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Cash farming in building and construction: a stochastic analysis

Author

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  • Russell Kenley

Abstract

Cash flow management is a significant issue in the management of a building or construction firm. This paper steps back from the well researched area of poor cash management and its relationship with failure, to focus on the funds which are generated through operations, and the positive benefits which can follow in a well managed organization. A stochastic model is developed which illustrates how an average of 16% of turnover can be available for reinvestment. This is sufficient to allow investment in non-liquid assets, provided that this is managed carefully and precautions are taken against a severe reduction in turnover. This level of funds is sufficient to encourage firms to enter the industry with the motivation of generating funds, rather than a desire to build. This has implications for large clients and for government when dealing with the industry.

Suggested Citation

  • Russell Kenley, 1999. "Cash farming in building and construction: a stochastic analysis," Construction Management and Economics, Taylor & Francis Journals, vol. 17(3), pages 393-401.
    • Handle: RePEc:taf:conmgt:v:17:y:1999:i:3:p:393-401
    DOI: 10.1080/014461999371592
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    Cited by:

    1. Qingbin Cui & Makarand Hastak & Daniel Halpin, 2010. "Systems analysis of project cash flow management strategies," Construction Management and Economics, Taylor & Francis Journals, vol. 28(4), pages 361-376.
    2. Hong Chen, 2010. "Using Financial and Macroeconomic Indicators to Forecast Sales of Large Development and Construction Firms," The Journal of Real Estate Finance and Economics, Springer, vol. 40(3), pages 310-331, April.

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