Adopting a semi-ideographic approach to cash flow forecasting

Cash flow forecasting is an important part of the management of a construction company. A large proportion of construction company bankruptcy is due to poor financial planning. Many of today's cash flow forecasting models rely on standard S-curves. A standard S-curve is often chosen from a library of curves developed by calculating the average monthly percentage values of a group of completed projects . Therefore a single standard S-curve is often used to represent many projects that belong to a particular group. In this paper, the authors demonstrate that the above approach (i.e. nomothetic models) will not always yield the most accurate results. The paper proposes that an idiographic (a specific curve for a specific project) model should be adopted instead. The paper begins by describing briefly a nomothetic model which was developed using 150 projects. This model was based on groups classified in terms of duration and cost. The models were then modified to be able to incorporate the affects of the actual duration of the project concerned. The paper concludes by testing the accuracy of the proposed idiographic models. The results confirm that better accuracy is achieved when using this approach.