OPTIMISATION OF WORKING CAPITAL FOR CONSTRUCTION PROJECTS BY USING MATHEMATICAL MODELLING

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INTRODUCTION TO WORKING CAPITAL
Firstly we have to know what exactly is working capital & its importance in construction projects. Many companies still underestimate the importance of working capital management as a lever for freeing up cash from inventory, accounts receivable, and accounts payable. By effectively managing these components, companies can sharply reduce their dependence on outside funding and can use the released cash for further investments or acquisitions. This will not only lead to more financial flexibility, but also create value and have a strong impact on a company’s enterprise value by reducing capital employed and thus increasing asset productivity.


LITERATURE REVIEW:
Companies must be as concerned with minimising cash on the balance sheet as they are with reducing accounts receivable and minimising excess inventory. In today’s low interest rate environment, it is impossible for idle cash to earn more than the cost of raising it. Therefore, unused cash has a negative impact on the balance sheet. Additionally, cash on the balance sheet increases a firm’s asset base.


CAPITAL CHARGES:
The mean amount that has been paid as the interest charges on the current assets and the fixed assets for all the project sites. This is the amount which is mostly contributing for the working capital requirements, it can be controlled by efficiently optimizing the current assets involved in the projects sites, though the interest rates charged by the banks remains uncontrolled. The bank’s interest charges is the sum of the real interest rate and the inflation rate, therefore the inflation dos contribute to the capital charges but is uncontrolled by the construction firms. It has been observed that the industrial projects involve more finances and hence more charges paid for the capital involved. Except for the building works and the pipeline projects all other types of jobs like roads and bridges, industrial projects , hydel power projects require comparatively higher establishments in the form of fixed assets like machineries etc, hence higher capital has been employed.
OUTSTSTANDINGS:
The project sites located in the southern India are found to have higher mean outstandings compared to the projects of the northern India. However, outstandings are found to be less in the initial stages of the project than the final stages. Hence, outstandings contribute more to the working capital requirements of the projects sites and to optimize the working capital, the management’s goal shall be to achieve zero outstandings.
STOCK:
It has been observed that the BOT projects and the power transmission projects function at lesser stocks. This might be due to the most of the works are being subcontracted. The data collected shows that there is nothing much variation in the average stock levels present at the sites regardless of the location job status cost wise and the nature of the job.