Application of Monte Carlo simulation with activity start times to determine cash flow parameters

Cash flow modeling is a very useful financial management tool that contractors use to run sustained business. The activities' start times are the inherent variables which determine the values of the periodical negative cumulative balance and the other cash-flow parameters. The Monte Carlo simulation technique has been employed here to generate schedules and their associated cash flow for a small project by randomly specifying the activities' start times within the range between their early and late start times. In addition to the randomness of the activities' start times, the simulation model considered the stochastic nature of the periodic cash in and cash out transactions by adjusting their values to account for the impact of 43 qualitative factors identified in an earlier study. Accordingly, two scenarios were defined each incorporating a different number of qualitative factors. The simulation outputs probability distributions for the project duration, the financing cost, maximum negative cumulative balance, and project profit. Generating random activities' start times in addition to considering the stochastic periodic cash in and cash out leads to a better accuracy of forecasting the cash flow parameters.