Joint finance-based scheduling in construction: Internal interest rate approach

Sadegh Asgari, Joseph Chalhoub, Kaveh Moradi Dezfouli, Farzane Asgari

Article ID: 3822
Vol 8, Issue 5, 2024

VIEWS - 1317 (Abstract)

Abstract


Realistic project scheduling and control are critical for running a profitable enterprise in the construction industry. Finance-based scheduling aims to produce more realistic schedules by considering both resource and cash constraints. Since the introduction of finance-based scheduling, its literature has evolved from a single-objective model to a multi-objective model and also from a single-project problem to a multi-project problem for a contractor. This study investigates the possibility of cooperation among contractors with concurrent projects to minimize financial costs. Contractors often do not use their entire credit and may be required to pay a penalty for the unused portions. Therefore, contractors are willing to share these unused portions to decrease their financing costs and consequently improve their overall profits. This study focuses on the partnering of two contractors in a joint finance-based scheduling where contractors are allowed to lend credit to or borrow credit from each other at an internal interest rate. We apply this approach to an illustrative example in which two concurrent projects have the potential for partnering. Results show that joint finance-based scheduling reduces the financing cost for both contractors and leads to additional overall profits. Our further analyses highlight the intricate dynamics impacting additional net profit, revealing optimal scenarios for cooperation in complex project networks.


Keywords


finance-based scheduling; construction; partnering; joint resource management; project network

Full Text:

PDF


References


Abido, M. A., Elazouni, A. (2009). Improved crossover and mutation operators for genetic-algorithm project scheduling. In 2009 IEEE Congress on Evolutionary Computation. IEEE. pp. 1865-1872. Abido, M. A., Elazouni, A. M. (2011). Multiobjective evolutionary finance-based scheduling: Entire projects’ portfolio. Journal of Computing in Civil Engineering, 25(1), 85-97. Abido, M. A., & Elazouni, A. (2021). Modified multi-objective evolutionary programming algorithm for solving project scheduling problems. Expert Systems with Applications, 183, 115338. https://doi.org/10.1016/j.eswa.2021.115338 Afshar, A., & Fathi, H. (2009). Fuzzy multi-objective optimization of finance-based scheduling for construction projects with uncertainties in cost. Engineering Optimization, 41(11), 1063–1080. https://doi.org/10.1080/03052150902943004 Ahlin, C., & Townsend, R. M. (2007). Using Repayment Data to Test across Models of Joint Liability Lending. The Economic Journal, 117(517), F11–F51. https://doi.org/10.1111/j.1468-0297.2007.02014.x Ahlin, C. (2015). The role of group size in group lending. Journal of Development Economics, 115, 140–155. https://doi.org/10.1016/j.jdeveco.2015.03.001 Ahlin, C. (2020). Group lending, matching patterns, and the mystery of microcredit: Evidence from Thailand. Quantitative Economics, 11(2), 713–759. https://doi.org/10.3982/qe1115 Akerlof, G. A. (1970). The Market for “Lemons”: Quality Uncertainty and the Market Mechanism. The Quarterly Journal of Economics, 84(3), 488. https://doi.org/10.2307/1879431 Alghazi, A., Selim, S. Z., Elazouni, A. (2012). Performance of shuffled frog-leaping algorithm in finance-based scheduling. Journal of computing in civil engineering, 26(3), 396-408. Alghazi, A., Elazouni, A., Selim, S. (2013). Improved genetic algorithm for finance-based scheduling. Journal of Computing in Civil Engineering, 27(4), 379-394. Al-Shihabi, S. T., & AlDurgam, M. M. (2017). A max-min ant system for the finance-based scheduling problem. Computers & Industrial Engineering, 110, 264–276. https://doi.org/10.1016/j.cie.2017.06.016 Armendariz De Aghion, B. (1999). On the design of a credit agreement with peer monitoring. Journal of Development Economics, 60(1), 79-104. Asgari, S., Afshar, A., Madani, K. (2014). Cooperative Game Theoretic Framework for Joint Resource Management in Construction. 140(3). Banerjee, A. V., Besley, T., & Guinnane, T. W. (1994). Thy Neighbor’s Keeper: The Design of a Credit Cooperative with Theory and a Test. The Quarterly Journal of Economics, 109(2), 491–515. https://doi.org/10.2307/2118471 Barbosa, F., Woetzel, J., Mischke, J., et al. (2017). Reinventing construction: a route to higher productivity. McKinsey Global Institute. Barlow, J. (2000). Innovation and learning in complex offshore construction projects. Research Policy, 29(7–8), 973–989. Besley, T., Coate, S. (1995). Group lending, repayment incentives and social collateral. Journal of Development Economics, 46(1), 1-18. Binmore, K., Rubinstein, A., & Wolinsky, A. (1986). The Nash Bargaining Solution in Economic Modelling. The RAND Journal of Economics, 17(2), 176. https://doi.org/10.2307/2555382 CII (Construction Industry Institute). (1991). In search of partnering excellence. Special Publication No. 17-1, Partnering Task Force of CII, Austin, TX. Cassar, A., Crowley, L. Wydick, B. (2007). The effect of social capital on group loan repayment: evidence from field experiments. Economic Journal, 117, F85-F106. https://doi.org/10.1111/j.1468-0297.2007.02016.x Chen, H. L., O’Brien, W. J., Herbsman, Z. J. (2005). Assessing the accuracy of cash flow models: the significance of payment conditions. Journal of Construction Engineering and Management ASCE, 131(6), 669–676. Confessore, G., Giordani, S., Rismondo, S. (2007). A market-based multi-agent system model for decentralized multi-project scheduling. Ann. Oper. Res., 150(1), 115–135. DeVilbiss, C. E., Leonard, P. (2000). Partnering is the foundation of a learning organization. J. Manage. Eng., 4(47), 47–57. Edelberg, W. (2006). Risk-based pricing of interest rates for consumer loans. Journal of Monetary Economics, 53(8), 2283–2298. https://doi.org/10.1016/j.jmoneco.2005.09.001 El-Abbasy, M. S., Elazouni, A., & Zayed, T. (2016). MOSCOPEA: Multi-objective construction scheduling optimization using elitist non-dominated sorting genetic algorithm. Automation in Construction, 71, 153–170. https://doi.org/10.1016/j.autcon.2016.08.038 El-Abbasy, M. S., Elazouni, A., Zayed, T. (2017). Generic scheduling optimization model for multiple construction projects. Journal of computing in civil engineering, 31(4), 04017003. El-Abbasy, M. S., Elazouni, A., Zayed, T. (2020). Finance-based scheduling multi-objective optimization: Benchmarking of evolutionary algorithms. Automation in Construction, 120, 103392. https://doi.org/10.1016/j.autcon.2020.103392 Elazouni, A., Gab-Allah, A. (2004). Finance-based scheduling of construction projects using integer programming. J. Constr. Eng. Manage., 130(1), 15–24. Elazouni, A., Metwally, F. (2005). Finance-based scheduling: Tool to maximize project profit using improved genetic algorithms. J. Constr. Eng. Manage., 131(4), 400–412. Elazouni, A., Metwally, F. (2007). Expanding finance-based scheduling to devise overall-optimized project schedules. J. Constr. Eng. Manage., 133(1), 86–90. Elazouni, A. (2010). Heuristic method for multi‐project finance‐based scheduling. Construction Management and Economics, 27(2), 199-211. https://doi.org/10.1080/01446190802673110 Elazouni, A., Abido, M. (2011). Multiobjective evolutionary finance-based scheduling: Individual projects within a portfolio. Automation in Construction, 20(7), 755-766. https://doi.org/10.1016/j.autcon.2011.03.010 Elazouni, A., Abido, M. A. (2013). Contractor-finance decision-making tool using multi-objective optimization. Canadian Journal of Civil Engineering, 40(10), 961-971. https://doi.org/10.1139/cjce-2013-0086 Elazouni, A., Abido, M. A. (2014). Enhanced trade-off of construction projects: Finance-resource-profit. Journal of Construction Engineering and Management, 140(9), 04014043. Elazouni, A., Alghazi, A., Selim, S. Z. (2015). Finance-based scheduling using meta-heuristics: Discrete versus continuous optimization problems. Journal of financial management of property and construction, 20(1), 85-104. https://doi.org/10.1108/jfmpc-07-2014-0013 Elazouni, A. M., Metwally, F. G. (2005). Finance-based scheduling: Tool to maximize project profit using improved genetic algorithms. Journal of Construction Engineering and Management, 131(4), 400-412. Elazouni, A. M., Metwally, F. G. (2007). Expanding finance-based scheduling to devise overall-optimized project schedules. Journal of Construction Engineering and Management, 133(1), 86-90. Eriksson, P. E. (2007). Cooperation and partnering in facilities construction empirical application of prisoner’s dilemma. Facilities, 25(1/2), 7–19. https://doi.org/10.1108/02632770710716902 Fathi, H., Afshar, A. (2010). GA-Based Multi-Objective Optimization of Finance-Based Construction Project Scheduling. KSCE J. Civil Eng., 14(5): 627-638. https://doi.org/10.1007/s12205-010-0849-2 Floro, S.L., Yotopoulos, P.A. (1991), Informal Credit Markets and the New Institutional Economics: The Case of Philippine Agriculture, Westview Press, Boulder, CO. Gajpal, Y., & Elazouni, A. (2015). Enhanced heuristic for finance-based scheduling of construction projects. Construction Management and Economics, 33(7), 531-553. https://doi.org/10.1080/01446193.2015.1063676 Ghatak, M. (1999). Group lending, local information and peer selection. Journal of Development Economics, 60, 1, 27-50. Ghatak, M. (2000). Screening by the company you keep: Joint liability lending and the peer selection effect. The Economic Journal, 110(465), 601-631. https://doi.org/10.1111/1468-0297.00556 Hariga, M., El-Sayegh, S. M. (2011). Cost optimization model for the multiresource leveling problem with allowed activity splitting. Journal of construction engineering and management, 137(1), 56-64. Homberger, J. (2007). A multi‐agent system for the decentralized resource‐constrained multi‐project scheduling problem. International Transactions in Operational Research, 14(6), 565–589. https://doi.org/10.1111/j.1475-3995.2007.00614.x Homberger, J. (2009). A (μ, λ)-coordination mechanism for agent-based multi-project scheduling. OR Spectrum, 34(1), 107–132. https://doi.org/10.1007/s00291-009-0178-3 Javanmardi, A., Abbasian-Hosseini, S. A., Liu, M., Hsiang, S. M. (2018). Benefit of cooperation among subcontractors in performing high-reliable planning. Journal of Management in Engineering, 34(2), 04017062. Jiang, A., Issa, R. R. A., & Malek, M. (2011). Construction project cash flow planning using the pareto optimality efficiency network model. Journal of Civil Engineering and Management, 17(4), 510–519. https://doi.org/10.3846/13923730.2011.604537 Karlan, D. S. (2007). Social Connections and Group Banking. The Economic Journal, 117(517), F52–F84. https://doi.org/10.1111/j.1468-0297.2007.02015.x Kevane, M. (1996). Qualitative impact study of credit with education in burkina faso. Freedom from Hunger Research Paper No. 3, Davis, CA. Laan, A., Voordijk, H., & Dewulf, G. (2011). Reducing opportunistic behaviour through a project alliance. International Journal of Managing Projects in Business, 4(4), 660–679. https://doi.org/10.1108/17538371111164065 Liu, S., Shi, J., Wang, J., et al. (2009). The determinants of corporate bond yields. The Quarterly Review of Economics and Finance, 49(1), 85–109. https://doi.org/10.1016/j.qref.2007.10.006 Liu, S. S., & Wang, C. J. (2008). Resource-constrained construction project scheduling model for profit maximization considering cash flow. Automation in Construction, 17(8), 966–974. https://doi.org/10.1016/j.autcon.2008.04.006 Liu, S., & Wang, C. (2009). Two‐stage profit optimization model for linear scheduling problems considering cash flow. Construction Management and Economics, 27(11), 1023–1037. https://doi.org/10.1080/01446190903233111 Liu, S. S., Wang, C. J. (2010). Profit Optimization for Multiproject Scheduling Problems Considering Cash Flow. ASCE Journal of Construction Engineering and Management, 136(12), 1268-1278. Liu, Z., Wang, H., Li, H. (2018). Model of Equipment Sharing between Contractors on Construction Projects. J. Constr. Eng. Manage., 144(6), 2018. Liu, W., Zhang, J., & Liu, W. (2021). Heuristic methods for finance-based and resource-constrained project scheduling problem”. Journal of Construction Engineering and Management, 147(11), 04021141. Liu, W., Zhang, J., Liu, C., et al. (2023). A bi-objective optimization for finance-based and resource-constrained robust project scheduling. Expert Systems with Applications, 231, 120623. https://doi.org/10.1016/j.eswa.2023.120623 Perng, Y. H., Chen, S. J., & Lu, H. J. (2005). Potential benefits for collaborating formwork subcontractors based on co-operative game theory. Building and Environment, 40(2), 239–244. https://doi.org/10.1016/j.buildenv.2004.07.007 Peterson, S. J. (2013). Construction accounting and financial management (Vol. 2). Upper Saddle River, NJ, USA: Pearson. Rahman, M. M., Kumaraswamy, M. M. (2004). Contracting relationship trends and transitions. J. Manage. Eng., 4(147), 147–161. Stiglitz, J. E. (1990). Peer Monitoring and Credit Markets. The World Bank Economic Review, 4(3), 351–366. https://doi.org/10.1093/wber/4.3.351 Varian, H. (1990). Monitoring agents with other agents”, Journal of Institutional and Theoretical Economics. 146(2), 153-174. WEF (World Economic Forum). (2016). Industry Agenda: Shaping the Future of Construction, A Breakthrough in Mindset and Technology. Geneva, Switzerland: World Economic Forum (with Boston Consulting Group). Xu, J., Meng, J., Zeng, Z., et al. (2013). Resource Sharing-Based Multiobjective Multistage Construction Equipment Allocation under Fuzzy Environment. Journal of Construction Engineering and Management.



DOI: https://doi.org/10.24294/jipd.v8i5.3822

Refbacks

  • There are currently no refbacks.


Copyright (c) 2024 Sadegh Asgari, Joseph Chalhoub, Kaveh Moradi Dezfouli, Farzane Asgari

License URL: https://creativecommons.org/licenses/by/4.0/

This site is licensed under a Creative Commons Attribution 4.0 International License.