Project Cash Flow Forecasting: a Mathematical Approach

A proactive approach to project cash flow management relies heavily on the use of a forecasting model that is, on the one hand, capable of generating reasonably accurate forecasts and, on the other hand, offers the flexibility which enables the financial manager to challenge the outcome of the forecast in the direction of corporate financial objectives of the organization. The latter was the subject of a paper in the previous ARCOM conference. This paper is concerned with the former: the structure of the project cash flow forecasting model. The paper provides the details of the model, which consists of a mathematical expression, and a database of processed data relating to project expenditure flows of a variety of construction projects. The methodology used for the development of the model is based on the analysis of the shape of the project expenditure profile. The understanding of the shape-geometry of the profile and the identification of the variables that define the profile will in turn help to construct the profile for any given project definition. This undertaking also relies on the use of a mathematical model in order to convert the shape-variables into an expenditure pattern. Therefore, the paper discusses the components of the mathematical model, which consists of three modules each responsible for implementing a number of requirements relating to shapevariables.