Cui, Q (2005) A dynamic model for profitability analysis of construction firms: Towards complexity, learning, and uncertainty. PhD thesis, Purdue University, USA.
Abstract
The construction industry has changed significantly over the last two decades due to the effects of globalization, delivery system innovations, increased competition, and the application of information technology. Industry professionals know that to compete in these times they need to manage their performance more efficiently and fine-tune their business strategies to maintain and improve profitability and increase the company value. However, traditional theory and understanding of profitability management are not flexible and powerful enough to lead construction firms to a higher performance in the rapidly changing market. It has been a widespread and serious problem in the construction industry that profitability appears low, unreliable, and unmanageable. As a pioneer attempt in the exploration of a new theory of profitability management for construction firms, this study identifies the elements of the profitability as: quality, potentiality, and sustainability of profits. The study presents that these three elements are interactive and integrated into a profitability system which is dynamic, adaptive, and process based. And moreover, this study develops a model for analyzing the profitability of construction firms using system dynamics. The model is illustrated for the bidding practice in a typical medium-size general contractor. The study identifies the path dependency occurring in the construction practice. A small change of external variable could amplify and cause significant change in the business performance. Learning as an important strategy for the organizational unit was studied and simulated. The study found out that learning is effective and helps to improve the performance when the uncertainties are reduced. As another aspect of the profitability system, company overhead is affected by the cash flow management. Overdraft, discount for timely payment, and under/overbilling constitute the most important issues regarding project cash flow management. Construction firms have to balance the material savings and overdraft in an attempt to reduce costs. Based on a case study on a warehouse project, the study finds out that payment policy can be optimized within the framework of the profitability system by integrating overdraft, material credit, and overbilling. The overdraft requirement, material discounts terms, and the overbilling strategy are analyzed and discussed in single and multiple projects environment.
| Item Type: | Thesis (Doctoral) |
|---|---|
| Thesis advisor: | Hastak, M |
| Uncontrolled Keywords: | competition; complexity; market; sustainability; uncertainty; construction firms; bidding; business performance; cash flow management; globalization; information technology; innovation; learning; payment; policy; professional; case study |
| Index terms: | profit, construction firm, business strategy, strategy, general contractor, bidding, information technology, complexity, business performance, competition, path dependency, globalization, system dynamics, exploration, savings, cash flow management, case study, construction industry, profitability |
| Subjects: | performance measurement, financial management, management, market analysis, industry analysis, systems engineering, economic factors, strategic management, data collection methods, organization, business, practitioner, computing systems, environmental resource management, bidding, economic analysis |
| Topics: | Cost Management, Business Strategy, Research Practice, Roles and Professions, Digital Applications, International Construction, Engineering Principles, Procurement, Sustainability, Quality Management |
| Descriptive scope: | 4 PCTE |
N.B. Descriptive scope is a count of how many of the five facets of empirical research are indicated by the words used in title, abstract and keywords. It is not intended as a judgement on the research; merely a count of the kind of word we would expect to indicate Phenomenon, Concepts, Theoretical framing, Empirical techniques, Analytical techniques. If all five are present, then a code of “5 PCTEA” will indicate this. If you feel the coding for this record is questionable, we welcome discussion around the terms we matched or the way we categorized them. The facet you would expect may not be coded, or a facet may be coded inappropriately. This can also bear on a larger question, of which facets should be treated as defining in construction management research. Please get in touch, and we will look at it. More details here