Cash Flow Forecasting Model for General Contractors Using Moving Weights of Cost Categories

Abstract

This research introduces the development of a project-level cash flow forecasting model from a general contractor’s viewpoint. While most previous models have been proposed to assist contractors in forecasting cash flow in the early stage of pretendering or the planning phase, this paper aims to provide a tool that can be applicable during the construction phase based on the planned earned value and the actual incurred cost on a jobsite level. The critical key to cash flow forecasting at this level lies in how to build a realistic cash-out model. Toward the end, this paper adopts moving weights of cost categories in a budget that are variable depending on the progress of construction works. In addition, it addresses time lags in accordance with the contractual payment conditions and credit times given by suppliers or vendors. As for the cash-in model, net planned monthly earned values are simply transferred to the cash-in forecast with a consideration of billing time and retention money. Validation of the proposed model involves applying realistic data from four ongoing projects. Based on the results of comparative analyses, the writers conclude that the proposed model is more accurate and reliable, yet simpler to field engineers who are generally not familiar with certain intricate financial knowledge.