S-CURVE:
S-Curve theory and how it is used in project management as a tool for monitoring
the growth, progress and performance of ongoing projects. Understand the S-Curve
model, its analysis, data and schedules needed to create the graph that reveals
deviations from baseline metrics.
INTRODUCTION TO THE S-CURVE CONCEPT:
An understanding of S-Curve theory and its analyses will help learners and team
members grasp the importance of monitoring the progress and growth of an ongoing
project—at a specific stage or percentage of completion.
Outside of the technical jargon, the S-Curve model simply makes use of the
projected number of man-hours and costs to complete the project vs. the actual
number of hours and costs incurred within the same time frame. The proposed
time, man-hour and cost data are referred to as the “baseline” data.
UNDERSTANDING THE S-CURVE MODEL:
The S-Curve is a form of mathematical theory, which aims to represent the
utilization of resources over the proposed time of the project. Simply stated,
the curvature illustrates the side by side comparisons of the actual time and
expenditure components vs. the proposed time and costs allocations of specific
resources.
As a tracking tool, comparisons of different S- Curves against the standard
S-Curve help in monitoring the growth or progress of the project. Data that is
simultaneously plotted in graph form will clearly present how efficiently the
team has performed so far, in accordance with the time or budget limitations.
CASH FLOW CURVE:
The Cash Curve allows you to use your budget to see how you are financially
progressing, and to identify areas of possible cash-flow crisis in the next 24
months.
Armed with this information you can modify your budget, re-schedule large
periodic payments, and provide for all contingencies. The Cash Curve will also
tell you just how much free cash you have at any time to meet unforeseen
eventualities.
Essentially the Cash Curve takes your budget (and estimates of future
contingencies), calculates the difference between budgeted income and expenses
for each month, and adds these monthly values to the balances of selected bank,
credit card and loan accounts at the start of the current month.
Successful use of the Cash Curve requires that your Accounts are correct at the
start of the current month and that your budgets are as accurate as possible.
here are three curves available in the Cash Curve. The options for these relate
to your use of credit and your availability of credit. They are:
CARDS MAXED OUT:
Usually shows higher than the other curves. This line does not represent what it
will be like if you have maxed out your credit cards, but rather the amount
available to you if you are willing to max your cards. Having your cards so that
you have the possibility of using them to their full potential provides you with
extra money (or liquidity) should you need it.
CARDS NO CHANGE:
Represents your level of liquidity if there is no change to your credit cards.
CARDS CANCELLED:
Indicates your level of available funds (liquidity) should you cancel your
credit cards.
These lines all indicate your projected liquidity. When you have set items in
the “Future Provisions” module they will be represented here, along with all of
your budget items.
EXTRA MONTHLY SAVINGS:
See how extra monthly savings can alter the results of your Cash Curve. When you
enter an extra savings value into “Saving an extra $ _____ /month”, as shown in
this example, extra lines will appear to accommodate these extra savings.
This can be useful to get an idea of just how much you need to be saving every
month to avoid running into financial troubles.
VIEW YOUR BUDGET PROFILES:
You can view your budget profiles directly from the Cash Curve graph. Clicking
on one of the points on the graph will display your projected budget profile for
that month. This allows you to see why one or more months appear significantly
higher or lower by analyzing your budgeted income & expenses for these months.
Seeing which months you will need more for gives you a better opportunity to
prepare for them.
The Cash Curve is essentially a graph of expected future available cash assets
you have to meet expenses. It does not normally include assets like real estate
or shares since these assets are not usually quickly sold – or if they are it
may involve a significant discount in price and sometimes unwanted taxation
consequences.
Cash Curve results are usually based on your bank, credit cards, loans and
similar accounts that can provide cash within (typically) 60 days.
A SIMPLE EXAMPLE WILL HOPEFULLY ILLUSTRATE THE PRINCIPLES:
Suppose that at the start of Jan 2007 your position is as follows:
Available money in your bank accounts – $10,000
Total owing on credit cards – $5,000
Approved limits on your credit cards – $15,000
Your true wealth is $5,000 (what remains from the $10,000 when you repay your
credit cards). This is the maximum you can spend without incurring extra debt,
or eating into your savings. You can spend to $20,000 – however at this time
your credit cards will be totally “maxed ” and your savings annihilated.
Starting from the start of Jan 2007 the Cash Curve totals all of your budgeted
income and expenses for each month. It also adjusts for cost predictions for
special events (like holidays) as calculated within the Future Provisions
module.
Suppose your budget indicates that your monthly expenses exceed your income by
$500 per month. Clearly, if this pattern continues, your net worth will be
reduced from $5,000 to zero within 10 months.
However, there are other scenarios to consider – after 2 months your net worth
is now $4,000. Suppose your car breaks down, and will require $4,500 to fix. You
are uninsured. Clearly you can’t pay the bill without some financial adjustment.
Of course this example is simplistic. Some months will have you saving money,
whilst other months may be horrors, complete with a significant destruction of
savings. Nevertheless the conclusion is the same - if your Cash Curve is
increasing before big unforseen expenses occur you will be OK. If you are not
making adequate provisions you will not be able to meet these unforseen expenses
without some major re-adjustment in your finances.
DOWNWARD CASH CURVE:
Caution is needed. You really need to check your budget now and ensure that no
items are missing – if they are add them. Don’t be tempted to ignore them.
Remember you can’t stop the bills coming simply by changing your budget – you
have to make some meaningful adjustment (and your budget helps you to do this).
The time you have the most flexibility is NOW – don’t waste it.
UPWARD CASH CURVE:
Congratulations, you appear to be heading in the right direction. Before
congratulating yourself carefully check that your budgets & future provisions
are correct.
NOTE THAT USING THE CASH CURVE TO PROFIT DEPENDS ON:
• AN ACCURATE BUDGET OF FUTURE INCOME AND EXPENSES:
Also note that past spending is irrelevant (other than determining how much
money you have now). The better your budget, the better you can plan your
financial future. If you have taken out interest-free loans your budget MUST
include these – the penalties for missing even one of these payments is often
crippling.
• As good an estimate of Future Provisions as you can make.
• Not missing anything from your budget
It is a well known by people who run major construction projects that a secret
to success is not to miss an expense item and include it at your best guess (if
you don’t know the exact cost). It is surprising how accurate the total cost is
even if the individual items may vary significantly from your guess.