In construction, money does not arrive evenly — it moves in waves of advances, billings, retentions, and releases. A well-prepared Cash Flow Statement turns those waves into a predictable rhythm, so the owner is never caught short, and the project never stalls.
Introduction
The Cash Flow Statement — also known as a Funds Flow Statement — is an accounting document that summarises the sources of funds (inflows) and uses of funds (outflows) of a business venture during a particular period.
A Cash Flow Statement helps in planning the finances by anticipating expenses and arranging funds to meet them over the project period. It is one of the most practical financial planning tools used in any disciplined construction project management consultancy engagement.
Purpose
In the context of Construction Project Management consulting services, the Owner/Client must be informed of the quantum of funds required at different stages of the project so the funds can be arranged in advance for uninterrupted running of the project.
The Cash Flow Statement helps the Owner/Client in financial planning by averting surprises and optimising the financing cost (interest paid on borrowed money).
As Construction Project Management Consultants, we identify the funds requirement of the project for all construction activities — bills payment, procurement of materials and services that become payable at different points in time (billing cycles), advances paid to various vendors, retention money, and release of retention amounts. This requirement is projected, preferably on a monthly basis, over the duration of the project. Healthy client–PMC–contractor collaboration depends on the clarity this brings.
Methodology
In preparing the Cash Flow Statement, the Project Master Schedule and the Project Budget are the two primary base documents that drive every calculation.
The Master Schedule helps us identify the activities that involve expenses during a period, resulting in cash outflow — a construction activity, a material purchase, or even the release of retention money at the end of the defects liability period. In the planning phase, the amount of each cash flow is determined from the Budget. (For a primer on building robust schedules, see our guide on the Critical Path Method.)
The Master Schedule must therefore be prepared as accurately as possible. If any information is not available at that point in time, it may be safely assumed based on past experience and knowledge — and that assumption must be stated as a remark. The accuracy of a Cash Flow Statement at this schematic stage is ± 5%.
Next, when working drawings become available, a Bill of Quantities (BOQ) is prepared. The priced BOQ is then used to prepare a Pre-Tender Estimate with an accuracy of ± 3%. A revised Cash Flow Statement is prepared based on this Pre-Tender Estimate and the latest Project Schedule.
Later, when contracts are finalised, the Cash Flow Statement is recast with the finalised contract rates, reflecting the actual cash flow.
During execution, any change in Scope, Time, Cost, or Payment terms will alter the Cash Flow. These changes must be incorporated into the Schedule and Estimate, and a revised Cash Flow Statement prepared from time to time for it to remain realistic.
Stages at which the Cash Flow Statement is prepared and revised
The Cash Flow Preparation Process
The cash flow statement is iterated through every stage of the project and revised any time scope, time, cost or payment terms change.
Procedure for Preparing the Cash Flow
Schematic Stage
- Prepare a budgetary estimate for the project based on the concept drawings.
- Obtain approval for the budget from the client / relevant authority — this may involve more than one iteration.
- Finalise the budget with an accuracy level of ± 5%.
- Prepare a Project Schedule considering all possible work packages and vendors.
- Link the project schedule to cash inflow and outflow to arrive at the Cash Flow Statement.
Detailed Design and Development Stage
- Identify changes between the concept drawings and the working drawings.
- Review the Project Schedule drawn against the working drawings and revise if needed — this becomes the Latest Project Schedule.
- Compare the Latest Project Schedule against the BOQ and working drawings to revise the Cash Flow Statement. This revised version should also include Professional Fees.
Post-Tender Construction Phase
Preparatory Steps
- Prepare a detailed Master Schedule (Project Construction Programme Schedule) as per SOP ANPC-GN0715.
- Ensure the Master Schedule covers all vendors and packages — combined or separately.
- Identify major material / equipment procurement stages, including long-lead items and equipment for services such as firefighting, HVAC, etc.
- At this stage, vendors have been finalised, so study the contract documents carefully to identify cash outflows:
- Mobilisation advance payable to vendors — amount, time of payment, and recovery terms
- Advances to material suppliers for client-supply items
- For services items / equipment procurement, note the payment terms:
- Mobilisation advance on issue of work order (say 10%)
- Payment on supply of item (say 50%)
- Payment on installation (say 30%)
- Payment on commissioning and handing over (say 10%)
- Secured advance payable against any unfixed material on site
- Running account bills of all vendors — at agreed frequencies
- Retention amount — deduction percentage in each bill
- Virtual completion — any part release of retention, including release against a Bank Guarantee before the end of the Defects Liability Period
- Final Bill amount — and release of any retention money at this stage
- Release of any balance at the end of the Defects Liability Period
If any of the above are not spelt out in the contract — or are yet to be finalised but are likely to happen — we may safely assume the cash flow due to the event and include it, stating the assumption and basis as a remark. The same applies to any foreseeable Variations or Non-Tender Items that may impact cash flow.
Preparation of Cash Flow
Now calculate the cash outflow for each month due to any or all of the above events in that month. Cash flow should be calculated from the beginning of the project through to the end of the Defects Liability Period, when the balance retention money gets released.
The tabulated Cash Flow Statement should preferably be depicted graphically — month-wise and cumulatively over the period — for easy understanding. This is one of the cornerstones of effective cost planning, monitoring, and control.
Worked Illustration
Consider a project of cost ₹240 lakhs and 6 months duration, with the following package details:
- Civil works package = ₹150 lakhs, spread over all 6 months as per schedule. Mobilisation advance of 10% paid at the beginning.
- Lifts package = ₹16 lakhs. Mobilisation advance of 10% paid 2 months before supply; supply in 4th month, erection in 5th, commissioning in 6th.
- Other services (Plumbing, HVAC, Landscaping etc.) = ₹74 lakhs.
- Defects Liability Period = 12 months for all packages.
Calculation for the Civil Package
| Month / Description | 1 | 2 | 3 | 4 | 5 | 6 (Final Bill) |
… | 18 (End of DLP) |
|---|---|---|---|---|---|---|---|---|
| Mobilisation Advance (10%) | 15 | – | – | – | – | – | … | – |
| Amount of work progress (Billing) as per Schedule | 5 | 25 | 35 | 40 | 35 | 10 | … | – |
| Retention deducted in bills (5% of above) | –0.25 | –1.25 | –1.75 | –2.00 | –1.75 | –0.50 | … | – |
| Recovery of Mobilisation Advance (4 equal installments from 2nd RA bill) |
– | –3.75 | –3.75 | –3.75 | –3.75 | – | … | – |
| Release of Retention Amount (50% in Final Bill, 50% after DLP) |
– | – | – | – | – | 3.75 | … | 3.75 |
| Net Cash Flow — Civil Package (₹150 L) | 19.75 | 20.00 | 29.50 | 34.25 | 29.50 | 13.25 | … | 3.75 |
Table 1 · Cash flow build-up for the Civil works package (amounts in ₹ lakhs)
Calculation for the Lifts Package
| Month / Description | 1 | 2 | 3 | 4 | 5 | 6 (Final Bill) |
… | 18 (End of DLP) |
|---|---|---|---|---|---|---|---|---|
| Mobilisation Advance (10%) | – | 1.60 | – | – | – | – | … | – |
| Payments — Supply (50%), Installation (30%), Commissioning (10%) | – | – | – | 8.00 | 4.80 | 1.60 | … | – |
| Retention deducted in bills (5% of above) | – | – | – | –0.40 | –0.24 | –0.08 | … | – |
| Release of Retention (50% in Final Bill, 50% after DLP) |
– | – | – | – | – | 0.36 | … | 0.36 |
| Net Cash Flow — Lifts Package (₹16 L) | – | 1.60 | – | 7.60 | 4.56 | 1.88 | … | 0.36 |
Table 2 · Cash flow build-up for the Lifts package (amounts in ₹ lakhs)
Consolidated Project Cash Flow
Similar calculations are carried out for the other services package, and the final figures are tabulated below:
| Month / Description | 1 | 2 | 3 | 4 | 5 | 6 (Final Bill) |
… | 18 (End of DLP) |
|---|---|---|---|---|---|---|---|---|
| Cash flow — Civil Package (₹150 L) | 19.75 | 20.00 | 29.50 | 34.25 | 29.50 | 13.25 | … | 3.75 |
| Cash flow — Lifts Package (₹16 L) | – | 1.60 | – | 7.60 | 4.56 | 1.88 | … | 0.36 |
| Cash flow — Services Package (₹74 L) | – | 5.00 | 15.00 | 19.00 | 20.00 | 14.00 | … | 1.00 |
| Total Project Cash Flow (Monthly) | 19.75 | 26.60 | 44.50 | 60.85 | 54.06 | 29.13 | … | 5.11 |
| Cumulative Cash Flow | 19.75 | 46.35 | 90.85 | 151.50 | 205.76 | 234.89 | … | 240.00 |
Table 3 · Consolidated monthly & cumulative cash flow for the project (amounts in ₹ lakhs)
Chart 1 · Bell Curve — Monthly Cash Flow of the Project
Each labelled point shows the net cash outflow for that month — the characteristic bell-curve shape of construction expenditure.
The Cash Flow depicted graphically shows the month-wise cash outflows. It is important to note that the amounts shown are the net cash outflows after considering cash withheld or not disbursed in the form of retention money and penalties, if any. As can be seen, the cash flow each month varies depending on the activity level and progress of the project — a pattern echoed in our experience across hundreds of projects, and one that value engineering decisions can materially shift.
Cumulative Cash Flow for the Project
Chart 2 · Cumulative Cash Flow — the "S" Curve
Cumulative project expenditure typically forms an "S" curve — slow start, steep middle, plateau toward completion.
The cumulative cash flow curve shows the total expenditure incurred — or likely to be incurred — on the project at any point in its lifecycle. It is normal for this cumulative curve to take an "S" shape, which is why it is also called the S-Curve.
However, this need not be so in every project. Depending on the nature of the project, the curve may take a different shape. It is important to present the cumulative cash outflow "as is" — without forcing it into an S-curve.
A Cash Flow Statement is not a one-time deliverable — it is a living document. Refresh it at every schedule update, every contract award, every variation. Done well, it removes financial surprises and gives the Owner the confidence to run the project without interruption.