account <ref name = "CashFlow"/>.There are two main subdivisions of this term - cash flow in and cash flow out.

'''Cash flow in''' stands for money that is coming into the business. It may come from investors, who are investing or financing the company, from gathered capital that business owner has, or from profits that business is making from selling products or services.

'''Cash flow out''' stands for money that is going out of the business. It may go for covering the wages of hired workers, bills like rental payment or mortgage for facilities or services, and other expenses like taxation.

The difference between cash flow in and cash flow out is called '''net cash flow'''.

[[File:Cashflow.png|center|thumb|500px|Cash Flow scheme <ref name="CashFlowPicture" />]]

===Milestones definition===

Each project has a determined timeframe, or duration. '''Milestones''' are key reference points, or events on this timeline, that are crucial for measuring the project progress and achieving the final outcome. In project management milestones can be called signal anchors <ref name=" SignalAnchors"/> and are used for marking following deliverables:
*Start of the project
*End of the project
*Start of determined phase of the project
*End of determined phase of the project
*Reviews
*Budget checks

Milestones are fixed points, so in contrast to the timeline, they do not have duration, they are fixed dates.

[[File:Milestones.png|center|thumb|500px|Milestones scheme]]

'''Payment milestones''' are another kind of milestones, that are strictly dedicated to finances. They are fixed dates, when certain percent of money is being payed or received. The bigger the project, the bigger the budget, and therefore the more payment milestones present.

==Cash flow and payment milestones in Project Cost Management==

===Cash Flow Analysis===

Referring to popular saying that "Cash is King" - money is one of the most important resources in business <ref name="CashisKing"/>
and requires proper control and analysis. Skillful financial data management allows to extract from cash flow several measures crucial for Project Cost Management. Some of them are:
*'''Project value''' or rate of return. It is basically a profit of an investment. Cash flow is implemented in some financial models, such as IRR or NPV.
*'''Project liquidity'''. It can be determined how easily the financial obligations can be met during the project.
*'''Project risk evaluation'''. It can be determined what is the uncertainty about deviation from expected earnings or expected outcome.

There are several tools and methods of cash flow analysis. One of the most common and universal method is '''Gantt chart'''. It is a method useful for an instant overview of project profitability over time, comparison of planned and actual flows of cash and for better balancing of cash flows across all projects.<ref name="easyredmine"/>. At gantt.com following description of a Gantt chart can be found<ref name="gant"/>:

''A Gantt chart, commonly used in project management, is one of the most popular and useful ways of showing activities (tasks or events) displayed against time. On the left of the chart is a list of the activities and along the top is a suitable time scale. Each activity is represented by a bar; the position and length of the bar reflects the start date, duration and end date of the activity. This allows you to see at a glance:
*''What the various activities are''
*''When each activity begins and ends''
*''How long each activity is scheduled to last''
*''Where activities overlap with other activities, and by how much''
*''The start and end date of the whole project
''
It is possible to crate Gantt charts in programs like Microsoft Excel or Numbers for Mac, however there are several online tools dedicated for this particular method. One of them is easyREDMINE <ref name="easyredmine"/> offering straight forward design and guide for those less experience with this method.

[[File:EasyRedmine.jpg|center|thumb|1000px|easyREDMINE Gantt chart <ref name="easyredmine" />]]

For more tools and explanation of Cash Flow analysis, Iowa State University website can be visited <ref name="Iowa" />, as well as Planning Engineer <ref name="PlanningEngineer" />

===Payment Milestones in Project Cost Management===

Payment milestones are significant element of every project or portfolio schedule. Solid financial planning allows for smooth project flow and simplifies controlling process. To prepare such plan, and create adequate and efficient milestones, there can be several techniques or methods used. One of them is '''Program Evaluation and Review Technique''' (PERT). PERT is project management tool used to schedule, organize, and coordinate tasks within a project. More detailed description of PERT is as follows:

"''PERT is a method of analysing the tasks involved in completing a given project, especially the time needed to complete each task, and to identify the minimum time needed to complete the total project. It incorporates uncertainty by making it possible to schedule a project while not knowing precisely the details and durations of all the activities. It is more of an event-oriented technique rather than start- and completion-oriented and is used more in projects where time is the major factor rather than cost. It is applied to very large-scale, one-time, complex, non-routine infrastructure and Research and Development projects.''" <ref name="PERT"/>

Another method that can be used for Payment Milestones establishment is '''Critical Path Method''' (CPM).

"''The critical path method is a step-by-step project management technique to identify activities on the critical path. It is an approach to project scheduling that breaks the project into several work tasks, displays them in a flow chart, and then calculates the project duration based on estimated durations for each task. It identifies tasks that are critical, time-wise, in completing the project.''" <ref name="CPM"/>

Both methods were established in 1950's and since then, were refined and modified for modern projects expectations. Application of such techniques in project gives its schedule organised and divided into intervals structure, which makes it easier to follow. It also gives better overview on most important activities, that are usually critical to complete within schedule.

==Implementation in real life projects==

For better understanding of presented above techniques and methods, it is recommended to review a real-life project case. A good example would be case of construction project, described in Chapter 12 <ref name="chapter12" /> of book "Project Management for Construction" by Chris Hendrickson <ref name="Hendrickson" />. It gives a broad overview on cost control, monitoring and accounting of a variety of construction projects. Hendrickson starts with project budget establishment, going through forecasting for activity cost control, where he gets into details, presenting and explaining useful formulas with examples. Next, he talks about financial accounting systems and cost accounts, which is an introduction to control of project cash flows. In this chapter, an example of a cash flow status report can be found, with its decent explanation. The next sections are dedicated to schedule control and schedule and budget updates, where Hendrickson talks about milestones and project segmentation.

Hendrickson in his book, and in this particular chapter provides practical examples with real data, which can be adjusted and duplicated for other project purposes. It is important for any future or current Project Manager to have a good background knowledge and experience with different cases that were solved in the past. This gives not only a good overview on how financial planning and controlling can be conducted, but also highlights critical areas, where most issues occur.

==Importance of Cash Flow and Payment Milestones==

Why keeping track of cash flow is important in project management?
There may be two outcomes coming from the cash flow analysis - either cash flow is positive or negative. To achieve positive cash flow, there are two main factors to focus on: organisation and planning.

In case of any project, or portfolio of projects, project manager has to be aware of how much money is coming in, and how much money is being spent. Proportionally to the size and scope of the project, or portfolio, those income and outcome is more complex for bigger projects. To control complicated money flow, it is necessary to have a financial plan. This is where payment milestones come handy. If at the beginning of the project a system of money verification will be established, it will be possible and rather straight forward to follow and control it. Awareness of when is the right moment to spend money gives project manager more chance of staying within the budget frame, and keeping project financial condition in good shape.

In case when there is no proper organisation and planning in cash flow, there is a big danger of spending too much money on some project stages, which can cause lack of resources for other stages. The outcome may be either stretching the budget, which is optimistic variant. More realistic is, that there will be delays in some stages of project, which will project on the schedule and overall project outcome.

==Annotated Bibliography==

'''Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)'''

'''Simon A. Burtonshaw-Gunn. "Risk and Financial Management in Construction." Gower Publishing Limited, 2009.'''

''In today’s climate the need for a closer understanding of the relationship between the two inter-related topics of risk management and finance on construction projects is becoming increasingly crucial to achieving the objectives of the investor, the end-user and the constructor and its supply chain, especially as interest in PFI and PPP arrangements continues to grow around the world. Risk and Financial Management in Construction shows the relationship between the Construction Project Manager’s task of balancing time, cost and quality and the need to satisfy the client’s requirements efficiently, effectively and professionally whilst at the same time contributing to the contractor’s future sustainability. The book covers Risk Management describing the tools and methods to reduce the occurrence and consequences of risk, and the financial management of construction projects from raising funding, to contract strategy and through to estimating, budgeting and cost control. It includes a chapter covering international project risk, bringing together the issues of risk management, prime contracting, and PFI funding for construction projects undertaken away from the contractors main home market. Risk and Financial Management in Construction is aimed at those practising in, or studying to enter, the project management profession in providing a strategic and operational knowledge of these subjects allowing the reader easy access to the key points through a wide selection of models, checklists and easy to find lists in all of the key areas.'' <ref name="SimonA" />

'''Chris Hendrickson. "Project Management for Construction. Fundamental Concepts for Owners, Engineers, Architects and Builders." Prentice Hall, 2000. ISBN 0-13-731266-0'''

''This book develops a specific viewpoint in discussing the participants, the processes and the techniques of project management for construction. This viewpoint is that of owners who desire completion of projects in a timely, cost effective fashion. While this book is devoted to a particular viewpoint with respect to project management for construction, it is not solely intended for owners and their direct representatives. By understanding the entire process, all participants can respond more effectively to the owner's needs in their own work, in marketing their services, and in communicating with other participants. In addition, the specific techniques and tools discussed in this book (such as economic evaluation, scheduling, management information systems, etc.) can be readily applied to any portion of the process.'' <ref name="Hendrickson" />

==References==

<references>

<ref name="CashFlow"> "Cash Flow" February 2018 https://en.wikipedia.org/wiki/Cash_flow:.</ref>
<ref name="CashFlowPicture"> "Cash Flow Scheme", BBC, February 2018 https://www.bbc.co.uk/education/guides/z67mpv4/revision </ref>
<ref name="SignalAnchors"> "Signal Anchors" February 2018 https://en.wikipedia.org/wiki/Milestone_(project_management) </ref>
<ref name="CashisKing"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., 2009. https://books.google.dk/books?id=r4R3gDES5lMC&pg=PA158&lpg=PA158&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management&source=bl&ots=pXc4hlRRCk&sig=8Ma_EihrAuCnJ4lHyi_P7cKf2IQ&hl=en&sa=X&ved=0ahUKEwievtuBh6bZAhWSKCwKHQL-CMMQ6AEIfDAH#v=onepage&q=cash%20flow%20and%20payment%20milestones%20in%20Project%20Cost%20Management&f=false </ref>
<ref name="easyredmine"> "EasyREDMINE" https://www.easyredmine.com/software/project-finances/2747-cash-flow-in-gantt-chart </ref>
<ref name="Iowa"> "Iowa State University website" https://www.extension.iastate.edu/agdm/wholefarm/html/c3-14.html </ref>
<ref name="PlanningEngineer"> "Planning Engineer website" https://planningengineer.net/create-gantt-chart-and-cash-flow-using-excel-with-sample-file/ </ref>
<ref name="PERT"> "PERT" https://en.wikipedia.org/wiki/Program_evaluation_and_review_technique </ref>
<ref name="CPM"> "CPM" https://www.smartsheet.com/critical-path-method </ref>
<ref name="chapter12"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', (2000), Chapter 12, http://pmbook.ce.cmu.edu/12_Cost_Control,_Monitoring,_and_Accounting.html </ref>
<ref name="Hendrickson"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', (2000), http://pmbook.ce.cmu.edu </ref>
<ref name="gant"> http://www.gantt.com/
<ref name="SimonA"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., 2009. https://books.google.dk/books?id=sE5BDgAAQBAJ&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management

Cash flow & payment milestones

2018-02-24T17:11:41Z

S172569: /* Annotated Bibliography */

==Abstract==

Project Cost Management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.<ref name = "besefi">Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)''. Newtown Square, Pennsylvania: Project Management Institute, Inc </ref>. Two main concerns, that are crucial in Project Cost Management are '''cash flow''' and '''payment milestones'''.

Cash flow, its monitoring and analysis is a subject that has been on the agenda for any existing or conducted project or portfolio. Diversity of scale and scope of the projects makes cash flow rather complex and multidimensional issue. Recommended approach for getting a good understanding of this issue is to study cases, projects and portfolios of relevant scale, scope and area to currently investigated project. Similarly it is with payment milestones, which are part of cash flow organisation and planning.

This article will contain two chapters, one for each issue. Apart from diversification of definitions of cash flow <ref> Cash Flow. February 2018 from https://www.investopedia.com/terms/c/cashflow.asp</ref> and payment milestones for project, program and portfolio, this article will focus on practical information for Project Managers, and present some real life relevant techniques and tools. For cash flow, the focus will be set on '''Gantt chart''' method, and for payment milestones, there will be two methods introduced: '''Program Evaluation and Review Technique''' (PERT) and '''Critical Path Method''' (CPM). It will also answer the question "''Why cash flow and payment milestones are so important in Project Cost Management?''" and how to approach them.

==Introduction==

===Cash Flow definition===

Cash flow is a term used to describe money movement (flow) in business in defined time period. Cash flow is determined by the following factors: time, nominal amount, currency and account <ref name = "CashFlow"/>.There are two main subdivisions of this term - cash flow in and cash flow out.

'''Cash flow in''' stands for money that is coming into the business. It may come from investors, who are investing or financing the company, from gathered capital that business owner has, or from profits that business is making from selling products or services.

'''Cash flow out''' stands for money that is going out of the business. It may go for covering the wages of hired workers, bills like rental payment or mortgage for facilities or services, and other expenses like taxation.

The difference between cash flow in and cash flow out is called '''net cash flow'''.

[[File:Cashflow.png|center|thumb|500px|Cash Flow scheme <ref name="CashFlowPicture" />]]

===Milestones definition===

Each project has a determined timeframe, or duration. '''Milestones''' are key reference points, or events on this timeline, that are crucial for measuring the project progress and achieving the final outcome. In project management milestones can be called signal anchors <ref name=" SignalAnchors"/> and are used for marking following deliverables:
*Start of the project
*End of the project
*Start of determined phase of the project
*End of determined phase of the project
*Reviews
*Budget checks

Milestones are fixed points, so in contrast to the timeline, they do not have duration, they are fixed dates.

[[File:Milestones.png|center|thumb|500px|Milestones scheme]]

'''Payment milestones''' are another kind of milestones, that are strictly dedicated to finances. They are fixed dates, when certain percent of money is being payed or received. The bigger the project, the bigger the budget, and therefore the more payment milestones present.

==Cash flow and payment milestones in Project Cost Management==

===Cash Flow Analysis===

Referring to popular saying that "Cash is King" - money is one of the most important resources in business <ref name="CashisKing"/>
and requires proper control and analysis. Skillful financial data management allows to extract from cash flow several measures crucial for Project Cost Management. Some of them are:
*'''Project value''' or rate of return. It is basically a profit of an investment. Cash flow is implemented in some financial models, such as IRR or NPV.
*'''Project liquidity'''. It can be determined how easily the financial obligations can be met during the project.
*'''Project risk evaluation'''. It can be determined what is the uncertainty about deviation from expected earnings or expected outcome.

There are several tools and methods of cash flow analysis. One of the most common and universal method is '''Gantt chart'''. It is a method useful for an instant overview of project profitability over time, comparison of planned and actual flows of cash and for better balancing of cash flows across all projects.<ref name="easyredmine"/>. At gantt.com following description of a Gantt chart can be found<ref name="gant"/>:

''A Gantt chart, commonly used in project management, is one of the most popular and useful ways of showing activities (tasks or events) displayed against time. On the left of the chart is a list of the activities and along the top is a suitable time scale. Each activity is represented by a bar; the position and length of the bar reflects the start date, duration and end date of the activity. This allows you to see at a glance:
*''What the various activities are''
*''When each activity begins and ends''
*''How long each activity is scheduled to last''
*''Where activities overlap with other activities, and by how much''
*''The start and end date of the whole project
''
It is possible to crate Gantt charts in programs like Microsoft Excel or Numbers for Mac, however there are several online tools dedicated for this particular method. One of them is easyREDMINE <ref name="easyredmine"/> offering straight forward design and guide for those less experience with this method.

[[File:EasyRedmine.jpg|center|thumb|1000px|easyREDMINE Gantt chart <ref name="easyredmine" />]]

For more tools and explanation of Cash Flow analysis, Iowa State University website can be visited <ref name="Iowa" />, as well as Planning Engineer <ref name="PlanningEngineer" />

===Payment Milestones in Project Cost Management===

Payment milestones are significant element of every project or portfolio schedule. Solid financial planning allows for smooth project flow and simplifies controlling process. To prepare such plan, and create adequate and efficient milestones, there can be several techniques or methods used. One of them is '''Program Evaluation and Review Technique''' (PERT). PERT is project management tool used to schedule, organize, and coordinate tasks within a project. More detailed description of PERT is as follows:

"''PERT is a method of analysing the tasks involved in completing a given project, especially the time needed to complete each task, and to identify the minimum time needed to complete the total project. It incorporates uncertainty by making it possible to schedule a project while not knowing precisely the details and durations of all the activities. It is more of an event-oriented technique rather than start- and completion-oriented and is used more in projects where time is the major factor rather than cost. It is applied to very large-scale, one-time, complex, non-routine infrastructure and Research and Development projects.''" <ref name="PERT"/>

Another method that can be used for Payment Milestones establishment is '''Critical Path Method''' (CPM).

"''The critical path method is a step-by-step project management technique to identify activities on the critical path. It is an approach to project scheduling that breaks the project into several work tasks, displays them in a flow chart, and then calculates the project duration based on estimated durations for each task. It identifies tasks that are critical, time-wise, in completing the project.''" <ref name="CPM"/>

Both methods were established in 1950's and since then, were refined and modified for modern projects expectations. Application of such techniques in project gives its schedule organised and divided into intervals structure, which makes it easier to follow. It also gives better overview on most important activities, that are usually critical to complete within schedule.

==Implementation in real life projects==

For better understanding of presented above techniques and methods, it is recommended to review a real-life project case. A good example would be case of construction project, described in Chapter 12 <ref name="chapter12" /> of book "Project Management for Construction" by Chris Hendrickson <ref name="Hendrickson" />. It gives a broad overview on cost control, monitoring and accounting of a variety of construction projects. Hendrickson starts with project budget establishment, going through forecasting for activity cost control, where he gets into details, presenting and explaining useful formulas with examples. Next, he talks about financial accounting systems and cost accounts, which is an introduction to control of project cash flows. In this chapter, an example of a cash flow status report can be found, with its decent explanation. The next sections are dedicated to schedule control and schedule and budget updates, where Hendrickson talks about milestones and project segmentation.

Hendrickson in his book, and in this particular chapter provides practical examples with real data, which can be adjusted and duplicated for other project purposes. It is important for any future or current Project Manager to have a good background knowledge and experience with different cases that were solved in the past. This gives not only a good overview on how financial planning and controlling can be conducted, but also highlights critical areas, where most issues occur.

==Importance of Cash Flow and Payment Milestones==

Why keeping track of cash flow is important in project management?
There may be two outcomes coming from the cash flow analysis - either cash flow is positive or negative. To achieve positive cash flow, there are two main factors to focus on: organisation and planning.

In case of any project, or portfolio of projects, project manager has to be aware of how much money is coming in, and how much money is being spent. Proportionally to the size and scope of the project, or portfolio, those income and outcome is more complex for bigger projects. To control complicated money flow, it is necessary to have a financial plan. This is where payment milestones come handy. If at the beginning of the project a system of money verification will be established, it will be possible and rather straight forward to follow and control it. Awareness of when is the right moment to spend money gives project manager more chance of staying within the budget frame, and keeping project financial condition in good shape.

In case when there is no proper organisation and planning in cash flow, there is a big danger of spending too much money on some project stages, which can cause lack of resources for other stages. The outcome may be either stretching the budget, which is optimistic variant. More realistic is, that there will be delays in some stages of project, which will project on the schedule and overall project outcome.

==Annotated Bibliography==

'''Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)'''

'''Simon A. Burtonshaw-Gunn. "Risk and Financial Management in Construction." Gower Publishing Limited, 2009.'''

''In today’s climate the need for a closer understanding of the relationship between the two inter-related topics of risk management and finance on construction projects is becoming increasingly crucial to achieving the objectives of the investor, the end-user and the constructor and its supply chain, especially as interest in PFI and PPP arrangements continues to grow around the world. Risk and Financial Management in Construction shows the relationship between the Construction Project Manager’s task of balancing time, cost and quality and the need to satisfy the client’s requirements efficiently, effectively and professionally whilst at the same time contributing to the contractor’s future sustainability. The book covers Risk Management describing the tools and methods to reduce the occurrence and consequences of risk, and the financial management of construction projects from raising funding, to contract strategy and through to estimating, budgeting and cost control. It includes a chapter covering international project risk, bringing together the issues of risk management, prime contracting, and PFI funding for construction projects undertaken away from the contractors main home market. Risk and Financial Management in Construction is aimed at those practising in, or studying to enter, the project management profession in providing a strategic and operational knowledge of these subjects allowing the reader easy access to the key points through a wide selection of models, checklists and easy to find lists in all of the key areas.'' <ref name="SimonA" />

'''Chris Hendrickson. "Project Management for Construction. Fundamental Concepts for Owners, Engineers, Architects and Builders." Prentice Hall, 2000. ISBN 0-13-731266-0'''

''This book develops a specific viewpoint in discussing the participants, the processes and the techniques of project management for construction. This viewpoint is that of owners who desire completion of projects in a timely, cost effective fashion. While this book is devoted to a particular viewpoint with respect to project management for construction, it is not solely intended for owners and their direct representatives. By understanding the entire process, all participants can respond more effectively to the owner's needs in their own work, in marketing their services, and in communicating with other participants. In addition, the specific techniques and tools discussed in this book (such as economic evaluation, scheduling, management information systems, etc.) can be readily applied to any portion of the process.'' <ref name="Hendrickson" />

==References==

<references>

<ref name="CashFlow"> "Cash Flow" February 2018 https://en.wikipedia.org/wiki/Cash_flow:.</ref>
<ref name="CashFlowPicture"> "Cash Flow Scheme", BBC, February 2018 https://www.bbc.co.uk/education/guides/z67mpv4/revision </ref>
<ref name="SignalAnchors"> "Signal Anchors" February 2018 https://en.wikipedia.org/wiki/Milestone_(project_management) </ref>
<ref name="CashisKing"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., (2009), https://books.google.dk/books?id=r4R3gDES5lMC&pg=PA158&lpg=PA158&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management&source=bl&ots=pXc4hlRRCk&sig=8Ma_EihrAuCnJ4lHyi_P7cKf2IQ&hl=en&sa=X&ved=0ahUKEwievtuBh6bZAhWSKCwKHQL-CMMQ6AEIfDAH#v=onepage&q=cash%20flow%20and%20payment%20milestones%20in%20Project%20Cost%20Management&f=false </ref>
<ref name="easyredmine"> "EasyREDMINE" https://www.easyredmine.com/software/project-finances/2747-cash-flow-in-gantt-chart </ref>
<ref name="Iowa"> "Iowa State University website" https://www.extension.iastate.edu/agdm/wholefarm/html/c3-14.html </ref>
<ref name="PlanningEngineer"> "Planning Engineer website" https://planningengineer.net/create-gantt-chart-and-cash-flow-using-excel-with-sample-file/ </ref>
<ref name="PERT"> "PERT" https://en.wikipedia.org/wiki/Program_evaluation_and_review_technique </ref>
<ref name="CPM"> "CPM" https://www.smartsheet.com/critical-path-method </ref>
<ref name="chapter12"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', (2000), Chapter 12, http://pmbook.ce.cmu.edu/12_Cost_Control,_Monitoring,_and_Accounting.html </ref>
<ref name="Hendrickson"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', (2000), http://pmbook.ce.cmu.edu </ref>
<ref name="gant"> http://www.gantt.com/

Cash flow & payment milestones

2018-02-24T16:57:50Z

S172569: /* Annotated Bibliography */

==Abstract==

Project Cost Management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.<ref name = "besefi">Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)''. Newtown Square, Pennsylvania: Project Management Institute, Inc </ref>. Two main concerns, that are crucial in Project Cost Management are '''cash flow''' and '''payment milestones'''.

Cash flow, its monitoring and analysis is a subject that has been on the agenda for any existing or conducted project or portfolio. Diversity of scale and scope of the projects makes cash flow rather complex and multidimensional issue. Recommended approach for getting a good understanding of this issue is to study cases, projects and portfolios of relevant scale, scope and area to currently investigated project. Similarly it is with payment milestones, which are part of cash flow organisation and planning.

This article will contain two chapters, one for each issue. Apart from diversification of definitions of cash flow <ref> Cash Flow. February 2018 from https://www.investopedia.com/terms/c/cashflow.asp</ref> and payment milestones for project, program and portfolio, this article will focus on practical information for Project Managers, and present some real life relevant techniques and tools. For cash flow, the focus will be set on '''Gantt chart''' method, and for payment milestones, there will be two methods introduced: '''Program Evaluation and Review Technique''' (PERT) and '''Critical Path Method''' (CPM). It will also answer the question "''Why cash flow and payment milestones are so important in Project Cost Management?''" and how to approach them.

==Introduction==

===Cash Flow definition===

Cash flow is a term used to describe money movement (flow) in business in defined time period. Cash flow is determined by the following factors: time, nominal amount, currency and account <ref name = "CashFlow"/>.There are two main subdivisions of this term - cash flow in and cash flow out.

'''Cash flow in''' stands for money that is coming into the business. It may come from investors, who are investing or financing the company, from gathered capital that business owner has, or from profits that business is making from selling products or services.

'''Cash flow out''' stands for money that is going out of the business. It may go for covering the wages of hired workers, bills like rental payment or mortgage for facilities or services, and other expenses like taxation.

The difference between cash flow in and cash flow out is called '''net cash flow'''.

[[File:Cashflow.png|center|thumb|500px|Cash Flow scheme <ref name="CashFlowPicture" />]]

===Milestones definition===

Each project has a determined timeframe, or duration. '''Milestones''' are key reference points, or events on this timeline, that are crucial for measuring the project progress and achieving the final outcome. In project management milestones can be called signal anchors <ref name=" SignalAnchors"/> and are used for marking following deliverables:
*Start of the project
*End of the project
*Start of determined phase of the project
*End of determined phase of the project
*Reviews
*Budget checks

Milestones are fixed points, so in contrast to the timeline, they do not have duration, they are fixed dates.

[[File:Milestones.png|center|thumb|500px|Milestones scheme]]

'''Payment milestones''' are another kind of milestones, that are strictly dedicated to finances. They are fixed dates, when certain percent of money is being payed or received. The bigger the project, the bigger the budget, and therefore the more payment milestones present.

==Cash flow and payment milestones in Project Cost Management==

===Cash Flow Analysis===

Referring to popular saying that "Cash is King" - money is one of the most important resources in business <ref name="CashisKing"/>
and requires proper control and analysis. Skillful financial data management allows to extract from cash flow several measures crucial for Project Cost Management. Some of them are:
*'''Project value''' or rate of return. It is basically a profit of an investment. Cash flow is implemented in some financial models, such as IRR or NPV.
*'''Project liquidity'''. It can be determined how easily the financial obligations can be met during the project.
*'''Project risk evaluation'''. It can be determined what is the uncertainty about deviation from expected earnings or expected outcome.

There are several tools and methods of cash flow analysis. One of the most common and universal method is '''Gantt chart'''. It is a method useful for an instant overview of project profitability over time, comparison of planned and actual flows of cash and for better balancing of cash flows across all projects.<ref name="easyredmine"/>. At gantt.com following description of a Gantt chart can be found<ref name="gant"/>:

''A Gantt chart, commonly used in project management, is one of the most popular and useful ways of showing activities (tasks or events) displayed against time. On the left of the chart is a list of the activities and along the top is a suitable time scale. Each activity is represented by a bar; the position and length of the bar reflects the start date, duration and end date of the activity. This allows you to see at a glance:
*''What the various activities are''
*''When each activity begins and ends''
*''How long each activity is scheduled to last''
*''Where activities overlap with other activities, and by how much''
*''The start and end date of the whole project
''
It is possible to crate Gantt charts in programs like Microsoft Excel or Numbers for Mac, however there are several online tools dedicated for this particular method. One of them is easyREDMINE <ref name="easyredmine"/> offering straight forward design and guide for those less experience with this method.

[[File:EasyRedmine.jpg|center|thumb|1000px|easyREDMINE Gantt chart <ref name="easyredmine" />]]

For more tools and explanation of Cash Flow analysis, Iowa State University website can be visited <ref name="Iowa" />, as well as Planning Engineer <ref name="PlanningEngineer" />

===Payment Milestones in Project Cost Management===

Payment milestones are significant element of every project or portfolio schedule. Solid financial planning allows for smooth project flow and simplifies controlling process. To prepare such plan, and create adequate and efficient milestones, there can be several techniques or methods used. One of them is '''Program Evaluation and Review Technique''' (PERT). PERT is project management tool used to schedule, organize, and coordinate tasks within a project. More detailed description of PERT is as follows:

"''PERT is a method of analysing the tasks involved in completing a given project, especially the time needed to complete each task, and to identify the minimum time needed to complete the total project. It incorporates uncertainty by making it possible to schedule a project while not knowing precisely the details and durations of all the activities. It is more of an event-oriented technique rather than start- and completion-oriented and is used more in projects where time is the major factor rather than cost. It is applied to very large-scale, one-time, complex, non-routine infrastructure and Research and Development projects.''" <ref name="PERT"/>

Another method that can be used for Payment Milestones establishment is '''Critical Path Method''' (CPM).

"''The critical path method is a step-by-step project management technique to identify activities on the critical path. It is an approach to project scheduling that breaks the project into several work tasks, displays them in a flow chart, and then calculates the project duration based on estimated durations for each task. It identifies tasks that are critical, time-wise, in completing the project.''" <ref name="CPM"/>

Both methods were established in 1950's and since then, were refined and modified for modern projects expectations. Application of such techniques in project gives its schedule organised and divided into intervals structure, which makes it easier to follow. It also gives better overview on most important activities, that are usually critical to complete within schedule.

==Implementation in real life projects==

For better understanding of presented above techniques and methods, it is recommended to review a real-life project case. A good example would be case of construction project, described in Chapter 12 <ref name="chapter12" /> of book "Project Management for Construction" by Chris Hendrickson <ref name="Hendrickson" />. It gives a broad overview on cost control, monitoring and accounting of a variety of construction projects. Hendrickson starts with project budget establishment, going through forecasting for activity cost control, where he gets into details, presenting and explaining useful formulas with examples. Next, he talks about financial accounting systems and cost accounts, which is an introduction to control of project cash flows. In this chapter, an example of a cash flow status report can be found, with its decent explanation. The next sections are dedicated to schedule control and schedule and budget updates, where Hendrickson talks about milestones and project segmentation.

Hendrickson in his book, and in this particular chapter provides practical examples with real data, which can be adjusted and duplicated for other project purposes. It is important for any future or current Project Manager to have a good background knowledge and experience with different cases that were solved in the past. This gives not only a good overview on how financial planning and controlling can be conducted, but also highlights critical areas, where most issues occur.

==Importance of Cash Flow and Payment Milestones==

Why keeping track of cash flow is important in project management?
There may be two outcomes coming from the cash flow analysis - either cash flow is positive or negative. To achieve positive cash flow, there are two main factors to focus on: organisation and planning.

In case of any project, or portfolio of projects, project manager has to be aware of how much money is coming in, and how much money is being spent. Proportionally to the size and scope of the project, or portfolio, those income and outcome is more complex for bigger projects. To control complicated money flow, it is necessary to have a financial plan. This is where payment milestones come handy. If at the beginning of the project a system of money verification will be established, it will be possible and rather straight forward to follow and control it. Awareness of when is the right moment to spend money gives project manager more chance of staying within the budget frame, and keeping project financial condition in good shape.

In case when there is no proper organisation and planning in cash flow, there is a big danger of spending too much money on some project stages, which can cause lack of resources for other stages. The outcome may be either stretching the budget, which is optimistic variant. More realistic is, that there will be delays in some stages of project, which will project on the schedule and overall project outcome.

==Annotated Bibliography==

'''Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)'''

'''Simon A. Burtonshaw-Gunn. "Risk and Financial Management in Construction." Gower Publishing Limited (2009).'''

'''

==References==

<references>

<ref name="CashFlow"> "Cash Flow" February 2018 https://en.wikipedia.org/wiki/Cash_flow:.</ref>
<ref name="CashFlowPicture"> "Cash Flow Scheme", BBC, February 2018 https://www.bbc.co.uk/education/guides/z67mpv4/revision </ref>
<ref name="SignalAnchors"> "Signal Anchors" February 2018 https://en.wikipedia.org/wiki/Milestone_(project_management) </ref>
<ref name="CashisKing"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., (2009), https://books.google.dk/books?id=r4R3gDES5lMC&pg=PA158&lpg=PA158&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management&source=bl&ots=pXc4hlRRCk&sig=8Ma_EihrAuCnJ4lHyi_P7cKf2IQ&hl=en&sa=X&ved=0ahUKEwievtuBh6bZAhWSKCwKHQL-CMMQ6AEIfDAH#v=onepage&q=cash%20flow%20and%20payment%20milestones%20in%20Project%20Cost%20Management&f=false </ref>
<ref name="easyredmine"> "EasyREDMINE" https://www.easyredmine.com/software/project-finances/2747-cash-flow-in-gantt-chart </ref>
<ref name="Iowa"> "Iowa State University website" https://www.extension.iastate.edu/agdm/wholefarm/html/c3-14.html </ref>
<ref name="PlanningEngineer"> "Planning Engineer website" https://planningengineer.net/create-gantt-chart-and-cash-flow-using-excel-with-sample-file/ </ref>
<ref name="PERT"> "PERT" https://en.wikipedia.org/wiki/Program_evaluation_and_review_technique </ref>
<ref name="CPM"> "CPM" https://www.smartsheet.com/critical-path-method </ref>
<ref name="chapter12"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', (2000), Chapter 12, http://pmbook.ce.cmu.edu/12_Cost_Control,_Monitoring,_and_Accounting.html </ref>
<ref name="Hendrickson"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', (2000), http://pmbook.ce.cmu.edu </ref>
<ref name="gant"> http://www.gantt.com/

Cash flow & payment milestones

2018-02-24T16:51:28Z

S172569: /* Abstract */

==Abstract==

Project Cost Management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.<ref name = "besefi">Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)''. Newtown Square, Pennsylvania: Project Management Institute, Inc </ref>. Two main concerns, that are crucial in Project Cost Management are '''cash flow''' and '''payment milestones'''.

Cash flow, its monitoring and analysis is a subject that has been on the agenda for any existing or conducted project or portfolio. Diversity of scale and scope of the projects makes cash flow rather complex and multidimensional issue. Recommended approach for getting a good understanding of this issue is to study cases, projects and portfolios of relevant scale, scope and area to currently investigated project. Similarly it is with payment milestones, which are part of cash flow organisation and planning.

This article will contain two chapters, one for each issue. Apart from diversification of definitions of cash flow <ref> Cash Flow. February 2018 from https://www.investopedia.com/terms/c/cashflow.asp</ref> and payment milestones for project, program and portfolio, this article will focus on practical information for Project Managers, and present some real life relevant techniques and tools. For cash flow, the focus will be set on '''Gantt chart''' method, and for payment milestones, there will be two methods introduced: '''Program Evaluation and Review Technique''' (PERT) and '''Critical Path Method''' (CPM). It will also answer the question "''Why cash flow and payment milestones are so important in Project Cost Management?''" and how to approach them.

==Introduction==

===Cash Flow definition===

Cash flow is a term used to describe money movement (flow) in business in defined time period. Cash flow is determined by the following factors: time, nominal amount, currency and account <ref name = "CashFlow"/>.There are two main subdivisions of this term - cash flow in and cash flow out.

'''Cash flow in''' stands for money that is coming into the business. It may come from investors, who are investing or financing the company, from gathered capital that business owner has, or from profits that business is making from selling products or services.

'''Cash flow out''' stands for money that is going out of the business. It may go for covering the wages of hired workers, bills like rental payment or mortgage for facilities or services, and other expenses like taxation.

The difference between cash flow in and cash flow out is called '''net cash flow'''.

[[File:Cashflow.png|center|thumb|500px|Cash Flow scheme <ref name="CashFlowPicture" />]]

===Milestones definition===

Each project has a determined timeframe, or duration. '''Milestones''' are key reference points, or events on this timeline, that are crucial for measuring the project progress and achieving the final outcome. In project management milestones can be called signal anchors <ref name=" SignalAnchors"/> and are used for marking following deliverables:
*Start of the project
*End of the project
*Start of determined phase of the project
*End of determined phase of the project
*Reviews
*Budget checks

Milestones are fixed points, so in contrast to the timeline, they do not have duration, they are fixed dates.

[[File:Milestones.png|center|thumb|500px|Milestones scheme]]

'''Payment milestones''' are another kind of milestones, that are strictly dedicated to finances. They are fixed dates, when certain percent of money is being payed or received. The bigger the project, the bigger the budget, and therefore the more payment milestones present.

==Cash flow and payment milestones in Project Cost Management==

===Cash Flow Analysis===

Referring to popular saying that "Cash is King" - money is one of the most important resources in business <ref name="CashisKing"/>
and requires proper control and analysis. Skillful financial data management allows to extract from cash flow several measures crucial for Project Cost Management. Some of them are:
*'''Project value''' or rate of return. It is basically a profit of an investment. Cash flow is implemented in some financial models, such as IRR or NPV.
*'''Project liquidity'''. It can be determined how easily the financial obligations can be met during the project.
*'''Project risk evaluation'''. It can be determined what is the uncertainty about deviation from expected earnings or expected outcome.

There are several tools and methods of cash flow analysis. One of the most common and universal method is '''Gantt chart'''. It is a method useful for an instant overview of project profitability over time, comparison of planned and actual flows of cash and for better balancing of cash flows across all projects.<ref name="easyredmine"/>. At gantt.com following description of a Gantt chart can be found<ref name="gant"/>:

''A Gantt chart, commonly used in project management, is one of the most popular and useful ways of showing activities (tasks or events) displayed against time. On the left of the chart is a list of the activities and along the top is a suitable time scale. Each activity is represented by a bar; the position and length of the bar reflects the start date, duration and end date of the activity. This allows you to see at a glance:
*''What the various activities are''
*''When each activity begins and ends''
*''How long each activity is scheduled to last''
*''Where activities overlap with other activities, and by how much''
*''The start and end date of the whole project
''
It is possible to crate Gantt charts in programs like Microsoft Excel or Numbers for Mac, however there are several online tools dedicated for this particular method. One of them is easyREDMINE <ref name="easyredmine"/> offering straight forward design and guide for those less experience with this method.

[[File:EasyRedmine.jpg|center|thumb|1000px|easyREDMINE Gantt chart <ref name="easyredmine" />]]

For more tools and explanation of Cash Flow analysis, Iowa State University website can be visited <ref name="Iowa" />, as well as Planning Engineer <ref name="PlanningEngineer" />

===Payment Milestones in Project Cost Management===

Payment milestones are significant element of every project or portfolio schedule. Solid financial planning allows for smooth project flow and simplifies controlling process. To prepare such plan, and create adequate and efficient milestones, there can be several techniques or methods used. One of them is '''Program Evaluation and Review Technique''' (PERT). PERT is project management tool used to schedule, organize, and coordinate tasks within a project. More detailed description of PERT is as follows:

"''PERT is a method of analysing the tasks involved in completing a given project, especially the time needed to complete each task, and to identify the minimum time needed to complete the total project. It incorporates uncertainty by making it possible to schedule a project while not knowing precisely the details and durations of all the activities. It is more of an event-oriented technique rather than start- and completion-oriented and is used more in projects where time is the major factor rather than cost. It is applied to very large-scale, one-time, complex, non-routine infrastructure and Research and Development projects.''" <ref name="PERT"/>

Another method that can be used for Payment Milestones establishment is '''Critical Path Method''' (CPM).

"''The critical path method is a step-by-step project management technique to identify activities on the critical path. It is an approach to project scheduling that breaks the project into several work tasks, displays them in a flow chart, and then calculates the project duration based on estimated durations for each task. It identifies tasks that are critical, time-wise, in completing the project.''" <ref name="CPM"/>

Both methods were established in 1950's and since then, were refined and modified for modern projects expectations. Application of such techniques in project gives its schedule organised and divided into intervals structure, which makes it easier to follow. It also gives better overview on most important activities, that are usually critical to complete within schedule.

==Implementation in real life projects==

For better understanding of presented above techniques and methods, it is recommended to review a real-life project case. A good example would be case of construction project, described in Chapter 12 <ref name="chapter12" /> of book "Project Management for Construction" by Chris Hendrickson <ref name="Hendrickson" />. It gives a broad overview on cost control, monitoring and accounting of a variety of construction projects. Hendrickson starts with project budget establishment, going through forecasting for activity cost control, where he gets into details, presenting and explaining useful formulas with examples. Next, he talks about financial accounting systems and cost accounts, which is an introduction to control of project cash flows. In this chapter, an example of a cash flow status report can be found, with its decent explanation. The next sections are dedicated to schedule control and schedule and budget updates, where Hendrickson talks about milestones and project segmentation.

Hendrickson in his book, and in this particular chapter provides practical examples with real data, which can be adjusted and duplicated for other project purposes. It is important for any future or current Project Manager to have a good background knowledge and experience with different cases that were solved in the past. This gives not only a good overview on how financial planning and controlling can be conducted, but also highlights critical areas, where most issues occur.

==Importance of Cash Flow and Payment Milestones==

Why keeping track of cash flow is important in project management?
There may be two outcomes coming from the cash flow analysis - either cash flow is positive or negative. To achieve positive cash flow, there are two main factors to focus on: organisation and planning.

In case of any project, or portfolio of projects, project manager has to be aware of how much money is coming in, and how much money is being spent. Proportionally to the size and scope of the project, or portfolio, those income and outcome is more complex for bigger projects. To control complicated money flow, it is necessary to have a financial plan. This is where payment milestones come handy. If at the beginning of the project a system of money verification will be established, it will be possible and rather straight forward to follow and control it. Awareness of when is the right moment to spend money gives project manager more chance of staying within the budget frame, and keeping project financial condition in good shape.

In case when there is no proper organisation and planning in cash flow, there is a big danger of spending too much money on some project stages, which can cause lack of resources for other stages. The outcome may be either stretching the budget, which is optimistic variant. More realistic is, that there will be delays in some stages of project, which will project on the schedule and overall project outcome.

==Annotated Bibliography==

'''Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)'''

==References==

<references>

<ref name="CashFlow"> "Cash Flow" February 2018 https://en.wikipedia.org/wiki/Cash_flow:.</ref>
<ref name="CashFlowPicture"> "Cash Flow Scheme", BBC, February 2018 https://www.bbc.co.uk/education/guides/z67mpv4/revision </ref>
<ref name="SignalAnchors"> "Signal Anchors" February 2018 https://en.wikipedia.org/wiki/Milestone_(project_management) </ref>
<ref name="CashisKing"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., (2009), https://books.google.dk/books?id=r4R3gDES5lMC&pg=PA158&lpg=PA158&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management&source=bl&ots=pXc4hlRRCk&sig=8Ma_EihrAuCnJ4lHyi_P7cKf2IQ&hl=en&sa=X&ved=0ahUKEwievtuBh6bZAhWSKCwKHQL-CMMQ6AEIfDAH#v=onepage&q=cash%20flow%20and%20payment%20milestones%20in%20Project%20Cost%20Management&f=false </ref>
<ref name="easyredmine"> "EasyREDMINE" https://www.easyredmine.com/software/project-finances/2747-cash-flow-in-gantt-chart </ref>
<ref name="Iowa"> "Iowa State University website" https://www.extension.iastate.edu/agdm/wholefarm/html/c3-14.html </ref>
<ref name="PlanningEngineer"> "Planning Engineer website" https://planningengineer.net/create-gantt-chart-and-cash-flow-using-excel-with-sample-file/ </ref>
<ref name="PERT"> "PERT" https://en.wikipedia.org/wiki/Program_evaluation_and_review_technique </ref>
<ref name="CPM"> "CPM" https://www.smartsheet.com/critical-path-method </ref>
<ref name="chapter12"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', (2000), Chapter 12, http://pmbook.ce.cmu.edu/12_Cost_Control,_Monitoring,_and_Accounting.html </ref>
<ref name="Hendrickson"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', (2000), http://pmbook.ce.cmu.edu </ref>
<ref name="gant"> http://www.gantt.com/

Cash flow & payment milestones

2018-02-24T16:50:52Z

S172569: /* Abstract */

==Abstract==

Project Cost Management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.<ref name = "besefi">Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)''. Newtown Square, Pennsylvania: Project Management Institute, Inc </ref>. Two main concerns, that are crucial in Project Cost Management are '''cash flow''' and '''payment milestones'''.

Cash flow, its monitoring and analysis is a subject that has been on the agenda for any existing or conducted project or portfolio. Diversity of scale and scope of the projects makes cash flow rather complex and multidimensional issue. Recommended approach for getting a good understanding of this issue is to study cases, projects and portfolios of relevant scale, scope and area to currently investigated project. Similarly it is with payment milestones, which are part of cash flow organisation and planning.

This article will contain two chapters, one for each issue. Apart from diversification of definitions of cash flow <ref> Cash Flow. February 2018 from https://www.investopedia.com/terms/c/cashflow.asp</ref> and payment milestones for project, program and portfolio, this article will focus on practical information for Project Managers, and present some real life relevant techniques and tools. For cash flow, the focus will be set on Gantt chart method, and for payment milestones, there will be two methods introduced: Program Evaluation and Review Technique (PERT) and Critical Path Method (CPM). It will also answer the question "''Why cash flow and payment milestones are so important in Project Cost Management?''" and how to approach them.

==Introduction==

===Cash Flow definition===

Cash flow is a term used to describe money movement (flow) in business in defined time period. Cash flow is determined by the following factors: time, nominal amount, currency and account <ref name = "CashFlow"/>.There are two main subdivisions of this term - cash flow in and cash flow out.

'''Cash flow in''' stands for money that is coming into the business. It may come from investors, who are investing or financing the company, from gathered capital that business owner has, or from profits that business is making from selling products or services.

'''Cash flow out''' stands for money that is going out of the business. It may go for covering the wages of hired workers, bills like rental payment or mortgage for facilities or services, and other expenses like taxation.

The difference between cash flow in and cash flow out is called '''net cash flow'''.

[[File:Cashflow.png|center|thumb|500px|Cash Flow scheme <ref name="CashFlowPicture" />]]

===Milestones definition===

Each project has a determined timeframe, or duration. '''Milestones''' are key reference points, or events on this timeline, that are crucial for measuring the project progress and achieving the final outcome. In project management milestones can be called signal anchors <ref name=" SignalAnchors"/> and are used for marking following deliverables:
*Start of the project
*End of the project
*Start of determined phase of the project
*End of determined phase of the project
*Reviews
*Budget checks

Milestones are fixed points, so in contrast to the timeline, they do not have duration, they are fixed dates.

[[File:Milestones.png|center|thumb|500px|Milestones scheme]]

'''Payment milestones''' are another kind of milestones, that are strictly dedicated to finances. They are fixed dates, when certain percent of money is being payed or received. The bigger the project, the bigger the budget, and therefore the more payment milestones present.

==Cash flow and payment milestones in Project Cost Management==

===Cash Flow Analysis===

Referring to popular saying that "Cash is King" - money is one of the most important resources in business <ref name="CashisKing"/>
and requires proper control and analysis. Skillful financial data management allows to extract from cash flow several measures crucial for Project Cost Management. Some of them are:
*'''Project value''' or rate of return. It is basically a profit of an investment. Cash flow is implemented in some financial models, such as IRR or NPV.
*'''Project liquidity'''. It can be determined how easily the financial obligations can be met during the project.
*'''Project risk evaluation'''. It can be determined what is the uncertainty about deviation from expected earnings or expected outcome.

There are several tools and methods of cash flow analysis. One of the most common and universal method is '''Gantt chart'''. It is a method useful for an instant overview of project profitability over time, comparison of planned and actual flows of cash and for better balancing of cash flows across all projects.<ref name="easyredmine"/>. At gantt.com following description of a Gantt chart can be found<ref name="gant"/>:

''A Gantt chart, commonly used in project management, is one of the most popular and useful ways of showing activities (tasks or events) displayed against time. On the left of the chart is a list of the activities and along the top is a suitable time scale. Each activity is represented by a bar; the position and length of the bar reflects the start date, duration and end date of the activity. This allows you to see at a glance:
*''What the various activities are''
*''When each activity begins and ends''
*''How long each activity is scheduled to last''
*''Where activities overlap with other activities, and by how much''
*''The start and end date of the whole project
''
It is possible to crate Gantt charts in programs like Microsoft Excel or Numbers for Mac, however there are several online tools dedicated for this particular method. One of them is easyREDMINE <ref name="easyredmine"/> offering straight forward design and guide for those less experience with this method.

[[File:EasyRedmine.jpg|center|thumb|1000px|easyREDMINE Gantt chart <ref name="easyredmine" />]]

For more tools and explanation of Cash Flow analysis, Iowa State University website can be visited <ref name="Iowa" />, as well as Planning Engineer <ref name="PlanningEngineer" />

===Payment Milestones in Project Cost Management===

Payment milestones are significant element of every project or portfolio schedule. Solid financial planning allows for smooth project flow and simplifies controlling process. To prepare such plan, and create adequate and efficient milestones, there can be several techniques or methods used. One of them is '''Program Evaluation and Review Technique''' (PERT). PERT is project management tool used to schedule, organize, and coordinate tasks within a project. More detailed description of PERT is as follows:

"''PERT is a method of analysing the tasks involved in completing a given project, especially the time needed to complete each task, and to identify the minimum time needed to complete the total project. It incorporates uncertainty by making it possible to schedule a project while not knowing precisely the details and durations of all the activities. It is more of an event-oriented technique rather than start- and completion-oriented and is used more in projects where time is the major factor rather than cost. It is applied to very large-scale, one-time, complex, non-routine infrastructure and Research and Development projects.''" <ref name="PERT"/>

Another method that can be used for Payment Milestones establishment is '''Critical Path Method''' (CPM).

"''The critical path method is a step-by-step project management technique to identify activities on the critical path. It is an approach to project scheduling that breaks the project into several work tasks, displays them in a flow chart, and then calculates the project duration based on estimated durations for each task. It identifies tasks that are critical, time-wise, in completing the project.''" <ref name="CPM"/>

Both methods were established in 1950's and since then, were refined and modified for modern projects expectations. Application of such techniques in project gives its schedule organised and divided into intervals structure, which makes it easier to follow. It also gives better overview on most important activities, that are usually critical to complete within schedule.

==Implementation in real life projects==

For better understanding of presented above techniques and methods, it is recommended to review a real-life project case. A good example would be case of construction project, described in Chapter 12 <ref name="chapter12" /> of book "Project Management for Construction" by Chris Hendrickson <ref name="Hendrickson" />. It gives a broad overview on cost control, monitoring and accounting of a variety of construction projects. Hendrickson starts with project budget establishment, going through forecasting for activity cost control, where he gets into details, presenting and explaining useful formulas with examples. Next, he talks about financial accounting systems and cost accounts, which is an introduction to control of project cash flows. In this chapter, an example of a cash flow status report can be found, with its decent explanation. The next sections are dedicated to schedule control and schedule and budget updates, where Hendrickson talks about milestones and project segmentation.

Hendrickson in his book, and in this particular chapter provides practical examples with real data, which can be adjusted and duplicated for other project purposes. It is important for any future or current Project Manager to have a good background knowledge and experience with different cases that were solved in the past. This gives not only a good overview on how financial planning and controlling can be conducted, but also highlights critical areas, where most issues occur.

==Importance of Cash Flow and Payment Milestones==

Why keeping track of cash flow is important in project management?
There may be two outcomes coming from the cash flow analysis - either cash flow is positive or negative. To achieve positive cash flow, there are two main factors to focus on: organisation and planning.

In case of any project, or portfolio of projects, project manager has to be aware of how much money is coming in, and how much money is being spent. Proportionally to the size and scope of the project, or portfolio, those income and outcome is more complex for bigger projects. To control complicated money flow, it is necessary to have a financial plan. This is where payment milestones come handy. If at the beginning of the project a system of money verification will be established, it will be possible and rather straight forward to follow and control it. Awareness of when is the right moment to spend money gives project manager more chance of staying within the budget frame, and keeping project financial condition in good shape.

In case when there is no proper organisation and planning in cash flow, there is a big danger of spending too much money on some project stages, which can cause lack of resources for other stages. The outcome may be either stretching the budget, which is optimistic variant. More realistic is, that there will be delays in some stages of project, which will project on the schedule and overall project outcome.

==Annotated Bibliography==

'''Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)'''

==References==

<references>

<ref name="CashFlow"> "Cash Flow" February 2018 https://en.wikipedia.org/wiki/Cash_flow:.</ref>
<ref name="CashFlowPicture"> "Cash Flow Scheme", BBC, February 2018 https://www.bbc.co.uk/education/guides/z67mpv4/revision </ref>
<ref name="SignalAnchors"> "Signal Anchors" February 2018 https://en.wikipedia.org/wiki/Milestone_(project_management) </ref>
<ref name="CashisKing"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., (2009), https://books.google.dk/books?id=r4R3gDES5lMC&pg=PA158&lpg=PA158&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management&source=bl&ots=pXc4hlRRCk&sig=8Ma_EihrAuCnJ4lHyi_P7cKf2IQ&hl=en&sa=X&ved=0ahUKEwievtuBh6bZAhWSKCwKHQL-CMMQ6AEIfDAH#v=onepage&q=cash%20flow%20and%20payment%20milestones%20in%20Project%20Cost%20Management&f=false </ref>
<ref name="easyredmine"> "EasyREDMINE" https://www.easyredmine.com/software/project-finances/2747-cash-flow-in-gantt-chart </ref>
<ref name="Iowa"> "Iowa State University website" https://www.extension.iastate.edu/agdm/wholefarm/html/c3-14.html </ref>
<ref name="PlanningEngineer"> "Planning Engineer website" https://planningengineer.net/create-gantt-chart-and-cash-flow-using-excel-with-sample-file/ </ref>
<ref name="PERT"> "PERT" https://en.wikipedia.org/wiki/Program_evaluation_and_review_technique </ref>
<ref name="CPM"> "CPM" https://www.smartsheet.com/critical-path-method </ref>
<ref name="chapter12"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', (2000), Chapter 12, http://pmbook.ce.cmu.edu/12_Cost_Control,_Monitoring,_and_Accounting.html </ref>
<ref name="Hendrickson"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', (2000), http://pmbook.ce.cmu.edu </ref>
<ref name="gant"> http://www.gantt.com/

Cash flow & payment milestones

2018-02-24T16:48:28Z

S172569: /* Abstract */

==Abstract==

Project Cost Management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.<ref name = "besefi">Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)''. Newtown Square, Pennsylvania: Project Management Institute, Inc </ref>. Two main concerns, that are crucial in Project Cost Management are '''cash flow''' and '''payment milestones'''.

Cash flow, its monitoring and analysis is a subject that has been on the agenda for any existing or conducted project or portfolio. Diversity of scale and scope of the projects makes cash flow rather complex and multidimensional issue. Recommended approach for getting a good understanding of this issue is to study cases, projects and portfolios of relevant scale, scope and area to currently investigated project. Similarly it is with payment milestones, which are part of cash flow organisation and planning.

This article will contain two chapters, one for each issue. Apart from diversification of definitions of cash flow <ref> Cash Flow. February 2018 from https://www.investopedia.com/terms/c/cashflow.asp</ref> and payment milestones for project, program and portfolio, this article will focus on practical information for Project Managers, and present some real life relevant techniques and tools. It will also answer the question "''Why cash flow and payment milestones are so important in Project Cost Management?''" and how to approach them.

==Introduction==

===Cash Flow definition===

Cash flow is a term used to describe money movement (flow) in business in defined time period. Cash flow is determined by the following factors: time, nominal amount, currency and account <ref name = "CashFlow"/>.There are two main subdivisions of this term - cash flow in and cash flow out.

'''Cash flow in''' stands for money that is coming into the business. It may come from investors, who are investing or financing the company, from gathered capital that business owner has, or from profits that business is making from selling products or services.

'''Cash flow out''' stands for money that is going out of the business. It may go for covering the wages of hired workers, bills like rental payment or mortgage for facilities or services, and other expenses like taxation.

The difference between cash flow in and cash flow out is called '''net cash flow'''.

[[File:Cashflow.png|center|thumb|500px|Cash Flow scheme <ref name="CashFlowPicture" />]]

===Milestones definition===

Each project has a determined timeframe, or duration. '''Milestones''' are key reference points, or events on this timeline, that are crucial for measuring the project progress and achieving the final outcome. In project management milestones can be called signal anchors <ref name=" SignalAnchors"/> and are used for marking following deliverables:
*Start of the project
*End of the project
*Start of determined phase of the project
*End of determined phase of the project
*Reviews
*Budget checks

Milestones are fixed points, so in contrast to the timeline, they do not have duration, they are fixed dates.

[[File:Milestones.png|center|thumb|500px|Milestones scheme]]

'''Payment milestones''' are another kind of milestones, that are strictly dedicated to finances. They are fixed dates, when certain percent of money is being payed or received. The bigger the project, the bigger the budget, and therefore the more payment milestones present.

==Cash flow and payment milestones in Project Cost Management==

===Cash Flow Analysis===

Referring to popular saying that "Cash is King" - money is one of the most important resources in business <ref name="CashisKing"/>
and requires proper control and analysis. Skillful financial data management allows to extract from cash flow several measures crucial for Project Cost Management. Some of them are:
*'''Project value''' or rate of return. It is basically a profit of an investment. Cash flow is implemented in some financial models, such as IRR or NPV.
*'''Project liquidity'''. It can be determined how easily the financial obligations can be met during the project.
*'''Project risk evaluation'''. It can be determined what is the uncertainty about deviation from expected earnings or expected outcome.

There are several tools and methods of cash flow analysis. One of the most common and universal method is '''Gantt chart'''. It is a method useful for an instant overview of project profitability over time, comparison of planned and actual flows of cash and for better balancing of cash flows across all projects.<ref name="easyredmine"/>. At gantt.com following description of a Gantt chart can be found<ref name="gant"/>:

''A Gantt chart, commonly used in project management, is one of the most popular and useful ways of showing activities (tasks or events) displayed against time. On the left of the chart is a list of the activities and along the top is a suitable time scale. Each activity is represented by a bar; the position and length of the bar reflects the start date, duration and end date of the activity. This allows you to see at a glance:
*''What the various activities are''
*''When each activity begins and ends''
*''How long each activity is scheduled to last''
*''Where activities overlap with other activities, and by how much''
*''The start and end date of the whole project
''
It is possible to crate Gantt charts in programs like Microsoft Excel or Numbers for Mac, however there are several online tools dedicated for this particular method. One of them is easyREDMINE <ref name="easyredmine"/> offering straight forward design and guide for those less experience with this method.

[[File:EasyRedmine.jpg|center|thumb|1000px|easyREDMINE Gantt chart <ref name="easyredmine" />]]

For more tools and explanation of Cash Flow analysis, Iowa State University website can be visited <ref name="Iowa" />, as well as Planning Engineer <ref name="PlanningEngineer" />

===Payment Milestones in Project Cost Management===

Payment milestones are significant element of every project or portfolio schedule. Solid financial planning allows for smooth project flow and simplifies controlling process. To prepare such plan, and create adequate and efficient milestones, there can be several techniques or methods used. One of them is '''Program Evaluation and Review Technique''' (PERT). PERT is project management tool used to schedule, organize, and coordinate tasks within a project. More detailed description of PERT is as follows:

"''PERT is a method of analysing the tasks involved in completing a given project, especially the time needed to complete each task, and to identify the minimum time needed to complete the total project. It incorporates uncertainty by making it possible to schedule a project while not knowing precisely the details and durations of all the activities. It is more of an event-oriented technique rather than start- and completion-oriented and is used more in projects where time is the major factor rather than cost. It is applied to very large-scale, one-time, complex, non-routine infrastructure and Research and Development projects.''" <ref name="PERT"/>

Another method that can be used for Payment Milestones establishment is '''Critical Path Method''' (CPM).

"''The critical path method is a step-by-step project management technique to identify activities on the critical path. It is an approach to project scheduling that breaks the project into several work tasks, displays them in a flow chart, and then calculates the project duration based on estimated durations for each task. It identifies tasks that are critical, time-wise, in completing the project.''" <ref name="CPM"/>

Both methods were established in 1950's and since then, were refined and modified for modern projects expectations. Application of such techniques in project gives its schedule organised and divided into intervals structure, which makes it easier to follow. It also gives better overview on most important activities, that are usually critical to complete within schedule.

==Implementation in real life projects==

For better understanding of presented above techniques and methods, it is recommended to review a real-life project case. A good example would be case of construction project, described in Chapter 12 <ref name="chapter12" /> of book "Project Management for Construction" by Chris Hendrickson <ref name="Hendrickson" />. It gives a broad overview on cost control, monitoring and accounting of a variety of construction projects. Hendrickson starts with project budget establishment, going through forecasting for activity cost control, where he gets into details, presenting and explaining useful formulas with examples. Next, he talks about financial accounting systems and cost accounts, which is an introduction to control of project cash flows. In this chapter, an example of a cash flow status report can be found, with its decent explanation. The next sections are dedicated to schedule control and schedule and budget updates, where Hendrickson talks about milestones and project segmentation.

Hendrickson in his book, and in this particular chapter provides practical examples with real data, which can be adjusted and duplicated for other project purposes. It is important for any future or current Project Manager to have a good background knowledge and experience with different cases that were solved in the past. This gives not only a good overview on how financial planning and controlling can be conducted, but also highlights critical areas, where most issues occur.

==Importance of Cash Flow and Payment Milestones==

Why keeping track of cash flow is important in project management?
There may be two outcomes coming from the cash flow analysis - either cash flow is positive or negative. To achieve positive cash flow, there are two main factors to focus on: organisation and planning.

In case of any project, or portfolio of projects, project manager has to be aware of how much money is coming in, and how much money is being spent. Proportionally to the size and scope of the project, or portfolio, those income and outcome is more complex for bigger projects. To control complicated money flow, it is necessary to have a financial plan. This is where payment milestones come handy. If at the beginning of the project a system of money verification will be established, it will be possible and rather straight forward to follow and control it. Awareness of when is the right moment to spend money gives project manager more chance of staying within the budget frame, and keeping project financial condition in good shape.

In case when there is no proper organisation and planning in cash flow, there is a big danger of spending too much money on some project stages, which can cause lack of resources for other stages. The outcome may be either stretching the budget, which is optimistic variant. More realistic is, that there will be delays in some stages of project, which will project on the schedule and overall project outcome.

==Annotated Bibliography==

'''Project Management Institute (2013). ''A Guide to the Project Management Body of Knowledge (PMBOK® guide)'''

==References==

<references>

<ref name="CashFlow"> "Cash Flow" February 2018 https://en.wikipedia.org/wiki/Cash_flow:.</ref>
<ref name="CashFlowPicture"> "Cash Flow Scheme", BBC, February 2018 https://www.bbc.co.uk/education/guides/z67mpv4/revision </ref>
<ref name="SignalAnchors"> "Signal Anchors" February 2018 https://en.wikipedia.org/wiki/Milestone_(project_management) </ref>
<ref name="CashisKing"> Simon A. Burtonshaw-Gunn, "Risk and Financial Management in Construction", Gower Publishing, Ltd., (2009), https://books.google.dk/books?id=r4R3gDES5lMC&pg=PA158&lpg=PA158&dq=cash+flow+and+payment+milestones+in+Project+Cost+Management&source=bl&ots=pXc4hlRRCk&sig=8Ma_EihrAuCnJ4lHyi_P7cKf2IQ&hl=en&sa=X&ved=0ahUKEwievtuBh6bZAhWSKCwKHQL-CMMQ6AEIfDAH#v=onepage&q=cash%20flow%20and%20payment%20milestones%20in%20Project%20Cost%20Management&f=false </ref>
<ref name="easyredmine"> "EasyREDMINE" https://www.easyredmine.com/software/project-finances/2747-cash-flow-in-gantt-chart </ref>
<ref name="Iowa"> "Iowa State University website" https://www.extension.iastate.edu/agdm/wholefarm/html/c3-14.html </ref>
<ref name="PlanningEngineer"> "Planning Engineer website" https://planningengineer.net/create-gantt-chart-and-cash-flow-using-excel-with-sample-file/ </ref>
<ref name="PERT"> "PERT" https://en.wikipedia.org/wiki/Program_evaluation_and_review_technique </ref>
<ref name="CPM"> "CPM" https://www.smartsheet.com/critical-path-method </ref>
<ref name="chapter12"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', (2000), Chapter 12, http://pmbook.ce.cmu.edu/12_Cost_Control,_Monitoring,_and_Accounting.html </ref>
<ref name="Hendrickson"> C.Hendrickson, "Project Management for Constructions" ''2nd Edition'', (2000), http://pmbook.ce.cmu.edu </ref>
<ref name="gant"> http://www.gantt.com/

Cash flow & payment milestones

2018-02-24T16:17:41Z

S172569: /* Implementation in real life projects */

Cash flow & payment milestones

2018-02-24T15:31:57Z

S172569: /* References */

Cash flow & payment milestones

2018-02-24T15:31:20Z

S172569: /* Cash Flow Analysis */

Cash flow & payment milestones

2018-02-21T18:02:55Z

S172569: /* Conclusion */

Talk:Choosing by Advantages (CBA)

2018-02-21T09:24:59Z

S172569: /* Feedback 1 | Reviewer name: Lukasz Marczuk */

==Abstract Feedback==

'''Text clarity''' Text is coherent, but could flow more

'''Language''' Good

'''Description of the tool/theory/concept''' Good and easy to follow, but how does this relate to project/project/program management rather than just organizational management or day-to-day decision making at work? This should be emphasized and clarified in the abstract

'''Purpose explanation''' What purpose does this article serve in project/project/program management context? E.g. deciding on approving or rejecting a project business case?

'''References''' Missing appropriate references to mandatory list of references. Avoid referencing blogs

'''Relevance of article''' Consider the following:

<ol>
<li> Who is the reader? Project Manager or Sponsor ect? And how will they benefit from reading it?
<li> What kind of issues can be tackled using this aproach?
<li> Ensure depth of the article so it contributes to the project management community more than a normal web search
</ol>

==Feedback 1 | Reviewer name: ''Lukasz Marczuk''==
===Question 1 · TEXT===
'''Quality of the summary:'''

Does the summary make the key focus, insights and/or contribution of the article clear?

What would you suggest to improve?

===Answer 1===
''The summary of the article is well written and structured. It includes the key information about the article content, and is a nice brief to the further reading.''

There is one thing, that in my opinion should be improved. In the sentence: "[[One other]] example of a project management process with the use of CBA is to find out which windows one should choose to order from a supplier in a primary-school construction project." I would replace "one other" to "another.

===Question 2 · TEXT===
'''Structure and logic of the article:'''

Is the argument clear?

Is there a logical flow to the article?

Does one part build upon the other?

Is the article consistent in its argument and free of contradictions?

What would you suggest to improve?

===Answer 2===
''The argument of the article is very clear''

''The logical flow is very good, the article is well organised''

''The article has good flow, and from general idea gets to more specific example''

''The article is consistent in its argument''

"I would place Figure 2. centrally, right below [["Guidance"]] chapter, to make it clearly related to this part."

===Question 3 · TEXT===
'''Grammar and style:'''

Is the writing free of grammatical and spelling errors?

Is the language precise without unnecessary fill words?

What would you suggest to improve?

===Answer 3===
''I would recommend to copy all text to MS Office, and do a spell check on entire article. It is not that easy to catch all typeos or mistakes without computers help :)''

===Question 4 · TEXT===
'''Figures and tables:'''

Are figures and tables clear?

Do they summarize the key points of the article in a meaningful way?

What would you suggest to improve?

===Answer 4===

''I would change the colours of Alternatives, i think they look very artificial. Most of the figures are monochromatic, therefore there could be a better balance in colour selection. Apart from that, figures are big, easy to read, clear and good.''

===Question 5 · TEXT===
'''Interest and relevance:'''

Is the article of high practical and / or academic relevance?

Is it made clear in the article why / how it is relevant?

What would you suggest to improve?

===Answer 5===
''It is highly practical, with proper academical approach. It is clearly stated how and why the article is relevant.''

===Question 6 · TEXT===
'''Depth of treatment:'''

Is the article interesting for a practitioner or academic to read?

Does it make a significant contribution beyond a cursory web search?

What would you suggest to improve?

===Answer 6===
''I found it entertaining. There is a lot of information presented in very straight forward way, which is fantastic for good understanding of the CBA system. Definitely it makes a significant contribution, and can be taken as a good example of Wiki article with practical approach.''

===Question 7 · TEXT===
'''Annotated bibliography:'''

Does the article properly cite and acknowledge previous work?

Does it briefly summarize the key references at the end of the article?

Is it based on empirical data instead of opinion?

What would you suggest to improve?

===Answer 7===
''I am not an expert in citations, however, it looks like this article has a persistent methodology of citing. I have no suggestions for further improvement.''

==Feedback 2 | Reviewer name: ''Harald Hersted I did it for the wrong person.....''==
===Question 1 · TEXT===
'''Quality of the summary:'''

Does the summary make the key focus, insights and/or contribution of the article clear?

What would you suggest to improve?

===Answer 1===
''It's clear to me keep the summary, maybe shorten it a bit, nice with an example.''

===Question 2 · TEXT===
'''Structure and logic of the article:'''

Is the argument clear?

Is there a logical flow to the article?

Does one part build upon the other?

Is the article consistent in its argument and free of contradictions?

What would you suggest to improve?

===Answer 2===
''I see the where you are going with all this, and there is a structure nice!

I would only improve and describe how you get the data you need ''

===Question 3 · TEXT===
'''Grammar and style:'''

Is the writing free of grammatical and spelling errors?

Is the language precise without unnecessary fill words?

What would you suggest to improve?

===Answer 3===
''Fine by me, but i am no english expert''

===Question 4 · TEXT===
'''Figures and tables:'''

Are figures and tables clear?

Do they summarize the key points of the article in a meaningful way?

What would you suggest to improve?

===Answer 4===
''you first is a little bit boring''

===Question 5 · TEXT===
'''Interest and relevance:'''

Is the article of high practical and / or academic relevance?

Is it made clear in the article why / how it is relevant?

What would you suggest to improve?

===Answer 5===
''Answer here''

===Question 6 · TEXT===
'''Depth of treatment:'''

Is the article interesting for a practitioner or academic to read?

Does it make a significant contribution beyond a cursory web search?

What would you suggest to improve?

===Answer 6===
''Answer here''

===Question 7 · TEXT===
'''Annotated bibliography:'''

Does the article properly cite and acknowledge previous work?

Does it briefly summarize the key references at the end of the article?

Is it based on empirical data instead of opinion?

What would you suggest to improve?

===Answer 7===
''Answer here''

==Feedback 3 | Reviewer name: ''Alice Allouche (Reviewed 19/02)''==
===Question 1 · TEXT===
'''Quality of the summary:'''

Does the summary make the key focus, insights and/or contribution of the article clear?

What would you suggest to improve?

===Answer 1===
''The abstract is detailed and explains the concept very well, and gives examples. It's a bit long though, so maybe you should find ways to shorten it a bit, especially the second paragraph (I know you said you had troubles with that, but I think it would maybe improve the clarity too!). Or maybe just use simpler words in the second paragraph, or add some commas? But it's just a detail, it is good otherwide''

===Question 2 · TEXT===
'''Structure and logic of the article:'''

Is the argument clear?

Is there a logical flow to the article?

Does one part build upon the other?

Is the article consistent in its argument and free of contradictions?

What would you suggest to improve?

===Answer 2===
''The article is very nice. The tool is explained well, the example is very clear and you provide a critical insight on it. Maybe you could give some examples of alternatives. You could maybe give some data about how widely it is used, or if companies love it or are more reluctant to use it, etc. Also, you should (if you can) move the CBA definitions figure in the center if the article, not on the side, otherwise it may seem as if it is not that important, whereas it is. Apart from that the content is very nice.''

===Question 3 · TEXT===
'''Grammar and style:'''

Is the writing free of grammatical and spelling errors?

Is the language precise without unnecessary fill words?

What would you suggest to improve?

===Answer 3===
''Good, but you could add some punctuation or shorten your sentences in some places!''

===Question 4 · TEXT===
'''Figures and tables:'''

Are figures and tables clear?

Do they summarize the key points of the article in a meaningful way?

What would you suggest to improve?

===Answer 4===
''Show the importance of figure one, make it a complete part of your article!''

===Question 5 · TEXT===
'''Interest and relevance:'''

Is the article of high practical and / or academic relevance?

Is it made clear in the article why / how it is relevant?

What would you suggest to improve?

===Answer 5===
''Very interestting with a good example of how to use it. It is clear to me how it relates to PPP management.''

===Question 6 · TEXT===
'''Depth of treatment:'''

Is the article interesting for a practitioner or academic to read?

Does it make a significant contribution beyond a cursory web search?

What would you suggest to improve?

===Answer 6===
''Interesting to read, and nice example''

===Question 7 · TEXT===
'''Annotated bibliography:'''

Does the article properly cite and acknowledge previous work?

Does it briefly summarize the key references at the end of the article?

Is it based on empirical data instead of opinion?

What would you suggest to improve?

===Answer 7===
''Remember the annotated bibliography. And add some references to the limitations part, and the example (if you didn't make it yourself)''

Talk:Choosing by Advantages (CBA)

2018-02-19T07:06:22Z

S172569: /* Abstract Feedback */

Cash flow & payment milestones

2018-02-18T15:26:31Z

S172569: /* Implementation in real life projects */

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2018-02-18T15:23:16Z

S172569: /* Abstract */

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S172569: S172569 uploaded a new version of "File:Cashflow.png"

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