Abstract
The construction sector is large; it engages a variety of professions thus it is a main provider of employment and has a diverse market. The construction sector has a reputation for being conservative, problematic, and inefficient. This should change as we are moving toward industry 4.0 and smart cities that is injecting new tools and business dynamics. This chapter is trying to find methodologies to make an equilibrium between value produced by the contract, the flexibility of contract terms and contracting conditions thus contractors can be controlled in a reasonable matter. We are in here applying concepts and techniques from statics science and structural engineering to calculate PORD or PRCD (the Percentage Profit On Realistic Cashflow Duration) as a new financial modeling parameter that can help financial planners and decision makers to take more realistic decision. This parameter can be used jointly with other financial parameters such as ROI, IRR and NPV.
TopMeasuring Project Or Investment Feasibility
For a contractor within the construction industry, a feasibility study is undertaken to assess whether it is realistic to carry on certain project. This means that plenty of internal and external parameters will need to be considered. The financial situation and reputation of the company is evaluated, the strengths and weaknesses of the business are taken into consideration.
Key Terms in this Chapter
Realistic Cashflow Duration (RCD): An effective parameter that will depend on the real Cash Inflow (CI) and Cash Outflow (CO) to determine the feasibility of a project or investment.
Equilibrium: In statics when all the forces that act upon an object are balanced, then the object is said to be in a state of equilibrium. The forces are balanced if the rightward forces are balanced by the leftward forces.
Internal Rate of Return (IRR): A metric used in capital budgeting to estimate the profitability of potential investments. The internal rate of return is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.
Cost Benefit Analysis (CBA): A process used to measure the benefits of a decision or action minus the costs associated with taking that action. A CBA involves measurable financial metrics such as revenue earned, or costs saved because of the decision to pursue a project.
Business Dynamics: Strategies for improving the accuracy, timeliness, coverage, and integration of data that are used in constructing aggregate economic statistics. The business activity in this rapidly evolving environment increasingly requires tracking complex interactions among firms, establishments, employers, and employees.
Return on Investment (ROI): A metric used to measure the performance and evaluate the efficiency of an investment, Return on Investment (ROI) is usually used to compare the efficiency of several different investments.
Feasibility Study: Is undertaken to assess whether it is realistic to carry on certain project. This means that plenty of internal and external parameters will need to be considered including the financial situation, the reputation of the company, strengths, and weaknesses.
Profit for the Realistic Cashflow Duration (PRCD): Profit for the realistic cashflow duration is an indication of project profitability based on the realistic cash flow calculations.