This course introduces the types of cost estimation from the conceptual design phase through the more detailed design phase of a construction project. In addition, the course highlights the importance of controlling costs and how to monitor project cash flow. Students will work on a break-even analysis of construction tasks in a project.
Payment Cycle Delays
Loading...
From the course by Columbia University
Construction Cost Estimating and Cost Control
432 ratings
From the lesson
Project Cash Flow
Ben Miller, Project Manager at Gilbane Building Company, discusses contracts and cash flows. Revenues, expenses and how they impact projects as a whole will be covered.
Meet the Instructors
Ibrahim Odeh, Ph.D., MBAInstructor, Department of Civil Engineering and Engineering Mechanics, Columbia University
Director of Research and Founder, Global Leaders in Construction Management
Alright, so we've talked a lot about this equation today right,
revenues minus expenses equals capital.
It's kind of simple, but we've seen how it works and we talked about our revenues and
we've charted our expenses on the S Curve here, but
never really figured out what our capital is so that's what we're going to focus on.
So, if we look at our chart, we can figure out our revenues,
our expenses relatively easy.
We can add our expenses here at the bottom.
So add another line.
For expenses.
Now, we talked about the difference here is 20% more.
So, our total expense we know at the end of the day, and
on month eight they're going to be $10,000.
Same for month nine And
now, since we've assumed that we have a 20% gap here.
And we figured out our earned value, we're
going to divide our earned value by a factor of 1.2, which will be our markup.
So if we go back through these numbers we can really quickly figure out our
expenses.
So, $750 is 900 divided by 1.2.
1500, 2500,
or $1,167.
Straight on across.
All right, so we have our chart here.
We know our revenues, we know our expenses here.
And we can see the capital, but we haven't calculated it yet.
So we're going to go ahead and do that real quick.
We're going to add another lin on this chart.
Now, use the same scheme.
Do the same math.
Finally, two months after the project's done, right?
See our full profit.
Now this is interesting, we see our capital and we're going to talk a little
bit more about this, but we also want to know what our maximum debt is every month.
And this capital is based on payment that's received
at the very end of the month, right?
So, beginning of month two, end of month one, beginning of month two,
we submit that bill, then it gets processing.
It gets paid at the end of month two.
And so, right before that's paid, we're going to say that,
we're at our maximum debt, so down here,
we're going to add a line for the max debt.
So, month one is still
going to be $750 debt.
Now month two, before we get paid,
our total expenses are going to be $1500 dollars, approximately.
And all of a sudden we're going to get this payment, but
up until then we have zero.
So what we're going to do, is subtract the total expenses through the month.
From the payment of the month before.
So here we're going to see, same thing we'll do.
Keep doing this across.
So 810 minus 2500 will be negative 1,690.
16 so it must be -2,547,
-3,550.
Again.
Almost kept going negative.
So now we all these values and what do they mean.
Well we going to try them all and tell you what they really mean in a second here.
First we need to know the range in our charts, so
the highest value is going to be 2,000.
Our lowest value looks like right here in month six,
our maximum level of debt is $4,250, so we've got range of $6,250.
So let's go ahead and create another chart.
Might be getting tired of the charts and
I apologize for that, but this one's really interesting, I promise.
So we have our same timeline.
This will be the end of month one.
Month two, month three, four, and so on.
So if we do this down the bottom here.
Copy over some of our information.
But first let's create our scale on the side here.
So we set our maximum value is going to be 2,000, and
our minimum was going to be -4,250.
So, we'll go ahead and do those here.
So we got our scale over
here on the side, Y-axis.
Now we're going to go ahead and chart this.
And so, if we chart these points, We're going to have multiple points.
So our capital, we'll start with that.
Month one, we're at -750.
End of month one we're at -750.
Capital at the end of month two, we're at -690.
All right, slight uptick, just barely visible to us.
Month three.
And just barely visible to us.
Month four,1,000,
almost $1,500 in debt.
So right about here.
Month five, a little bit closer.
Month 6, even with
this 2,000.
On 7 we're starting to catch up again.
On 7 we're almost getting closer to even.
Month eight, like we talked about we finally see that profit $530 dollars.
Month nine, you see even more profit, $800.
And finally in month ten, all right, we see our full profit.
So we've got all these dots on the screen here.
I don't know if you can see all of them.
That's all right, we'll connect them in a second.
So, we talked about our maximum debt, right.
Now, if you look at this chart, we're going to be 750.
Right before the end of month one, all right.
We're going to be at -1500.
So we're going to start out project at time equals zero, we'll be at zero zero.
We're going to go 750,-1500.
And then we're going to get paid, and this brings us back to our, -$180.
Then as we go through, right.
The end of month two to the end of month three,
we're going to decrease to negative 1,690, so we're going to come down here again.
And then we're going to get paid.
Takes us back up.
Then we keep doing this, right?
At the end of month four we're going to be over $2500 in debt working on this
project.
Then we get paid.
Then we're down to 3500, where we get paid.
Into month six we said is our deepest, right?
We're all the way down here.
We're at $4,000 in debt to work on this project.
And we start making money back, right?
Month 7 you're going to be at -$3,000.
All right, losing money as quite, as rapid a rate.
We're going to get big payments going to bring us right back up.
In month eight, like we talked about,
month eight is where we finally cross the line, right.
We finally, when we get paid at month eight, we have a profit.
Nine, we're back down to 530.
Month ten, we're just going to stay straight across.
Actually month nine should be too, right.
We aren't incurring any more expense here, we'll be straight across, $530.
We will finally see our profit.
So this shows you something right, it shows you that you are in debt almost
this whole project, and even though at the end of the month you get paid,
right before that payment, this was a $12,000 contract, right.
And at some, we were financing 35% of our project.
That's a big number.
That's a lot of money, and so, what is that?
Well, this area right here.
If we took the area below the line.
This is what's know as captum.
Now, the measure right here is the total value of debt, but
what this value, this area would show us if we added all this up,
would be the total amount of financing that we had to provide for this job.
Now when a contractor has to finance,
they typically have to pay, some portion of interest.
So what we're going to talk about next time, or what we're going to talk about
for the rest of this, is how we reduce this financing.
Explore our Catalog
Join for free and get personalized recommendations, updates and offers.
Coursera provides universal access to the world’s best education,
partnering with top universities and organizations to offer courses online.
© 2018 Coursera Inc. All rights reserved.
