Modelling standard cost commitment curves for contractors' cash flow forecasting

Cash flow forecasting and control are essential to the survival of any contractor. The time available for a detailed pre-tender cash flow forecast is often limited. Therefore, contractors require simpler and quicker techniques which would enable them to forecast cash flow with reasonable accuracy. This paper identifies causes behind the inaccuracy of current standard value S-curves (which are often used as an alternative approach for cash flow forecasting) and proposes the use of standard cost commitment models. The process of developing and testing the cost commitment models involved first collecting actual data for 150 completed projects. Several criteria were identified to classify these projects. Tests were conducted to identify which of these criteria affected the shape of the cost commitment curves. Projects were then distributed into different groups and S-curves were fitted into each using the logit transformation technique. Errors incurred when fitting these curves were measured and compared with those associates in fitting individual projects. Results showed that the difference between these errors was not significant. The reliability of selecting the cost commitment curve to model (instead of value curves) was evaluated. Results confirmed the hypothesis that cost commitment models are more accurate and reliable than value models. Finally, the paper outlines some of the practices involved in utilizing the proposed models.