Kishore, V; Abraham, D M and Sinfield, J V (2011) Portfolio cash assessment using fuzzy systems theory. Journal of Construction Engineering and Management, 137(5), pp. 333-343. ISSN 0733-9364
Abstract
Gaps between cash outflows and inflows throughout the life cycle of construction projects can create extended periods of low cash availability for a construction contractor, jeopardizing the financial stability of the business. A number of researchers have therefore attempted to model cash availability at a project level. However, at a firm level, financial stability is more thoroughly examined as a function of the cash flows related to multiple projects. This paper proposes a methodology on the basis of fuzzy systems theory to forecast cash requirements of a portfolio of projects for a construction firm, taking into account the effect of changing portfolio composition on portfolio cash-flow risk. Portfolio cash-flow risk is calculated from a variance matrix created by using covariance among cash flows of pairs of projects. Expert opinions of a group of highway construction contractors regarding project selection, project risk assessment and cash control were collected to create a fuzzy proportional derivative (PD) model that predicts portfolio risk for a construction firm. The model was assessed by the same group of contractors for overall logic (if/then rule base), appropriateness of cash-flow calculations (moving weights of cost categories), and practicality through application on a hypothetical test case. The paper concludes that a fuzzy proportional derivative model can be an effective tool to establish trends in cash-flow availability and risk across a portfolio of construction projects.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | cash flows; cash management; fuzzy proportional derivative; portfolio risk; project; variance matrix |
| Index terms: | variance, life cycle, test case, risk assessment, highway construction, project selection, cash flow, construction firm, stability, construction project, methodology, construction contractor, systems theory |
| Subjects: | professional practice, organization, value management, practitioner, measurement and scaling, financial management, theoretical framing, structural engineering, research methods, civil engineering, production management, financial risk |
| Topics: | Roles and Professions, Engineering Principles, Project Management, Research Practice, Business Strategy, Cost Management |
| Descriptive scope: | 4 PCTA |
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