06-06-2013, 02:08 PM
PROJECT ON OPTIMISATION OF WORKING CAPITAL IN CONSTRUCTION PROJECTS
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INTRODUCTION TO
Working Capital
A measure of both a company's efficiency and its short-term financial health in terms of liquid cash required for the smooth functioning & operations in order to produce some revenues is called as working capital.The working capital ratio is calculated as:
Working Capital = Current – Current Assets Liabilities
OBJECTIVES
To examine the impact of accounts receivables days, inventories days, accounts payable days and cash conversion cycle on return on total assetsTo analyse the trend in working capital needs of firms and to examine the causes for any significant differences between the industries. Identification and evaluation of factors influencing working capital of a construction project. Recommendations on important factors to achieve optimum working capital.
RESEARCH METHODOLOGY
Step1: Literature survey was carried out from the relevant journal papers, conference proceedings. Literature review helped in getting updated knowledge on the subject besides helping in identification of the factors; influencing the working capital requirements.
Step 2: Collection of data from various project sites to study and compare the working capital requirements, stock, cash-in and cash-out, outstanding, vendor credits.
Step 3: Analysing the data to study the factors influencing the working capital.
4: Development of working capital model to estimate the working capital required at various stages of the project.Step
5 : Karl Pearson’s Correlation Coefficient, Regression Analysis & Monte Carlo Simulation Methods to find out the importance of the identified variables by calculation of minimum working capital under most favourable conditions and to recommend the management guidelines those are necessary for the important factors to achieve optimum working capital.
CASH FLOW
Cash is the most important of a construction company’s resources. More construction companies fail due to a lack of liquidity for supporting their daily activities than because of inadequate management of other resources.More than 60% of construction contractor failures are due mainly to economic factors.Numerous techniques for cash flow forecasting and management differ in their levels of accuracy and detail
SUMMARY
The economic scenario in the construction industry, in developing countries like India has been changing rapidly, with big firms entering into the construction business, and therefore increasing the competitiveness among the firms during the bidding stage.
And it becomes very essential for the firms to manage their current assets during the execution stage of the project.
Hence, in the present study, historical data of the projects had been collected to analyse for the factors affecting the working capital requirements of the construction projects after identifying the factors from personal interviews and literature.
CONCLUSIONS
The outstanding amount becomes critical when the project reaches 60 percent completion cost wise.
The projects located in southern parts of India have better vendor credits than those of the northern region.
In building construction projects, outstandings is found to influence the working capital requirements, thereby reducing it results in reducing the current assets i.e. the capital charges and also the stock.
The working capital requirements of the projects located in south India are mostly influenced by the capital charges and the inflation rate.
The roads and bridges type of projects are found to perform with lesser outstandings, but has working capital requirements nearly to the mean of all projects because of very less certifications of the invoice.