Financial Management of theConstruction Projects:
A Proposed Cash Flow Analysis
Model at Project Portfolio Level
Augustin Purnus

Technical University of Civil
Engineering, Bucharest,
Construction Management
Department

DOI 10.5592/otmcj.2015.1.6
Research paper

Keywords
Financial Management,
Construction Projects,
Portfolio, Cash Flow

Constanta-Nicoleta Bodea

Bucharest University of Economic
Studies, Centre for Industrial andServices Economics, Romanian Academy
bodea@pm.org.ro

Construction sector is vulnerable to economic changes,
especially during recession periods due to the high capitaloutlays, cost flexibility and high competition limiting
the price. The changes of the business environment, often
associated with shortage of funds, exchange rate fluctuationand political instability are increasing the construction projects
financial risks. The actual economical context in the Central
and East European countries is characterized by an aggressivecompetition and a lack of investments in construction area. The
common behaviour of the contractor construction companies
during these days is to accept a large number of risks beyond
their power to mitigate them only to still stay on the business.
In order to win the tender, they are bidding lower prices whichmake them vulnerable to the unexpected events during the
project, especially from financial aspects. But the lack of cash
during the project progress both at the employer level but
mostly at the contractor level leads to delays, penalties and lossof opportunities which are reflected in the health of projects
and organizations.

The paper proposes a practical cash flow analysis model, which
can be applied by the construction companies mainly when
decisions about portfolio structure are taken. Applying this
proposed model, the construction companies could avoid highfinancial exposures and loses.

a. purnus, c-n. bodea · financial management of the construction projects: a proposed cash flow analysis... · pp 1217-1227

1217

Production in construction - annual data (2010 = 100)
300.00Romania
European Union (28 countries)

250.00

Croatia
Montenegro
Austria200.00150.00100.00

50.00

0
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Figure 1. Evolution of the production in construction sector – annual data (2010=100)

INTRODUCTION
Construction sector is vulnerable toeconomic changes, especially during
recession periods due to the highcapital outlays, cost flexibility andhigh competition limiting the price.
The changes of the business environment, often associated with shortageof funds, exchange rate fluctuation andpolitical instability are increasing theconstruction projects financial risks.
Borghezi and Gaudenzi (2013) consider
the interest rate of credit, currency andliquidity the factors which generatehighest financial risks in construction
projects. In (Hlaing et al., 2008) there
are listed the most relevant risk factors in the construction industry andthe top four risk factors are financial
ones: the lack of financial resources of
the contractor, the financial stability of
the client, the costs overruns and thefinancial stability.
The common behaviour of the contractor construction companies during
the actual economical context in Central
1218

and East European countries is toaccept a large number of risks beyond
their power to mitigate them only tostill stay on the business. In order to
win the tender, they are bidding lower
prices which make them vulnerable tothe unexpected events during the project, especially from financial aspects.
But the lack of cash during the projectprogress both at the employer level but
mostly at the contractor level leads todelays, penalties and loss of opportunities which are reflected in the health ofprojects and organizations.
The construction companies areusing a limited number of project financial management methods and evenfewer methods at project portfolio level(Purnus and Bodea, 2013; Marttonen,
2014; Purnus and Bodea, 2014a). The
cash flow analysis is a common methodin the construction business, applied
mainly at project level. Zayed andLiu (2014) identified the main factors
affecting the cash flow and the cash
flow forecasting of a single project.

In order to manage financial project risks, most of the companies arefocusing on the individual project levelthat does not reflect the overall risks
at a corporate level. The simple sum of
individual project’s risks can be significantly different from the total risks ofenterprise-wide perspectives (Purnuş
and Bodea, 2014b). This is why, sometechniques from portfolio theory havebeen proposed, in order to reduce turbulent risk exposures and maximize
the total value of the company (Hanet all, 2004).
The paper proposes a practical
cash flow analysis model, which canbe applied by the construction companies at project portfolio level mainly
when decisions about portfolio structure are taken. Applying this proposedmodel, the construction companies
could avoid high financial exposuresand loses.
The paper starts by presenting themain trends in the evolution of construction sector in the Central and Easto rganization, tech no logy a n d ma n agem e nt in construc ti on · a n i nte rn ati on a l j ou rn a l · 7(1 )2 01 5

70,000
60,00050,00040,000Romania

30,000

Croatia
Austria

20,00010,000
0
2005

2006

2007

2008

2009

2010

2011

2012

Figure 2. presents the number of construction enterprises in several Central and East Europe countries. We observe that
Romania has a higher number of construction enterprises than Austria and Croatia.

Europe. Some detailed information isprovided about the Romanian financial
challenges in the construction of roads
and motorways. Then relevant financial project management practices in
the construction sector are discussed,
based on the findings of the KMPG
survey published in 2015. The proposed cash flow analysis model at theportfolio level is presented as a casestudy. Finally, during the conclusionpart the paper presents and discusses

the relevance of the proposed cash flow
analysis model.

Evolution of the Construction
Sector in Central and East
EuropeAccording to (Eurostat, 2014), thedownturn in activity for construction
within the EU-28 lasted longer than forindustry. Despite a period of relatively
unchanged levels of activity during
most of 2010 and 2011, the EU-28

index of production for construction fellduring most of 2012 and up until March
2013. During the remainder of 2013 andthe first eight months of 2014 there
followed a period where construction
activity in the EU-28 fluctuate but followed a generally upward path.
After a peak in February 2008,
the construction output in the EU-28
fallen, by reaching a low level inFebruary 2010. Between February
2008 and February 2010 the index of

Labour input in construction (number of persons employed) - annual data (2010 = 100)
Romania160.00European Union (28 countries)

140.00

Croatia120.00Austria100.00
80.00
60.00
40.00
20.00
0
2005

2006

2007

2008 2009 2010 20112012 2013

2014

Figure 3. Evolution of the number of person employed in construction sector – annual data (2010=100)
a. purnus, c-n. bodea · financial management of the construction projects: a proposed cash flow analysis... · pp 1217-1227

1219

Construction cost (or producer prices), new residential buildings - annual data (2010 = 100)
140.00Romania120.00European Union (28 countries)

100.00

Croatia
Austria

80.00
60.00
40.00
20.00
0
2005

2006

2007

2008 2009 2010 20112012 2013

2014

Figure 4. Evolution of the construction cost – annual data (2010=100)

production for construction in the EU-28
fell by 18.6 % overall. At the beginningof 2010, construction output remained
relatively stable through to September
2011. Thereafter, there was a second
downturn in activity within the EU-28’sconstruction sector, with a relative low
being reached in March 2013, when
output had fallen by a further 9.6 %compared with its September 2011
level. From the spring of 2013 throughto August 2014 there was a fluctuating
pattern to the development of construction output in the EU-28, although theoverall result was an increase of 6.1 %in the level of the index of production.
In figure 1, the evolution of the production in the construction sector isshown, for EU-28 and several Central
and East Europe countries. We can seethat in 2008, in Romania and Croatia theconstruction production had in higher
level than European Union average. The
production recovery after 2010 is closer
to the EU-28 trend for Romania than
Croatia. We can observe that the evolution of the same indicator in Austria iscloser to the EU-28 trend in the period
2008-2010, but the situation after 2010
is more stable than the European average. An interesting pattern is shown byMontenegro. Even if in 2008 the levelof the production was lower than EU-28
average, the recovery after 2010 of theconstruction sector is impressive.

Financial challenges for the
Romanian Construction ofRoads and Motorways Sector
In 2015, Coface Romania made a sectorial analysis of the construction ofroads and motorways for Romania,
based on the 2013 financial statements. The analysis conclusions were
published in 2015 (Guda, 2015).
According to this study, there was anumber of 1.640 Romanian entreprises
in 2011, 1.801 in 2012 and 1.829 in 2013.
Even if the number of the enterprises
is relative stable, the total turnover isdowning in 2013 with 22% comparing
with 2012. By analyzing the distributionof these companies according to turnover, Coface identified that about 26%
of companies have not actually carried out any business in 2013. 62% ofactive companies recorded a turnoverof less than EUR 100 K / year (2013) but
the share of value in the total turnoverof this segment is only 1%. Only 282
companies in this sector records anannual turnover of more than 1 million
euros, representing 15% of total active
companies, but generates about 94%
of the revenues recorded in the entire
sector. From the perspective of evolution net earnings in the period 2013
- 2012, 48% of companies operatingin this sector reported a deteriorationin net income during 2013 compared tothe previous year, almost 30% of thempassing the profit loss. Despite this,the consolidated net result at sector
registered a growth upward. 34% ofcompanies recorded a net loss at theend of 2013, with 23% of companies
recorded a loss greater than 20% and
19% of companies recorded a profit
over 20%. Consequently, the net result
recorded at sectoral level 2013 was 6%
vs 0% on the previous year.
Considering how the companies
are attracting the funding resources
and resource allocation for long-term
investments during 2013, the companies recorded a strong decline of theinvestment policy amid declining sales
and poor recovery prospects construction projects. The CAPEX3 share in total
assets was -33% for 2013 compared tolast year, when CAPEX share in total
assets was 7%. Sector companies
reviewed were marked by a relatively
small working capital in 2013, giventhat long-term attracted resources
covered only marginal long-term
investments (tangible fixed assets).
The indebtedness recorded at sector
registered a growth level recorded in2013 is 60%. Funding resources are
directed mainly short term, given that
59% of companies are 100% focusedon short-term debt. In this context, theshare of short-term debt in total debt
rose from 58% (the level recorded in2012) to 83% (2013) analyzed sector

1220 o rganization, tech no logy a n d ma n agem e nt in construc ti on · a n i nte rn ati on a l j ou rn a l · 7(1 )2 01 5

firms recorded an average extension of
payment deadlines, due to the deterioration of the working capital and cash
conversion cycle.
Current liquidity recorded in theentire sector during 2013 was 1.23,
down from the previous year, when
the current ratio was 1.58. Moreover,the coverage of short-term liabilities
Net cash decreased by 17%, the level
recorded in 2012 to 13% at the end of
2013. This growth was recorded amid
increasing short-term debt and reducing the terms of collection of receivables from 239 days (2012) to 225 days(2013). The decrease liquidity indicators register on the increase balancesfrom suppliers and banks, the average pay short-term debts recorded in2013 was 269 days, up from the level
recorded the previous year, ie 189 days.
Given that the average duration of thecycle operational in 2013 was about
292 days, net operating cycle was 23days, with damage in two months theprevious year. Following the stress test
analysis, Coface has identified thatcompanies in the sector of construction of roads and motorways registerfragile liquidity situation very exposed
to negative shocks that may come from
non-collection of receivables or falling sales. Coface study confirm thehigh risk of insolvency of firms in the
sector, only 16% of companies recorded
a low risk. Coface individually analyzed
during 2014, a total of 335 companies
in the sector, which generates 88%
of consolidated turnover at the sectoral level, one of the most important
conclusions is that less than one thirdof the analyzed companies make thepayments according to the terms established contractual.

Financial Project Management
Practices in the Construction
Sector
In 2014, KPMG (KPMG International,2014) interviewed from more than 100
private and public organizations aroundthe world, that carry out significant

capital construction activity, 38% ofthem being European-based. More thana quarter of the respondents worked
for government agencies.
The analysis followed four dimensions of the project management practices: preparation (the project planning and prioritizing and the talentmanagement), project risk, controls
and governance (project control andproject management information systems), project performance (dealing
with project failures and contingency
planning) and leading relationships(collaboration between the owner andcontractor). As some of the main findings regarding the project financial
management, we can mention: 84%of the companies utilize financial andrisk analysis to screen projects; 80%
say the majority of capital projects areplanned; only 31% of all respondents’projects came within 10% of budget
in the past 3 years; 58% are lump sum(fixed price) contracts.
Considering the project delivery
strategies, 72% hold full competitive
tenders when awarding contracts.
Despite some concerns about a lackof flexibility, the traditional design-bidbuild approach remains one of the twomost popular project delivery strategies, enabling the owner to work withvarious suppliers for different aspectsof the project.
According to Jeff Shaw (KPMG
International, 2014) “organizations
need to manage their capital efficiently
and effectively across a wide range of
projects, to ensure they are alignedwith strategic goal. …Throughout thecapital allocation process, alignment
between strategic objectives andthe capital project portfolio must be
tested”. The organizations should havein place capital budgeting and planning policies and procedures, a crossfunctional capital review committee,
and a robust system for tracking andreporting across the portfolio.
One of the biggest concerns
expressed by the survey participantsis the accuracy of the estimated costs
before committing to the project. It
would be difficulties where the applied
contingency model (for example, 10
percent model) is not useful to cover
the project risks. “Contingency planning typically involves downsiderisk estimates for budget and delivery times throughout the project life
cycle. According to the participants, a
range of methods is used to calculatecontingency levels. The survey findings indicate that bigger organizations(which tend to have larger and more
complex projects) are more likely totake a conservative view of contingency
levels. Over half of the respondents
from this segment report that the typical range of contingency is greater than
10 percent of the total estimated cost.
Arguably, the size and scale of theirproject portfolios have led to a cautious
attitude, tempered by past project cost
overruns” (KPMG International, 2014).
The type of contract which is the baseof the relationship between the parties
have significant effects on the strategy
the construction company will take inorder to achieve it purposes in termsof cost, duration and profit.
The main project financial management processes includes: project financial planning (identification of financial
needs, understanding the contract
requirements, estimating financing costs, establishing the financing
points, sensitivity analysis, developing
and testing the financial project plan,
assigning responsibilities), project
financial control (monitoring key influences and taking corrective measureswhen necessary) and administration
and records (designing and maintaining a financial information database).
Most of the companies develop
financial projections methods basedon the deterministic estimation of project financial performance. For doing
that, some basic assumptions are considered, such as: the time frame (thefinancial projections cover the project
implementation period plus three-fivea. purnus, c-n. bodea · financial management of the construction projects: a proposed cash flow analysis... · pp 1217-1227

1221

years after the project’s completion),
capital outlays and financing costs(they include any up-front and ongoing capital needs during the reference
period), revenues associated with the
project, expenses, and capital structure. In a probabilistic approach, thefinancial indicators are considered as
being uncertain variables, with discrete
probability distributions. Working
with stochastic variables leads to theincreasing of computational effort. A
financial model connecting the project analysis with the portfolio and/ororganizational level could avoid highfinancial exposures and loses for theconstruction companies. The following
section presents a two-level model for
financial analysis. This model is introduced by a case study.

Cash flow analysis model:
a case study
The proposed cash flow analysis
model includes two interrelated
levels: the project level and the project portfolio level.
At the project level, each projectis analyzed from aspects related toscope, time, resources, cost, contract
conditions of payments during the projects execution and those related to risk
identification and prioritization andrisk response plan.
At the project portfolio level, theaggregation of projects into portfolio
is performed. The need of resources for
projects completion is estimated andthe portfolio cash-flow is developed.
The final step is to develop financing
and return of financing scenarios in

Name

2014

The projects and portfolio contract price are presented in the table 1.
Name

DurationContract Price (Euro)

Portfolio

36 months

47,238,320

Project 1

21 months

15,518,964

Project 2

14 months

7,027,800

Project 3

24 months

5,527,942

Project 4

14 months

11,687,742

Project 5

11 months

7,475,872

Table 1: projects and portfolio contract priceorder to get a project portfolio cash-flow
always positive, thereby providing complete support in performing all the projects within the project portfolio. This isintended to establish both the time andthe amount of funding for covering the
projects implementation in each time
period and respectively the time andthe amount of return of funding. The
result is represented by the combined
cash-flow of cost, incomes, financing
and return of financing which must be
always positive.
The case study analyzes the cash
flow of a middle size construction company which awarded during 2013 and2014 five contracts of infrastructure
construction projects. The projects are
85% EU founded and 15% co-financeby the Contracting Authorities, andthe contracts are based on FIDIC 1999
Conditions of Contract. The project portfolio is consisted of five projects witha total duration of three years (figure5). The first three projects are for theconstruction of waste water plants, theforth is related to the rehabilitation of awater supply and waste water network
2015

and the fifth project is the rehabilitationof a road. The projects for the construction of the waste water plants use the
FIDIC 1999 Conditions of Contract for
Plant and Design-Build for Electricaland Mechanical Plant and for Buildings
and Engineering Works Designed by theContractor (Yellow Book), while thelast two projects use the FIDIC 1999
Conditions of Contract for Constructions
for Buildings and Engineering Works
Designed by the Employer (Red Book)
amended by the Particular Conditions.
Due to the overlapping of the projects, the distribution of the contract
price over the time for the entire portfolio (figure 6) highlights that during
October 2014 – August 2015, the works
to be performed per month are over
2,000,000 Euro, with a maximum valueof 5,626,187 Euro in July 20
According the FIDIC 1999 clause
14 (Contract Price and Payment) fromthe General Conditions of Contract, thepayment after the end of each month(Red Book) or after the period of payment stated on the contract (YellowBook) will be made by the Contracting
2016

2017

I F M A M I I A S O N D I F M A M I I A S O N D I F M A M I I A S O N D I F M A M

Protfolio
Project 1
Project 2
Project 3
Project 4
Project 5

Figure 5. Project Portfolio Gantt chart
1222 o rganization, tech no logy a n d ma n agem e nt in construc ti on · a n i nte rn ati on a l j ou rn a l · 7(1 )2 01 5

6,000,000

5,000,000

4,000,000

3,000,000

2,000,000

Jan-14Feb-14Mar-14Apr-14May-14June-14July-14Aug-14
Sep-14Oct-14
Nov-14
Dec-14Jan-15
Feb-15Mar-15
Apr-15May-15June-15
July-15
Aug-15
Sep-15Oct-15
Nov-15
Dec-15Jan-16
Feb-16
Mar-16
Apr-16May-16June-16
July-16
Aug-16
Sep-16Oct-16
Nov-16
Dec-16
Jan-17
Feb-17Mar-171,000,000

Fig. 6. Portfolio distribution of the contract price over the time

Authority in maximum 56 days (figure7). If through Particular Conditions ofContract this clause is amended byincreasing the time for payment as
it often happened, than the financial
effort made by the construction company increase, bringing a supplementary risk to its capability to run the
projects. Therefore the top management decision to participate in the bid
should be based not only on their technical ability but mainly on the company
financial capability.

Contractor submit the statement
after the end of the period of
payment
GCC 14.3

The contractor costs involve thecosts with manpower, materials, equipment’s, transport, other direct costs
and overhead. Each project cash flow
is composed from the project costs
and the incomes from the payments,
according the time period stated in theindividual contracts. The cash flow foreach project is shown in figure 8.
It should be mention that analyzing the projects cash flow, almost all
the project duration the works mustbe supported from the construction

The Engineer issue
the Interim Payment
Certificate
GCC 14.6<28z
Application forInterimPayment
GCC 14.3

Fig. 7. Time period for payment of statements

<28z
<56z

The Employer pay to
the Contractor
the amount of IPC
GCC 14.7

company reserves or from externalfinance. This behavior has a significant
impact on the company liquidity forcing
it to access other financial sources likebank loans. The peak of the cash flow
and the weight from the contract priceis presented in the table 2.
Two conclusions can be drawn analyzing the above table:
XX For projects with relatively shortdurations and monthly payment,
the amount of money the construction company need to have is around
70% from the contract price, while if
the payment is made after finishingsignificant parts of the project, than
the amount of money can increase at
90% from the contract price.
XX For the projects with long duration,no matter the payment is mademonthly or after the finish of significant parts, the amount of needed
money to sustain the construction
works is around 35 % from the contract price.
Focusing on individual cash flow projects without taking into account thata. purnus, c-n. bodea · financial management of the construction projects: a proposed cash flow analysis... · pp 1217-1227 1223

Name

DurationContract Price(Euro)

Peak of Cash Flow(Euro)

WeightProject 1

21 months

15,518,964

5,876,472

37.87%

Project 2

14 months

7,027,800

6,401,396

91.09%

Project 3

24 months

5,527,942

2,021,373

36.57%

Project 4

14 months

11,687,742

7,918,731

67.75%

Project 5

11 months

7,475,872

5,505,571

73.64%

Table 2: The peak of the cash flow and the weight from the contract pricein fact they are developed with thecompany limited resources (manpower,
materials, equipment’s and money) is a
big mistake. As time as the decisions onproviding resources is take at the company level, the most important decision
tool is the portfolio cash flow.

By aggregating the projects cash
flow, we will obtain the portfolio cash
flow (figure 9) with a peak of 18,135,956
Euro, representing 38.39% from all thecontracts price and an estimated profit
at the end of projects of 2,218,743, representing 4.7%.

Project 1

The evolution of the portfolio cash
flow shows that in order to complete intime the projects, the company need atleast the amount of money represented
by the cash flow peak.
For this reason several scenarios offinancing and return of financing were
performed. The optimum scenario or atleast, the close to the optimum scenario
which will insure the company will havealways money to run the projects in thecontractual duration. The results shows
not only when, but mostly what amountof money should be borrowed or obtainfrom internal or external sources andwhen and what amount of money should
be return.

Project2

1,000,000

1,000,000
00-1,000,000-1,000,000-2,000,000-3,000,000-2,000,000-3,000,000-4,000,000-5,000,000-4,000,000-5,000,000-6,000,000-7,000,000-6,000,000
Project 3

Project 4

250,000
0-250,000-500,000-750,000-1,000,000-1,250,000-1,500,000-1,750,000-2,000,000

1,000,000
0-1,000,000-2,000,000-3,000,000-4,000,000-5,000,000-6,000,000-7,000,000-8,000,000
Project 5
1,000,000
0-1,000,000-2,000,000-3,000,000-4,000,000-5,000,000-6,000,000

Fig. 8. Projects cash flow
1224 o rganization, tech no logy a n d ma n agem e nt in construc ti on · a n i nte rn ati on a l j ou rn a l · 7(1 )2 01 5

3,000,000
1,000,000-1,000,000-3,000,000-5,000,000-7,000,000-9,000,000-11,000,000-13,000,000-15,000,000-17,000,000-19,000,000

Fig. 9. Portfolio cash flow

5,000,000
4,000,000

Financing

3,000,000
2,000,000
1,000,000
0-1,000,000-2,000,000-3,000,000-4,000,000

Return of Financing

Jan-14Feb-14Mar-14Apr-14May-14June-14July-14Aug-14
Sep-14Oct-14
Nov-14
Dec-14Jan-15
Feb-15Mar-15
Apr-15May-15June-15
July-15
Aug-15
Sep-15Oct-15
Nov-15
Dec-15Jan-16
Feb-16
Mar-16
Apr-16May-16June-16
July-16
Aug-16
Sep-16Oct-16
Nov-16
Dec-16
Jan-17
Feb-17Mar-17-5,000,000

Fig. 10. Monthly financing and return of financing

In figure 10 is presented the monthly
schedule of financing and return of financing.
In order to cover the portfolio cash flow peak,a total value of 20,435,956 Euro is needed tobe obtain, representing 43.26% from all thecontracts price.

The cumulative curves in the combined view of portfolio cash flow, financing and return of financing are presented
in figure 11.
The combination of the portfolio cash
flow, the income from the contracts

payment, the financing and the return offinancing represent the company cash
flow and is the real decision tool by the
top management (figure 12). It shouldbe always on positive values, otherwise
the projects will not be sustained.

a. purnus, c-n. bodea · financial management of the construction projects: a proposed cash flow analysis... · pp 1217-1227 1225

22,000,000
20,000,000
18,000,000
16,000,000
14,000,000
12,000,000
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
0-2,000,000-4,000,000-6,000,000-8,000,000-10,000,000-12,000,000-14,000,000-16,000,000-18,000,000-20,000,000-22,000,000

Financing

Return of Financing

Portfolio Cash Flow

Fig. 11. Combined analysis – portfolio cash flow, financing and return of financing

3,500,00
3,000,00
2,500,00
2,000,00
1,500,00
1,000,00
500,0027.01.2014
19.02.2014
14.03.2014
06.04.2014
29.04.2014
22.05.2014
14.06.2014
07.07.2014
30.07.2014
22.08.2014
14.09.2014
07.10.2014
30.10.2014
22.11.2014
15.12.2014
07.01.2015
30.01.2015
22.02.2015
17.03.2015
09.04.2015
02.05.2015
25.05.2015
16.06.2015
10.07.2015
02.08.2015
25.08.2015
17.09.2015
10.10.2015
02.11.2015
25.11.2015
18.12.2015
10.01.2016
02.02.2016
25.02.2016
19.03.2016
11.04.2016
04.05.2016
27.05.2016
19.06.2016
12.07.2016
04.08.2016
27.08.2016
19.09.2016
12.10.2016
04.11.2016
27.11.2016
20.12.2016
12.01.201704.02.2017
27.02.2017
22.03.2017
15.04.2017

0Fig. 12. Combined cash flow –financing, income from payments, costs and return of financeHowever, the construction projects
are very complex and have a large
number of risk events and uncertainties
which may occur during their execution.
Therefore a deterministic analysis will
not be able to provide a realistic viewof the financial efforts the construction
company has to make, as time as the
projects are highly dynamic. A probabilistic analysis will allows to integrate

the risk events and uncertainties and to
become a true decision tool.

Conclusions
The paper proposes a practical cash
flow analysis model, which can beapplied by the construction companies
at project portfolio level mainly when
decisions about portfolio structure aretaken. Applying this proposed model,

the construction companies could avoid
high financial exposures and loses.
The type of contract which is thebase of the relationship between theparties have significant effects on thestrategy the construction company willtake in order to achieve it purposes interms of cost, duration and profit. Analyzing the projects cash flow, almost all
the project duration the works must be

1226 o rganization, tech no logy a n d ma n agem e nt in construc ti on · a n i nte rn ati on a l j ou rn a l · 7(1 )2 01 5

supported from the construction company reserves or from external finance.
This behavior has a significant impact
on the company liquidity forcing it toaccess other financial sources like bankloans. The evolution of the portfolio
cash flow shows that in order to complete in time the projects, the company
need at least the amount of money represented by the cash flow peak.
The proposed model allows construction companies to predict not
only when, but mostly what amountof money should be borrowed or obtainfrom internal or external sources andwhen and what amount of money
should be return. A deterministic
analysis will not be able to provide a
realistic view of the financial efforts
the construction company has to make,as time as the projects are highly
dynamic, but a probabilistic analysis
will allows to integrate the risk eventsand uncertainties and to become a true
decision tool. Due to the high amount ofmoney needed to perform the projects,
it become reasonable to say that construction companies need a specializedbank and not commercial one, which
will supports their financial needs.
Further improvements will be madeto the cash flow analysis model taking
into account the risk events and uncertainties, in order to make a feasible toolfor decision making.

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