A decision support model for construction cash flow management

The excessive level of construction businessfailures and their association with financial difficulties hasplaced financial management in the forefront of manybusiness imperatives. This has highlighted the importanceof cash flow forecasting and management that has givenrise to the development of several forecasting models.The traditional approach to the use of project financialmodels has been largely a project-oriented perspective.However, the dominating role of “project economics” inshaping “corporate economics” tends to place the corporatestrategy at the mercy of the projects. This articleapproaches the concept of cash flow forecasting and managementfrom a fresh perspective. Here, the use of forecastingmodels is extended beyond their traditional roleas a guideline for monitoring and control of progress.They are regarded as tools for driving the project in thedirection of corporate goals. The work is based on thepremise that the main parties could negotiate the termsand attempt to complement their priorities. As part of thisapproach, a model is proposed for forecasting and managementof project cash flow. The mathematical componentof the model integrates three modules: an exponentialand two fourth-degree polynomials. The model generatesa forecast by potentially combining the outcome of dataanalysis with the experience and knowledge of the forecaster/organization. In light of corporate objectives, the generated forecast is then manipulated and replaced bya range of favorable but realistic cash flow profiles. Finally, through a negotiation with other parties, a compromisedfavorable cash flow is achieved. This articlewill describe the novel way the model is used as a decisionsupport tool. Although the structure of the modeland its mathematical components are described in detail,the data processing and analysis parts are briefly describedand referenced accordingly. The viability of themodel and the approach are demonstrated by means of ascenario