Project Cash Flow

Cash flows and their timing differ depending on the individual’s role within the project. The owner pays the contractor and engi­neering offices throughout the duration of the project’s execution. At the start of a project’s operation, the owner gains money from the sale of its productive ouputs. Over the project’s lifetime, the owner will eventually realize profits

As shown in Figure (6.6), the process of cash flow during the life­time of a project (planning, construction and operation) has more than one phase. The owner pays the invoices for the preparation of feasibility studies and preliminary engineering studies in select stages during the first period of the project. When the project is in its definition phase of elaborating the detailed design, the

Figure 6.6 Cash flow along project lifetime.

number of team members is increasing, correspondingly increasing the cost.

During the construction phase, construction itself becomes the source of a significant increase in, money being paid out. In construction phase, the spending rate itself of the project’s bud­get increases to cover large payouts for materials, equipment and contractors’ invoices. Owner’s outlays will peak by the end of the delivery of the completed project facilities, as the project moves into its operational phase.

As operations begin and output is produced and sold, increas­ingly over time the negative cash flow reverses to positive, becom­ing "net"-positive after passing through the "break-even" point (represented in Figs 6.6, 6.7, 6.8 and 6.9 below by the first intercept on the horizontal axis after the origin).

As shown in Figure (6.6), after a certain period, and according to the project’s designated lifetime, industrial projects require over­hauls, maintenance, and rehabilitation that will decrease the profit.