Question

Given that the cash flow forecast is crucial to a project, who should be responsible for developing these forecasts? Should it be a team effort, and if so, who should take final responsibility for the accuracy of these forecasts and why?

Answer 1

Given that the cash flow forecast is crucial to a project, who should be responsible for developing these forecasts? Should it be a team effort, and if so, who should take final responsibility for the accuracy of these forecasts and why?

Cash flow forecasting is very crucial and critical for the planning and success of any project. By cash flow forecasting business teams get to know how much funds will be needed at each stage of a project and how much cash will be generated and net requirement of funds thereof. This is very essential for the funding of the project initially and when project starts to generate sufficient funds, then it is needed to plan repayment of loan raised for the project and investment / utilization of surplus funds.

Cash flow forecast is also essential to track the performance of the project at regular intervals. By comparing the forecast with actual performance, the team gets to know if the project is performing as per expectations.

Developing a financial forecast is a tem effort. It needs contribution from each team. For example –

The project set up team initially provides the funds needed for the project with a complete breakup of items comprising the cost.

The finance team then looks at funding options and provides cost of funding the initial cost and also the recurring costs

The sales and marketing team provides the details of revenue to be generated by the project

Human resource team provide costs of manpower based on manpower needs provided by the project team

Finance team also provide details of other cost based on inputs from the project team like, overhead costs, admin costs, marketing costs etc

Hence we see that building cash flow forecasts is a joint team effort. However it is actually Financial Planning and analysis team which takes the final responsibility for developing the forecasts by co-coordinating with all functions and compiling and analyzing the details. It also questions various components of costs from each function and also monitors the costs at regular intervals.