FNSACC402 Activities 3

• 2

What is the importance of a cash flow budget or report? (220 words)

Cash flow budgets and reports are vital for all organisations. They help projects to understand the inflows and outflows of cash that will be created by the project. They provide information that will contribute to the development of new forecasts and the design of any new budgets or to illustrate a company’s financial position to internal and external stakeholders such as investors, suppliers and company leadership. A cash flow report serves as an important tracking tool, creating a baseline against which project spending can be compared. It helps the company to predict/forecast the projects ability to create the resources necessary for the project. It can also predict cash flows gaps. This information is commonly called a Cash Flow Statement.

A cash flow statement is not only concerned with the amount of the cash flows but also the timing of the flows. Many cash flows are constructed with multiple time periods. For example, it may list monthly cash inflows and outflows over a year’s time. It not only projects the cash balance remaining at the end of the year but also the cash balance for each month.

By creating a cash flow budget you can project sources and applications of funds for the upcoming time periods. It will be easier to identify any cash deficit periods in advance so you can take corrective actions required to alleviate the deficit. This may involve shifting the timing of certain project works to correspond with these transactions. It may also determine when money will be needed/borrowed. If borrowing is involved, it will also determine the amount of cash needed or to be borrowed. Periods of excess cash can also be identified.

In summary a cash flow budget and report should show cash inflows and cash outflows as well as liquidity, cash surpluses including the bottom line and enable forecasting which can help provide some type of predictability to projects and the business overall.

• 3

Describe the process through which you would go to determine whether financial support is available to allow the requirements of an organisation to be achieved. (150 words)

Estimating costs is the process of developing an approximation of the financial support available to complete project activities. Cost estimates are a prediction only, based on known information at the time. There are many factors to consider during cost estimates such as the project scope statement, WBS and WBS dictionary, any constraints, resources planning, environmental factors etc.

The cost estimating process should consider environmental factors such as; 
- market conditions. 
-commercial databases. 
-other considerations should be an organisations historical information.

A cost benefit analysis is then completed to determine the viability of a planned project. The objectives of a cost benefit analysis is to evaluate the economic merits of a proposal. In its simplicity a cost benefit analysis only uses financial costs and financial benefits eg: measuring the cost of expanding and building a new car park for a busy shopping centre, and subtracting this cost from the economic benefit of constant maintenance and less car parking. The cost to the environmental parkland where the new car park is to cover would not be considered.