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Systems analysis of project cash flow management strategies

Author

Listed:
  • Qingbin Cui
  • Makarand Hastak
  • Daniel Halpin

Abstract

Cash flow management is one of the most important determinants of the success of construction project management. Overdraft, retainage, financing, payment and billing policies constitute the most significant financial issues that contractors must plan, control and manage for the successful completion of construction jobs. Particularly, in an attempt to reduce project costs, contractors must balance cost savings of material discounts due to early payments and extra interest expenses because of additional overdraft. Through identifying feedback loops in project cash flows, a system dynamics model is developed for project cash flow management. The model is flexible to incorporate typical front-end and back-end loading cash flow management strategies and provides an interactive predication of project cash flows. A warehouse project is discussed to demonstrate how various cash flow strategies improve overdraft financing requirements and profitability. Especially, the analysis shows an 11% reduction on overdraft requirements while using an overbilling strategy, and 30% reduction if the trade credit strategy is implemented.

Suggested Citation

  • Qingbin Cui & Makarand Hastak & Daniel Halpin, 2010. "Systems analysis of project cash flow management strategies," Construction Management and Economics, Taylor & Francis Journals, vol. 28(4), pages 361-376.
    • Handle: RePEc:taf:conmgt:v:28:y:2010:i:4:p:361-376
    DOI: 10.1080/01446191003702484
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    References listed on IDEAS

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    Cited by:

    1. Yi Su & Gunnar Lucko, 2015. "Synthetic cash flow model with singularity functions for unbalanced bidding scenarios," Construction Management and Economics, Taylor & Francis Journals, vol. 33(1), pages 35-54, January.
    2. He, Yukang & Jia, Tao & Zheng, Weibo, 2023. "Tabu search for dedicated resource-constrained multiproject scheduling to minimise the maximal cash flow gap under uncertainty," European Journal of Operational Research, Elsevier, vol. 310(1), pages 34-52.
    3. Lucko Gunnar, 2016. "Financial Planning and Management Practices of Electrical Contractors," Organization, Technology and Management in Construction, Sciendo, vol. 8(1), pages 1482-1498, December.
    4. Cheng, Min-Yuan & Cao, Minh-Tu & Herianto, Jason Ghorman, 2020. "Symbiotic organisms search-optimized deep learning technique for mapping construction cash flow considering complexity of project," Chaos, Solitons & Fractals, Elsevier, vol. 138(C).
    5. Hongtao Xie & Junwei Zheng & Yunhua Zhang & Hongyang Li, 2019. "Effects of Payment Delays at Two Links in Payment Chains on the Progress of Construction Projects: System Dynamic Modeling and Simulation," Sustainability, MDPI, vol. 11(15), pages 1-25, July.

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