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PROJECT TOPIC: AN ASSESSMENT OF CASHFLOW FACTORS ON COST PERFORMANCE OF CONSTRUCTION PROJECT

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CHAPTER ONE

INTRODUCTION

1.1   Background of the Study

        Cash flow is integral to the financial health status of every business organization. Cash in organization usually takes two direction, inflow and outflow. Cash flow is a concept in accounting and finance used to describe the inflow and outflow of cash within an organization. Inflows represent cash receipts while outflows relate to cash expenditures. A high inflow of cash when compared with the outflow provides a company with sufficient cash balance for investment purposes (Nwanyanwu, 2015).

        The construction projects are complex and risky, and it is a great employer of labour. Contractors cannot survive in the competitive construction industry without effective cash flow management, studies and investigations have shown that lack of liquidity is a major problem causing construction project failure (Al-Issa and Zayed, 2017). A model for accurately predicting trends in a project's cash flow prior to the construction phase has been so elusive. Therefore, advance knowledge of the factors affecting cash flow and understanding their impact is essential to the contractor. Cash flow is the actual movement of money in and out of any project. Therefore, money flow in may be termed positive cash flow while the one flowing out may termed negative cash flow. Recent studies by Yaqiong, Tarek, and Shujing, (2019) indicate that, cash flow varied approximately from 129% to 20.4% with a mean value of 16.7% considering the effects of all factors on the basis of 30% total cost variation. In addition, financial management has long been recognized as an important management tool, throughout the construction process, the contractor needs to be comparing the actual income and expenses against the forecasted values. If there are discrepancies between these values, the contractor needs to adjust the schedule and update the project plan to match the estimated situation as early on as possible. With real knowledge of cash flow, forecasting the contractor could more efficiently and accurately manage cash flow during the construction process to prevent extra expenses and avoid project collapse Yaqiong Liu, Tarek Zayed and Shujiung Li (2019).


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