Parameter prediction for cash flow forecasting models

Abstract

The paper describes the application of the DHSS formula to 27 completed construction projects comprising four types - steel-framed low rise buildings, new build housing developments, housing refurbishment projects, and multi-house ‘pre-paint’ maintenance contracts. Application of the formula to individual projects indicates that the ‘best’ parameter values offer a ten-fold improvement over the published values based on project size. Similar results occur when using the best parameter values for other two parameter models.

Various approaches are considered in attempting to predict the best parameter values of the models based on known characteristics of the project. A multiple linear regression with project value, duration, and type independent variables is shown not to produce any significant improvement on standard DHSS formula predictions. However, a reduction in the number of independent variables by cross validation produces an approximately 25% improvement on standard DHSS formula forecasts outside the data base. Examination of the models derived from this analysis indicate the type of project to be of major importance.

Keywords:

• Cash flow
• forecasts
• project type
• regression
• cross validation