OPTIMIZING PRODUCTIVITY RATE TO MINIMIZE OVERDRAFT INTEREST PAYMENT IN INFRASTRUCTURE CONSTRUCTION PROJECTS
Winning a bid is a good opportunity for contractors that includes risks. After winning a project, contractors typically receive payments after two-three months of work completion that leads to negative cash flow (overdraft) throughout the duration of a project. Hence, contractors borrow from banks and pay monthly interests on the amount of overdraft they owe. To solve this problem, a hybrid model utilizing Discrete Event Simulation using SIMPHONY software, a special purpose simulation tool developed by the University of Alberta, accompanied by Markov Chain prediction technique. The developed hybrid model allows contractors to test different scenarios in search of the optimum productivity rate and payment arrangement to minimize negative cash flow. A case study utilizing a typical road construction project is used to test and validate the developed model and its ability to determine the optimum scenario. Results revealed that markup percentage and initial investment are two crucial factors to deliver the project successfully. In the harsh market, increasing the amount of cash to invest without a reasonable markup (at least 10%) will no longer make a profit. But, if the markup percentage could be increased by more than 15%, it will offer a chance to the contractor to make a profit and successfully deliver the project with initial investment reasonably low; and save a flexible productivity rate to finish the project within the schedule.