The Kansas department of transportation builds a transparent and nimble cash flow forecasting system.

• Author: Ferrill, Marcia

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One of the most important questions any agency faces is whether current obligations can be met with available resources. The question is easy to ask, but deeply difficult to answer. The Kansas Department of Transportation will apportion $6 billion over ten years for construction projects to maintain and modernize the state's leading transportation system while trying to account for forces such as declining cash balances, budget cuts, and weather-related expenditures that affect cash flow. As a result, KDOT implemented its Cash Availability and Forecasting Environment application--known as CAFE--allowing agency managers to detect and respond to cash flow shifts quickly, easily, and accurately,

TIME FOR AN UPDATE

Since the 1980s, the agency had produced cash flow forecasts to estimate project payouts and long-term cash needs, and support decision making for program development and project bidding. KDOT wanted to build a forecasting system that would automate and streamline the spreadsheet-based system it had been using. Updating the interrelated spreadsheet model, originally created by an economics expert who worked for the department, was a six-week process--data were collected, manipulated, and for matted into a cash forecast using more than 20 interrelated spreadsheets and manually incorporated project data. The agency was going to have to invest in a new system that would provide backup and reasonable, ongoing support for a critical function.

The need for a new forecasting process became more urgent when unprecedented budget cuts occurred, slashing available funds and reducing cash balances. The agency's cash margin was slim, making cash flow forecasting critical to the agency's financial operations and a key component of construction bidding decisions. KDOT's overall goals in pursuing an alternative forecasting process were to: 1) reduce risk through transparent management of cash forecasting models and assumptions; 2) produce daily forecasts to proactively manage change; 3) run "what if" scenarios for projects; and 4) automatically integrate project data from the agency's updated project management system. The former spreadsheet-based system could not meet these demands.

DEVELOPING THE RIGHT TOOL

Vendor Selection. KDOT hired an independent consultant to guide the agency through the modernization of both the project management and forecasting systems. KDOT and the consultant formed a committee with staff from...