Effects of Organisational Characteristics on Contractors’ Construction Cash Flow Forecasting Capabilities

Abstract

Inadequate cash resources resulting from poor cash flows have been among the fundamental causes of construction project failures. Despite the panoply of cash flow forecasting (CFF) tools, the cash flow performance of many construction firms have been reported to be poor due weak Cash flow forecasting (CFF) process capabilities influenced by a couple of organisational characteristics. Although these organisational characteristics have been reported to significantly influence firms' CFF process capabilities, the underlying mechanisms of how these organisational features and characteristics exhibit their specific influences on the cash flow forecasting capabilities of construction firms still remains underexplored. Therefore, this study aims at empirically exploring the influence of some organisation characteristics on the CFF process capabilities of construction firms. Best practices in CFF identified from the Royal Institute of Chartered Surveyors (RICS) Cash Flow Forecasting (CFF) guide were used to develop an assessment criteria used to assess the CFF capabilities of construction firms. The assessment was conducted through a questionnaire survey involving contracting organisations involved in both building and civil engineering works in Nigeria. The key best practices in CFF were ranked based on arithmetic mean value scores and averages were also determined for each of the four CFF components assessed (Knowledge and understanding CFF concepts and principles, Practical application, Practical considerations, and other Managerial issues). Hierarchical regression analysis was then used to examine the relationships between contractors'' CFF process capabilities and some organisational characteristics. Results of the study reveals that organisational characteristics are strongly associated to firms' abilities to prudently manage cash flows. The results of this study could serve as a basis for the strategic planning and improvement of Cash Flow Forecasting process by contractors in Nigeria.

Impact Factors on Subcontractor's Cash Flow Management

“…Subcontractor firms' financial performance success in the construction sector relies upon several factors, including subcontracting agreements, cash inflows, and outflows. Failure of some firms is attributed to poor financial management practices and inadequate cash flow attention [14]. Poor cash flows mean no payments to laborers and crews and difficulty purchasing needed materials.…”