Analyzing the impact of financial policies on construction projects performance using system dynamics

Abstract

Purpose

The research aims to analyze the effects of financial policies on a cash flow system to meet project performance goals and improve profitability. The policies are divided into four groups; owner related, bank-related, labor-related and supplier-related policies. This research presents a developed model for planning, forecasting and managing the cash flow in construction projects using system dynamics (SD).

Design/methodology/approach

A System Dynamics (SD model is developed to evaluate the effect of different financial policies on construction project performance. By identifying the feedback loops in the cash flow system, a dynamic model is developed to forecast, plan and manage different policies, including prepayment, overbilling, loans, incentive payment, delay in payment and equipment lease.

Findings

A case study (a construction activity as part of a pharmaceutical factory development project) is used to analyze the cash flow and financing policies. The findings demonstrate the effects of different policies such as incentive payments on project cash flow estimation, which proved to reduce the project duration, improve the profit and increase the financing during the project execution.

Originality/value

The presented model would be a major attempt to estimate precisely the cash flow and the effect of employing different financial policies on project performance. Applying this model, project managers and decision-makers have the opportunity to model different financial policies concerning a variety of limiting variables applicable to each situation. Ultimately, with this, one can make more reasoned decisions and, in effect, optimize the utility of the project.

Citation

Dabirian, S., Ahmadi, M. and Abbaspour, S. (2023), "Analyzing the impact of financial policies on construction projects performance using system dynamics", Engineering, Construction and Architectural Management, Vol. 30 No. 3, pp. 1201-1221. https://doi.org/10.1108/ECAM-05-2021-0431