Abstract
Recently, due to the global liquidity crisis, construction companies are in bad condition financially. However, by monitoring their cash flows and setting up measures to avoid a liquidity crisis, in a proactive and timely manner, construction companies can manage themselves out of the crisis. This study suggests an algorithm of modeling future cash flow, to be used in the planning stages of projects of construction companies, in order to effectively manage liquidity. Also an algorithm which calculates the optimal cash level by considering elements such as time lags, cost categories and the weights of the cost categories to earned value and budget in the planning stage of a construction project. The algorithm also suggests a forecast of cash flow by comparing the variables of cash-in and cash-out, the output of which is derived through simulations made between such elements as billing time and time lag. Case studies regarding the application of the cash flow forecasting algorithm are also presented. This paper aims to provide a solution for any expected liquidity problems and the implementation of a measure to forecast an adequate cash flow level for construction companies.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Ashley, D. B. and Teicholz, P. M. (1977). “Pre-estimate cash flow analysis.” Journal of Construction Division, ASCE, Vol. 103, No. CO3, pp. 369–379.
Bathurst, P. E. and Buttler, D. A. (1980). Building Cost Control: Techniques and Economics–2nd Edition, Heineman, London, U.K.
Bennett, J. and Ormerod, R. N. (1984). “Simulation applied to construction projects.” Construction Management and Economics, Vol. 2, pp. 225–263, DOI: 10.1080/01446198400000021.
Robert I. (1984). “Cost, Schedule, and Time Variance.” Journal of Construction Engineering and Management, ASCE, Vol. 119, No. 2, pp. 245–265.
Cleaver, H. L. (1971). “Flexible financial control in the construction industry.” Building Technology and Management, Vol. 9, No. 8, pp. 6–17.
Fondahl John W. and Bacarreza Richard R. (1972). “Construction contract markup related to forecasted cash flow.” Technicla Report Construction Industry Institute Stanford University, CA.
Gates, Marvin and Scarpa, Amerigo (1979). “Preliminary cumulative cash flow analysis.” Cost Engineering, Vol. 21, No. 6, pp. 243–249.
Kaka, A. P. and John Lewis (2003). “Development of a company-level dynamic cash flow forecasting model (DYCAFF).” Construction Management and Economics, pp. 693–705, DOI: 10.1080/01446190 32000116561.
Kaka Ammar P. and Price, A. D. F. (1991a). “Net cash flow models: Are they reliable?.” Construction Management and Economics, Vol. 9, pp. 291–308, DOI: 10.1080/01446199100000023.
Kaka Ammar P. and Price, A. D. F. (1991b). “Relationship between value and duration of construction projects.” Construction Management and Economics, Vol. 9, pp. 384–400, DOI: 10.1080/01446199100000 030.
Kenely Russell and Wilson, Owend D. (1986). “A construction project cash flow model–an idiographic approach.” Construction Management and Economics, Vol. 4, pp. 213–232, DOI: 10.1080/01446 198600000017.
Kim, M. O. and Park, H. K. (2011). “A study on cash flow forecasting model for construction project in the pre-construction phase.” Proceedings of KICEM Annual Conference, Vol. 11, pp. 205–206.
Kim, M. O. and Park, H. K. (2012). “The algorithm of cash flow forecasting in planning stage for construction project.” Proceedings of the 2012 IEEE ICMIT, pp. 674–677.
McCaffer, R. (1979). “Cash flow forecasting.” Quantly Surveying, pp. 22–26.
Navon, R. (1995). “Resource-based model for automatic cash-flow forecasting.” Construction Management and Economics, Vol. 13, pp. 501–510, DOI: 10.1080/01446199500000058.
Navon, R. (1997). “Cash-flow forecasting and management.” Construction Congress Proceeding, ASCE, New York, pp. 1056–1063.
Nazem, S. M. (1968). “Planning constructions’ capital.” Building Technology and Management, Vol. 6, No. 10, pp. 256–260.
O’Leary, T. R. and Tucker, S. (1996). “Techniques and tools for project cash flow prediction in the australian construction industry.” Proceeding of 40th Annual Meeting of AACE, Vancouver, Canada, pp. C&S/M&C.6.1-6.6.
Park, H. K., Han, S. H., and Russell, J. S. (2005). “Cash flow forecasting model for general contractors using moving weights of cost categories.” Journal of Management in Engineering, ASCE, Vol. 21, No. 4, pp. 164–172, DOI: 10.1061/(ASCE)0742-597X(2005) 21:4(164).
Park, H. K. (2001). Cash flow forecasting model using moving weights of cost categories for general contractors on jobsite, Ph.D. dissertation, University of Wisconsin, Madison, Wisconsin, USA.
Park, H. K. (2009). “A case study of implementation for cash flow forecasting system in a construction company.” Journal of the Korean Society of Civil Engineers, KSCE, Vol. 29, No. 3D, pp. 391–397.
Peer, S. (1982). “Application of cost-flow forecasting models.” Journal of the Construction Division, Proceedings of ASCE, Vol. 108, No. CO2, pp. 226–232.
Peterman, G. G. (1973). “A way to forecast cash flow.” World Construction, pp. 17–22.
Reinschmidt, K. F. and Frank, W. E. (1976). “Construction cash flow management system.” Journal of the Construction Division, Proceedings of ASCE, Vol. 102, No. CO4, pp. 615–627.
Singh, S. (1989). “Developing a computer model for cash flow planning.” Cost Engineering, AM.Accoc. of Cost Engineer, Vol. 31, No. 11, pp. 7–11.
Yi, K. J. (2010). “A sigmoid s-curve model on cash flow forecasting for earned value management system.” Journal of the Architectural Institute of Korea, Vol. 26, No. 6, pp. 103–110.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Ock, JH., Park, H.K. A study on the algorithm of cash flow forecasting model in the planning stage of a construction project. KSCE J Civ Eng 20, 2170–2176 (2016). https://doi.org/10.1007/s12205-015-0588-5
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s12205-015-0588-5