Financial Management for Project Managers Cash Flow Management 3

Question 1

A project is 60% complete but has only received 40% of its contracted billing value. Which metric directly quantifies this cash flow shortfall?

Accepted Answer

Billing efficiency ratio

Answer

The billing efficiency ratio (billed amount ÷ work completed) directly measures how well billing keeps pace with project progress, highlighting underbilling situations.

Question 2

In a project context, what is a 'draw schedule'?

Accepted Answer

A pre-agreed plan specifying when and how much funding will be released to the project

Answer

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.

Question 3

Which of the following is a leading indicator that a project may experience a cash flow crisis within the next 30 days?

Accepted Answer

Days sales outstanding (DSO) is rising while payables are due soon

Answer

Rising DSO means the project is taking longer to collect receivables, and if large payables are due soon, a liquidity shortfall becomes imminent.

Question 4

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?

Accepted Answer

Cumulative planned expenditure or cash flow plotted over time

Answer

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.

Question 5

What is the primary purpose of maintaining a 'cash flow forecast' that is updated monthly throughout the project?

Accepted Answer

To proactively identify future liquidity shortfalls so corrective action can be taken in advance

Answer

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.

Financial Management for Project Managers Practice Test

Financial Management for Project Managers Practice Test

Financial Management for Project Managers Cash Flow Management 3