Cashflow forecasting in the construction industry: The case of Ghana

Abstract

Research has shown that only one out of eight projects in the USA is successful (David and Trevor, 2011). Park, Seung and Rusells (2005) quoted Russell (1991) who found that more than 60% of construction contractor's failure is due to economic factors. Thus, when planning funding requirements of a business, it is more important to manage the likely cash requirements than to merely project profitability. Whilst profit is a vital indicator of the performance of a project, the generation of profit does not necessarily guarantee its realization development, or even survival. It is imperative to note that more businesses fail for lack of cashflow than for want of profit. This paper discusses and highlights the results of a study conducted to determine, rate, and rank the significant factors that affect the cash flow of contractors in Ghana. The District Assembly Common Funded (DACF) project was used as a cose study. The paper adopted the qualitative and quantitative research methods. In terms of quantitative methods, primary data was gathered through structured questionnaires distributed to contractors, consultants, district assemblies (clients) in the Ashanti and Brong Ahafo regions of Ghana. The sample size was drawn using the Kish (1965) method. In total, 123 out of 152 questionnaires were retrieved indicating 81 % response rate. Statistical analysis, using relative importance indices, significance testing and concordance testing revealed that 15 factors significantly affect the cash flow status of a contractor during the currency of construction projects. These factors were further categorised into either endogenous or exogenous groupings, based on the source of the factor and its effect on the construction firm. It was further revealed that cash flow factors could be considered to have contractor inclination or contractual influence depending on the extent of skewness of these factors to the former. The paper recommends that, to enhance effective productivity through cash flow systems, there must be a balance between the exogenous and endogenous factors, with the diligently undertaking risk analysis for the prospects of the project and the client making conscious effort not to violate the contractual factors.