Analyzing the Impact of Negative Cash Flow on Construction Performance in the Dubai Area

Abstract

Cash flow impacts all aspects of the construction project implementation process. Cash shortages can lead to project failure and business bankruptcy. Researchers have studied cash flow in the context of scheduling, project delay, business failure, and forecasting. However, negative cash flow trends and patterns themselves have not been closely examined. This paper investigates negative cash flow trends and patterns and their impact on construction performance. To this end, the study reviews financial and scheduling data for 40 ongoing projects in the Dubai area and selects four projects for in-depth analysis. These projects represent the main categories of the Dubai construction industry in terms of type, budget, and business. Three elements of project cash flow are analyzed: (1) actual cash disbursements; (2) cash receipts; and (3) accumulated cash flow. Results of data analysis indicate that there was negative cash flow for 30 to 70% of project duration in each of the selected subject projects. The high shortage values ranged from two to four times the average monthly expenses. The study also investigated how some contractors are able to reduce the extent and amount of negative cash flow on their projects and complete them as scheduled by rescheduling construction activities on the basis of cash flow availability. The study shows that the amount, duration, and distribution of negative cash flow are critical factors in construction performance. Finally, study results underscore the essential need to plan for cash flow in all phases to ensure a successful and profitable project.