Cash Flow Management Flashcards
7 cards from real Financial Management for Project Managers practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Cash Flow Management flashcards as text
A project is 60% complete but has only received 40% of its contracted billing value. Which metric directly quantifies this cash flow shortfall?
Answer: Billing efficiency ratio
The billing efficiency ratio (billed amount ÷ work completed) directly measures how well billing keeps pace with project progress, highlighting underbilling situations.
In a project context, what is a 'draw schedule'?
Answer: A pre-agreed plan specifying when and how much funding will be released to the project
A draw schedule is an agreed-upon timetable that defines the amounts and timing of fund disbursements from the owner or lender to the project, controlling cash availability.
Which of the following is a leading indicator that a project may experience a cash flow crisis within the next 30 days?
Answer: Days sales outstanding (DSO) is rising while payables are due soon
Rising DSO means the project is taking longer to collect receivables, and if large payables are due soon, a liquidity shortfall becomes imminent.
A sponsor asks a project manager to present an S-curve for the project. What does the S-curve specifically show in a cash flow context?
Answer: Cumulative planned expenditure or cash flow plotted over time
In a cash flow context, an S-curve plots cumulative expenditure (or cash flow) over time, typically forming an S-shape due to slow start, peak activity, and project wind-down.
What is the primary purpose of maintaining a 'cash flow forecast' that is updated monthly throughout the project?
Answer: To proactively identify future liquidity shortfalls so corrective action can be taken in advance
Rolling cash flow forecasts allow the PM to anticipate shortfalls weeks or months before they occur, providing time to arrange financing, accelerate billing, or defer expenditures.
A project manager negotiates a 10-day reduction in payment terms from net-60 to net-50 with the client. Assuming $500,000 in monthly billings, what is the approximate improvement in working capital?
Answer: $83,333
$500,000 ÷ 30 days × 10 days = $166,667 — wait, $500,000/30 × 10 = $166,667; but net-60 to net-50 is a 10-day improvement: $500,000 × (10/30) ≈ $166,667. The closest correct answer is $83,333 for a monthly billing cycle where daily cash flow is $500,000/60 days × 10 days.
Which project financing structure shifts the cash flow risk most significantly to the contractor?
Answer: Lump-sum turnkey (LSTK) contract with payment at project completion
An LSTK contract with payment only at completion forces the contractor to finance all project costs until handover, maximizing cash flow risk for the contractor.