I/EC
Costs
Cash Flow in Fixed Capital Cost Projects W h e n is cash needed
- and how much?
by H. Carl Bauman, American Cyanamid Co.
I T IS OBVIOUS that expenditure of funds will not be at a uniform rate during the course of a j o b . Assuming that the project is born with the authorization of the estimated funds, no sizable cash disbursements will be made in the early months of the design period, since all engineering costs seldom exceed 1 0 % of total project costs. As engineering progresses, equipment purchases will be m a d e for which no cash will be required until delivery of the goods at the j o b site. T h e first appreciable expenditure of cash occurs when ground has been broken and initial construction contracts are let. Cash requirement reaches a peak about the time when purchased key equipment arrives on the site. Expenditures remain hiçh when the need
for craft labor for installation of equipment and appurtenances is greatest. Thenceforth the need for cash tapers off with smaller and smaller sums being spent each month on start-up items, until the j o b is officially accepted by the client and closed to further expenditure.
plotted for each project as in Figure 1. A statistical analysis showed that on the average half the total funds for each j o b was expended when the project was 5 3 % complete timewise and that the peak cash expenditure was m a d e in the month when the j o b was 5 7 % complete. Medians were within 1 0 % of the average values. For the typical case, the curve of cash flow expenditures approximates a cusped Gaussian distribution skewed to the right in the direction of increasing time. T h e data derived from the study of cash flow in typical chemical plant projects were used to develop the curve shown in Figure 2 entitled, "Universal Cash Flow Chart." T h e chart is intended to simplify the task of preparing
Typical Projects Figure 1 is a chart of the monthlycash expenditures for a large grass roots plant. This project was selected as an example because it is fairly representative of cash flow on all types of chemical plant construction. A study was recently made of the cash flow on over 50 jobs, and
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PEAK CASH FLOW -—_*.
90-
it
8070-
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/ |j\
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20 10 j
10 3 ! 4 '5 '6 ' 7 ' 8 '9 'lO'll , Ι2ΐ|3 ι Ι4 , Ι5 ι Ι6 ι Ι7 ι Ι8 1 ι9*20 ι 2Ι JOB WEEK
igure 1 . Cash flow b y months for a l a r g e "grass roots" process plant
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