CASH FLOW MANAGEMENT --- ORGANISATIONS IN INFRASTRUCTURE INDUSTRY

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

8^th July 2012