Modelling financial decisions in construction firms: Fid-Bau Portal

Modelling financial decisions in construction firms

Lam, Ka Chi / Runeson, Goran

Some contractors predict their corporate cash flow on the basis of individual contracts without considering the relationships between the overall before-tax profit, risks, other crucial qualitative factors, or the allocation of resources within the company. Moreover, some contractors, in predicting their cash flow, focus only on the early-start progress in the project and their predictions of progress are too pessimistic, or result in the overuse of resource in order to make up for delays. In the present research a decision model is established for a contracting firm. It provides a methodical system for construction financial decision-making, and a way of solving a financial decision problem under qualitative and fuzzy circumstances. The model can be applied to the management of corporate cash flow, thereby facilitating the minimal use of resources. The information provided by the model allows the planner to eliminate excess use or idleness of resources during the scheduling of a project. Financial forecasting may also suggest the best time to invest in a new project. Four projects for a medium size construction firm in Hong Kong were employed as case studies in order to evaluate the mathematical model. The cases involve two objectives: maximize profit margin and minimize construction risk (consider in a qualitative factor). The model leads to a compromise optimal schedule that provides the contracting firm with the optimal schedule for achieving optimal profit and construction risk by making optimal use of the contractor's resources.