Cash flow analysis is a necessary activity and is critical in determining how the needed work identified in the Facilities Master Plan can be accomplished. It also helps everyone make clear, informed decisions.
Key components of cash flow are funding sources, funding timelines, project scope, project budget, project schedules, calculation of interest (and interest expense), and calculation of inflationary factors, project contingencies, and program contingencies.
To develop an accurate cash flow scenario, do the following:
1. Develop an estimate of total cost to complete all work identified in your plan.
2. Develop an estimate of total available funding for work identified in your plan, and a forecast on when that funding will be available to spend.
3. Adjust your total cost estimate by escalating costs, using the above financial assumptions regarding inflation, to the mid-point of your program duration. Save the total escalation cost for use later.
4. Now compare available funding against costs.
5. Reconcile planned work against available funding.
6. Document your plan well and communicate it to your community, board, and oversight committee if appropriate.
7. If it hasn’t already been done, now is the time to develop individual projects that will complete the planned work that’s been reconciled against available funding. This involves:
8. Lay out funding by fiscal year, or quarter, based on when it will be available to spend.
9. Lay out all un-escalated costs by project and by fiscal year/quarter below the funding.
10. Schedule and/or sequence projects consistent with the following factors:
11. Document this plan well and communicate it to your community, board, and oversight committee if appropriate.
12. As each project schedule is committed to, transfer an appropriate amount from the Program Escalation Reserve to that Project Budget.
A well-thought-out and documented cash flow analysis requires input from all concerned parties. It must be updated to ensure that it reflects reality as individual projects and the entire program unfolds. In the end, a cash flow analysis will ensure the program’s integrity and help you achieve the goals laid out in the Facilities Master Plan.