A study on the algorithm of cash flow forecasting model in the planning stage of a construction project

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.