Commenced in January 2007
Frequency: Monthly
Edition: International
Paper Count: 30184
Payment Problems, Cash Flow and Profitability of Construction Project: A System Dynamics Model

Authors: Wenhua Hou, Xing Liu, Deqiang Chen

Abstract:

The ubiquitous payment problems within construction industry of China are notoriously hard to be resolved, thus lead to a series of impacts to the industry chain. Among of them, the most direct result is affecting the normal operation of contractors negatively. A wealth of research has already discussed reasons of the payment problems by introducing a number of possible improvement strategies. But the causalities of these problems are still far from harsh reality. In this paper, the authors propose a model for cash flow system of construction projects by introducing System Dynamics techniques to explore causal facets of the payment problem. The effects of payment arrears on both cash flow and profitability of project are simulated into four scenarios by using data from real projects. Simulating results show visible clues to help contractors quantitatively determining the consequences for the construction project that arise from payment delay.

Keywords: payment problems, cash flow, profitability, system dynamics.

Digital Object Identifier (DOI): doi.org/10.5281/zenodo.1055891

Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 2058

References:


[1] NBSC, "Main economic indicators on construction enterprises", in China Statistical Yearbook For 2004, National Bureau of Statistics of China, available at http://www.stats.gov.cn/tjsj/ndsj/2005/html/O1502e.htm, (last viewed on 20 June, 2011)
[2] S. Q. Wang, "The speech in the national construction management working conference", China Investigation & Design, 2007, no. 7, pp. 10-14.
[3] J. B. Wen, "Premier-s Annual Report on the Work of the Government in 2007", available at http://www.gov.cn/test/2009-03/16/content_1260188. htm. (last viewed on 17 June, 2011)
[4] Y. H. Shen, A H., "Reasons and countermeasures to the payment problems in the construction industry", Construction Economics, no. 1, pp. 11-14, 2004.
[5] M. L. Wang, "Analysis about the payment arrearage in the construction industry", Construction Economics, no. 5, pp. 6-9, 2003.
[6] Q. W. Yin, "Reasons and precautionary measure of payment arrearage in the construction industry", Construction Economics, no. 12, pp. 17-18, 2007.
[7] J. Wu, M. M. Kumaraswamy, G.K.L. Soo, "Payment problems and regulatory responses in the construction industry: mainland China perspective", Journal of Professional Issues in Engineering Education and Practice, vol. 134, no. 4, pp.399-407, 2008.
[8] J. Wu, M.M. Kumaraswamy, G.K.L Soo, "Dubious benefits from future exchange: an explanation of payment arrears from ÔÇÿcontinuing clients- in mainland China". Construction Management and Economics, vol. 29, no. 1, pp. 15-23, 2011.
[9] W. Ibbs, M. Liu, "System dynamic modeling of delay and disruption claims", Cost Engineering", vol. 47, no.1, pp. 12-15, 2005.