Assessment of the Impact of Changing Activities’ Start Times on Cash-Flow Parameters

Tarek Zayed,Marwa Hussein Ahmed,Ashraf Elazouni

doi:10.15226/2473-3032/3/2/00137

Abstract

Cash flow modeling is crucial to contractors in order to sustain business. Contractors carry out multiple activities within a single project wherein the change of the start times of the activities have varying impact on the values of periodical negative cumulative balances and the other cash-flow parameters. Thus, changing the activities' start times leads consequently to changes in the value of the maximum negative cumulative balance and other cash-flow parameters as well. Schedule-driven cash flow models are typically generated to identify the impact of activities start times on projects' cash flow parameters. In this paper, Monte Carlo simulation technique has been employed to generate schedules and their associated cash flow parameters. The activities' start times are assumed to follow uniform discrete probability distributions with the minimum and maximum values representing the early and late start times respectively. Further, the proposed simulation model considered the stochastic nature of cash in and cash out transactions by incorporating the impact of 43 qualitative factors. Three scenarios are defined; each scenario incorporates a different numbers of qualitative factors. Advanced sensitivity analysis is performed to measure the impact of changing the start times on cash flow using the correlation coefficients. Finally, the proposed simulation model help practitioners identify the activities that highly impact the cash flow and provides a metric to measure the strength of their impact.

Highlights

Cash flow forecasting models should be developed before submitting tenders, as a means to preview the distribution of cash flow and the amount of equity required
Cash flow forecasting models are used to preview fund-related requirements and they can be used to manage the fluctuation of the project cash balance. (Cheng C, et al [3])
The developed Critical Path Method (CPM) model is integrated with a cash flow model to calculate the cash flow parameters

Summary

Introduction

Cash Flow Forecasting ModelsGenerating an automated cash flow forecast at the project level is a very important and difficult task. Cash flow forecasting models are used to preview fund-related requirements and they can be used to manage the fluctuation of the project cash balance. Au and Hendrickson (1986) developed a cash flow forecasting model. Navon, [14] developed a cash flow management model for the organizational level, using a detailed computer program which can be used at both the company and the project level to compute the expected capital cost and determine the loans needed. Navon’s model incorporates a time lag, so it is considered to be a tool for forecasting cash flow, thanks to its flexibility. This model does not consider the uncertainty environment

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