MODELS FOR PREDICTING THE IMPACT OF RISK FACTORS ON CONSTRUCTION CONTRACTORS’ CASH-OUT FORECASTS IN NIGERIA

Purpose: Researches have shown that construction contractors face challenges when attempting to manage their present and future financial requirements via cash flow (CF) forecasting and/or the use of cash flow forecasting (CFF) models. Consideration for risk factors impacting on CF forecasts/CFF models has also been identified as a key issue affecting contractors’ application of CFF models. This study developed models for predicting the impact of risk factors on CF forecasts by contractors in Nigeria. A list of risk factors that impact on CF forecasts were identified through the review of existing literature. The identified risk factors were then investigated in relation to the likelihood of occurrence and the impact on CF forecasts, if they occur. Design/methodology/approach: Data was collected via a questionnaire survey of contractors operating in the Nigerian construction industry. Two (2) sets of questionnaire surveys were conducted. The first questionnaire survey focused on determining the likelihood of occurrence/impact of thirty-one (31) risk factors on cash-out forecasts respectively. Contractors were asked to rank on a scale of 0 to 5 the likelihood of occurrence/impact of the risk factors. The responses obtained were subjected to analysis with the use of IBM SPSS (version 21) software. The mean, standard error and standard deviation were computed. The computed means were used to rank the likelihood of occurrence/impact of the factors in descending order. Findings: Sixteen (16) risk factors were found to significantly impact “cash-out” forecasts- “increased duration of the project”, “change in currency exchange rates”, “high cost of materials”, among others. The models developed showed that construction contractors’ cash out forecasts vary with the actual expenditure by +20%, +25% and +25% at the 30%, 50%, and 70% completion stages respectively. Validation of the models shows a 77%, 69%, and 67% accuracy at 30%, 50%, and 70% completion stages respectively. Research implications: The findings from the research imply that several risk factors have different degree of occurrence and impact on cash-out forecasts in the Nigerian construction industry. Originality/value: Construction contractors practicing in the Nigerian construction industry should expect positive variations to their “cash-out” forecasts during the execution of projects. Major recommendation; contractors should carefully consider the sixteen (16) affecting “cash out” before embarking on any construction project.