Focus on smart Cash
Flow management has become imperative this financial year in view of the
current scenario in Infrastructure industry.
EXECUTIVE
SUMMARY:
This report
contains a brief note on the following points to address and manage the Cash
Flow situation.
·
OPENING
WIP & BILLS
RECEIVABLE
·
RE-CONFIRM ANNUAL BUSINESS PLAN (ABP) PROJECTIONS
·
CASH
INFLOW PROJECTIONS
·
B2B SUB-CONTRACTS
·
PROJECTS
BEING EXECUTED DEPARTMENTALLY
·
SCM & PROJECTS
CO-ORDINATION & PLANNING
·
WEEKLY FUNDS TO SITE
·
MANAGING
EXCESS HR AT
SITES
·
ENHANCE
PROJECT CO-ORDINATION EFFECTIVENESS
OPENING WIP & BILLS RECEIVABLE Re-conciliation:
Sometimes, the Finance Dept and the Project Dept may differ
on the Work-in-Progress (Unbilled Turnover) & Bills Receivables figures.
In such cases, we must first identify the variances to
these figures. Finance Dept will have
the project-wise breakup of these figures.
They may share these figures with the respective Zonal Heads and seek
their confirmation. Ideally, the COO may take the initiative for this exercise.
Zonal Heads may, in turn, share the figures with their respective Project Managers (PMs). They may ask their PMs to through each Bill-of-Quantity as per the Contract Agreement (as far as the WIP figures are concerned) with their Site Engineers. If any variance is noticed that may be re-checked. Even after re-checking, if the variance persists, it may be conveyed to Finance Dept (HO) through their Zonal Heads. Zonal Heads may confer with the Finance dept (HO) and do the necessary corrections (if required) to arrive at the correct WIP.
After this exercise, the Project Team as well as the Finance Team would be on the same page with respect to the WIP and Bills Receivable figures. If this exercise is skipped, in every subsequent project review meetings, substantial time will be wasted in arguments between the Finance and the Project Team.
PMs may indicate the Gross Amount as well as the Net Amount of the WIP and the Bills Receivables in the month-wise Collection Forecast.
Project Monitoring Cell (PMC) may follow-up with the Zonal Heads and the Project Managers (almost every alternate day) to expedite collection.
RE-CONFIRM ABP (Annual Business Plan) FOR FY 12-13:
The ABP figures must reflect an achievable
topline. Especially in the current
scenario. The ABP is normally prepared
every January.
If there is any reason to believe that the ABP of any project would have to be revised (so as to reflect achievable figures) in view of the current industry scenario, then the ABP of such project(s) may be revised.
The concerned PMs may be asked to taken up this exercise seriously. They may be asked to run through each BoQ (along with their Site Engineers), and to project the execution plan (keeping in mind the site situations, hindrances, …).
Instances where the ABP figures could get affected due to delay in permissions, clearances, approvals, etc the PM may provide an appropriate note for such cases along with the likely effect on the projected turnover.
To avoid/mitigate such instances, the PMs may also suggest the preventive actions that can be taken at Site/Zone/HO.
After this exercise, the PMC at HO will have details of the achievable topline.
CASH-FLOW
PROJECTIONS:
Based on the Opening WIP, Bills Receivable and the
ABP, the PMC & Finance team will be able to prepare the (monthly as well as
cumulative) Cash Flow projections for the year.
Once the Project-wise, Zone-wise and All India Cash Flow projections are ready, the PMC will be able plan the strategy on the aspects covered in the subsequent paragraphs.
B2B (Back-to-Back) SUB-CONTRACTS:
Currently, there would be sub-contracts which are NOT
on B2B basis but could be converted to B2B basis. You may explore the possibility of
converting some of such sub-contracts to B2B basis. Accordingly, the Sub-Contract WO for the
unexecuted scope-of-work may be revised with re-negotiated rates.
PROJECTS BEING EXECUTED DEPARTMENTALLY:
You may explore the possibility of sub-contracting
some of these works on B2B basis (especially if the Collection cycle is
long). This may be done selectively
(& not for all works) because your site staff would become idle.
In case of New Projects, the planned execution in FY
12-13 (as per ABP) may be considered for B2B Sub-Contracting, if not the entire
work. This may be considered on a
case-to-case basis.
(How to manage ‘excess staff’ (if any) has been addressed under a separate caption in this proposal.)
PROCUREMENT & PMC CO-ORDINATION & PLANNING:
Normally, the SCM Dept (Procurement) would share,
every month, the details of ‘Open
POs’ (POs raised but material delivery
awaited) & ‘Open Purchase Indents’ (Indents for which POs are yet to be raised) with
the PMC. PMC would in turn share the
same with the respective Zonal Heads.
The Zonal Heads would share it with their respective Project Managers
(PMs).
From the ‘Open POs’
and ‘Open Purchase Indents’ lists, if the PMs feel that delivery/purchase
of some of the items could be deferred by a month or two, they made intimate
the SCM team through their Zonal Heads & Project Co-ordinators.
SCM may thus re-schedule their procurement plans which will help the Finance Dept to manage the Cash Flow better.
WEEKLY FUNDS
TO SITE:
Among the various items in the Fund Indent request
from Project Site, there would be some amounts that have to be released by
Friday/Saturday every week. For
example, the labour payments, the diesel payments, etc which cannot be deferred.
PMC must ensure that such Fund transfers are not delayed at all. Delay of even 2 days in releasing such weekly payments might translate into a week’s progress loss. Some of such instances may have cumulative effect on the projected turnover.
Ask the Site Project teams to indicate such items specifically in the Fund Indent requests (if not being done now) such that Finance Dept can accord top priority for the release of such funds to site.
MANAGING EXCESS HR AT SITES:
Excess staff at sites, if any, may be transferred to
other projects, if possible.
Non-performers may be trained, if they have the potential and the passion to learn.
Non-performers who do not have either passion or potential, may be outplaced properly.
Outplacement must be handled by a mature HR official
otherwise it will have serious ramifications within the company as well as in
the job-market.
ENHANCE PROJECT
CO-ORDINATION EFFECTIVENESS:
Project Co-ordinators play a significant role is
supporting PMs as well as the supporting departments (Finance, SCM, HR, …) at Head
Office.
There would be ample scope for improvement in this department in most organisations. Many a time, the non-productive works would consume substantial time of the Project Co-ordinators. If your organisation has this issue, you may address it appropriately on priority.
Jaikishan
8th July 2012
