Business Strategy and Capital Allocation Optimization Model for Practitioners

Abstract

Construction engineering companies usually provide a variety of services. To be competitive, companies have to organize their operations strategically based on market demands within the limitations of their own resources. Optimization of these resources is of vital importance for these companies. Historically, decisions on resource allocations to various construction market segments were made exclusively based on intuitive judgment. In previous literature, the proposed models on capital allocation place emphasis on formulating cash-flow forecasting and planning strategy on project level. However, existing technologies and established mathematical methods provide a sound base for quantitative analysis on company-level business strategy and capital allocation. This note proposes a linear programming model that can be conveniently applied by construction practitioners. The model incorporates the project cost structure and considers the business constraints such as bonding capacity and borrowing capital capacity. Its objective is to achieve maximum profit through improving project management efficiency and setting appropriate sales goals in various market segments based on market demands. It is a decision-making tool that provides “what-if” analysis. The solutions and alternatives of the model give the decision makers an excellent insight for making the best choice.