2019 CSCE Annual Conference - Laval (Greater Montreal)

2019 CSCE Annual Conference - Laval (Greater Montreal) Conference

A multi-Objective Model for Enterprise cash Flow Management

Mr. Ahmed Shiha, American University in Cairo (Presenter)
Dr. Ossama Hosny, AUC

Research on Finance-based scheduling has been receiving increased interest from construction contractors to support them in managing their projects’ cash flow.  Failure to efficiently manage cash flow, on a project level, diminishes the Contractor’s profitability and undermines project’s viability. Moreover, Construction contractors usually work on multiple projects concurrently which need careful analysis of the effect of each project on other projects. Management of cash flow includes both management of cash inflows and outflows, as well as administration of positive and negative cash requirement. The most challenging issue for the enterprise is to properly schedule cash inflows and outflows to cover any shortage and ensure smooth execution of projects.  Construction projects involve multiple parties that affect the cash flow: Contractors, Owners, sub-contractors, suppliers, and banks. Contractual and financial arrangements between these different parties affect cash flow obligations. Contractors often rely on loans from banks to finance a portfolio at certain stages. Such reliance implies different parameters such as interest rates as well as when to apply for loans that eventually affect the Contractor’s profitability. This paper highlights Employer’s payments to contractor, Contractor’s payments to subcontractors and suppliers, as well as Contractor’s financial arrangements with banks as the main payment conditions relied upon in accurate modelling of portfolio cash flow management. A multi-objective optimization model that uses genetic algorithm is presented in this paper to support decision makers in construction companies to reach the optimum projects’ schedules’ that minimizes the total interest paid by the Contractor during the portfolio as well as minimizing the maximum negative cash flow, while accounting for various payment conditions between multiple involved parties. Many researches concentrated on modelling finance-based scheduling highlighting Owner-Contractor payment terms only at a project level. The novelty in the proposed model is the inclusion of different financial terms such as advance payments, and retention between Contractor-subcontractor interest rates between Contractor-bank as well as the flexibility of the model to include any number of projects within a portfolio, number of activities within a project, and any number of predecessors for each activity. The proposed improved model targets enhanced cash flow management of Contractors to maximize their profitability and internal rate of return at a company level.