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Construction Cash Flow Risk Index

Author

Listed:
  • Hasan Mahmoud

    (Civil Engineering Department, American University of Sharjah, Sharjah 26666, United Arab Emirates
    Industrial Engineering Department, American University of Sharjah, Sharjah 26666, United Arab Emirates)

  • Vian Ahmed

    (Civil Engineering Department, American University of Sharjah, Sharjah 26666, United Arab Emirates
    Industrial Engineering Department, American University of Sharjah, Sharjah 26666, United Arab Emirates)

  • Salwa Beheiry

    (Civil Engineering Department, American University of Sharjah, Sharjah 26666, United Arab Emirates
    Industrial Engineering Department, American University of Sharjah, Sharjah 26666, United Arab Emirates)

Abstract

As investment increases in capital projects, financial risks increase, and cash flow prediction and control become more paramount. Higher risks could hinder project performance and increase the chances of failure in multiple aspects of a project. While there are models that aim to assess and forecast risks in the construction industry, none present a technique to include the impact of risks on a project’s cash flow. Therefore, cash flow forecasts tend to exceed the actual cash flow of a project due to inaccurate risk assessment. Thus, this paper presents the Cash Flow Risk Index (CFRI) development process quantifying the impact of risks on a project’s cash flow from an owner’s perspective. To that end, the study explored the literature to identify the risk factors that might impact a construction projects’ cash flow and uncovered 44 factors. The study also validated and consolidated these factors to build a CFRI via a Delphi exercise, which reduced the factors from 44 to 36. In further iterations, the 36 factors were also shared with 32 construction industry professionals to rate their relative importance on a five-point Likert scale, from which relative importance index and weights were obtained. As a result, the CFRI was developed to measure the impact of different risk factors on a typical construction project’s cash flow.

Suggested Citation

  • Hasan Mahmoud & Vian Ahmed & Salwa Beheiry, 2021. "Construction Cash Flow Risk Index," JRFM, MDPI, vol. 14(6), pages 1-17, June.
    • Handle: RePEc:gam:jjrfmx:v:14:y:2021:i:6:p:269-:d:574405
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    References listed on IDEAS

    as
    1. J. H. M. Tah & V. Carr, 2000. "A proposal for construction project risk assessment using fuzzy logic," Construction Management and Economics, Taylor & Francis Journals, vol. 18(4), pages 491-500.
    2. Jasper Mbachu, 2011. "Sources of contractor’s payment risks and cash flow problems in the New Zealand construction industry: project team’s perceptions of the risks and mitigation measures," Construction Management and Economics, Taylor & Francis Journals, vol. 29(10), pages 1027-1041.
    3. Nguyen, Phong Thanh & Phu Nguyen, Cuong, 2019. "Risk Management in Engineering and Construction," MPRA Paper 103509, University Library of Munich, Germany, revised 09 Jan 2020.
    4. Peter Christoffersen & Silvia Gonçalves, 2004. "Estimation Risk in Financial Risk Management," CIRANO Working Papers 2004s-15, CIRANO.
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    Cited by:

    1. Tarawneh Sultan & Almahmoud Anoud Fawwaz & Hajjeh Hassan, 2023. "Impact of cash flow variation on project performance: contractors’ perspective," Engineering Management in Production and Services, Sciendo, vol. 15(1), pages 73-85, March.

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