See

discussions, stats, and author profiles for this publication at: https://www.researchgate.net/publication/283338400

Educational Simulation in Construction Project

Financial Risks Management

Article in Procedia Engineering · December 2015

DOI: 10.1016/j.proeng.2015.10.089

CITATION READS

1 52

2 authors:

Augustin Purnus Professor Constanţa Bodea

Technical University of Civil Engineering of B… Bucharest Academy of Economic Studies
10 PUBLICATIONS 18 CITATIONS 63 PUBLICATIONS 110 CITATIONS

SEE PROFILE SEE PROFILE

Some of the authors of this publication are also working on these related projects:

http://startsopi.ase.ro/ View project

Higher Military Education View project

All content following this page was uploaded by Augustin Purnus on 22 January 2016.

The user has requested enhancement of the downloaded file.

 Available online at www.sciencedirect.com

ScienceDirect
Procedia Engineering 123 (2015) 449 – 461

Creative Construction Conference 2015 (CCC2015)

Educational simulation in construction project financial risks

management
Augustin Purnuúa*, ConstanĠa-Nicoleta Bodeabc
a
Technical University of Civil Engineering, 122-124, Lacul Tei Blvd., Bucharest, Romania
b
Bucharest University of Economic Studies, 6, Piata Romana, Bucharest, 010374. Romania
c
Centre for Industrial and Services Economics, Romanian Academy, 13, Calea 13 Septembrie Bucharest, Romania

Abstract

Construction sector is vulnerable to economic changes, especially during recession periods due to the high capital outlays, cost
flexibility and high competition limiting the price. The changes of the business environment, often associated with shortage of
funds, exchange rate fluctuation and political instability increase the construction projects financial risks. In this context, the
application of structured approaches related to the financial planning, scheduling and monitoring of the projects is even more
important. In order to execute these processes, the project managers should have the necessary competences. The development of
financial management competencies cannot be achieved into the classical educational settings, by using common methods of
knowledge transfer. Instead, the project financial management should be taught in active and experiential ways, stimulating
students to think creatively and to act properly as project managers. Education simulations are very valuable in this regards.
The paper presents the experience gained in the master program of Project Management in Construction held in the Technical
University of Civil Engineering Bucharest. Based on the main international project management competence standards and
relevant educational experiences, the authors designed a simulation platform. The paper presents the architecture and
functionality of this platform. A simulation scenario is presented as a case study.

©
©2015
2015The Authors.
Augustin Published
Purnus, by Elsevier Ltd. This
Constanta-Nicoleta is an Published
Bodea. open accessby
article underLtd.
Elsevier the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-review under responsibility of the organizing committee of the Creative Construction Conference 2015.
Peer-review under responsibility of the organizing committee of the Creative Construction Conference 2015

Keywords: knowledge management; educational simulation; project financial management

* Corresponding author. Tel.: +4-021-22402000; fax: +4-021-22402000.

E-mail address: [email protected]

1877-7058 © 2015 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-review under responsibility of the organizing committee of the Creative Construction Conference 2015
doi:10.1016/j.proeng.2015.10.089
450 Augustin Purnuş and Constanţa-Nicoleta Bodea / Procedia Engineering 123 (2015) 449 – 461

1. Introduction

Financial aspects of the construction projects represented always a major challenge for any construction
company, especially in changing economic settings. Due to the high project capital expenses, the low cost flexibility
and the high competition limiting the final prices, the construction sector is vulnerable during recession periods,
associated with shortage of funds, exchange rate fluctuation and political instability. Borghezi and Gaudenzi [1]
consider that the credit interest rate, currency and liquidity to be the main factors which generate financial risks in
construction projects. Hlaing et all [2] list the most relevant risk factors for the construction industry and the top four
are: the lack of financial resources of the contractor, the weak financial stability of the client, the costs overruns and
the contractor financial stability. Accepting too many risks, the construction companies become financially
vulnerable. The lack of cash during the project implementation, at both client and contractor levels leads to delays,
penalties and loss of opportunities, with a strong impact on the health of projects and organizations [3].

In 2014, KPMG [4] interviewed from more than 100 private and public organizations around the world, that carry
out significant capital construction activity. The analysis followed four dimensions of the project management
practices: preparation (the project planning and prioritizing and the talent management), project risk, controls and
governance (project control and project management information systems), project performance (dealing with
project failures and contingency planning) and leading relationships (collaboration between the owner and
contractor). Regarding the project financial management, as some of the main findings, we can mention: 84% of the
companies utilize financial and risk analysis to screen projects; 80% say the majority of capital projects are planned;
only 31% of all respondents’ projects came within 10% of budget in the past 3 years; 58% are lump sum (fixed
price) contracts. The type of contract which is the base of the relationship between the parties have significant
effects on the strategy the construction company will take in order to achieve it purposes in terms of cost, duration
and profit. Considering the project delivery strategies, 72% of the participants hold full competitive tenders when
awarding contracts. Despite some concerns about a lack of flexibility, the traditional design-bid-build approach
remains one of the two most popular project delivery strategies, enabling the owner to work with various suppliers
for different aspects of the project. One of the biggest concerns expressed by the survey participants is the accuracy
of the estimated costs before committing to the project. The survey findings indicate that bigger organizations
(which tend to have larger and more complex projects) are more likely to take a conservative view of contingency
levels. Over half of the respondents from this segment report that the typical range of contingency is greater than 10
percent of the total estimated cost.

In order to manage financial project risks, most of the companies are focusing on the individual project level that
does not reflect the overall risks at a corporate level. The simple sum of individual project’s risks can be
significantly different from the total risks of enterprise-wide perspectives [5]. The construction companies should
have capital budgeting and planning policies and procedures in place, a cross-functional capital review committee,
and a robust system for tracking and reporting across the portfolio. Several techniques from portfolio theory have
been proposed, in order to reduce turbulent risk exposures and maximize the total value of the company [6].

According to [7], the major processes of project financial management are: the financial planning (identifying
key financial issues to be addressed and assigning project roles, responsibilities and reporting relationships),
financial control (monitoring key influences and taking corrective measures when negative trends are recognized)
and administration and records (designing and maintaining a financial information database to enable financial
control to proceed in a smooth way). Executing these processes, the project management professionals should
address the associated risks, by identifying and assessing them, selecting strategies and implementing response
plans.

In order to manage the project financial risks, the professionals should have the necessary competencies. The key
project managers’ competencies are mainly associated with hard skills (the technical methods and tools application),
but soft skills (leading the people) should also be taken into consideration (such as: communication skills). The
development of the project financial risk management competencies cannot be achieved into the classical
 Augustin Purnuş and Constanţa-Nicoleta Bodea / Procedia Engineering 123 (2015) 449 – 461 451

educational settings, by using common methods of knowledge transfer. Instead, the project financial risks
management should be taught in active and experiential ways, stimulating students to think creatively and to act
properly as project managers. Education simulations are very valuable in this regards. Even if there are
recommended a large number of methods and tools to be used, only few of them are regularly applied during the
construction project life cycle and even fewer for managing project portfolio financial risks ([8], [9]). A very
common method is project cash flow analysis [10].

The paper is structured as follows: after the introductory part (section 1), section 2 presents the main
characteristics of developing the competencies for managing financial risks in construction projects. Section 3
presents a proposed simulation platform for teaching financial risk management in construction projects, based on
the experience gained in the master program of Project Management in Construction held in the Technical
University of Civil Engineering Bucharest. Conclusions are drawn in section 4.

2. Developing the competencies for managing project financial risks; using simulation as educational method

Project manager’s education and training in the project financial risks management subject means to develop the
required knowledge, skills and attitudes on project financial management, project risk management and project
portfolio management. Based on [7], [11] and [12] we identify several learning topics (table 1), which should be
considered when the curricula/syllabus is designed.
Table 1. Learning topics associated to the involved subjects

Project financial management Project risk management Project portfolio management (PoM)
Project financial management concepts Risk concepts (risk probability/distribution, PoM concepts (portfolio, portfolio
(financial management vs. costs project risks vs. business risks exposure, management, relationships among portfolios,
management, sources of funds, costs of impact, proximity, expected monetary programs, project and organisational strategy,
project financing, funding points, project value) PoM roles, POM stakeholders, PoMIS, Po
creditworthiness, cash flow measurement, Project risk processes (initiation, planning, governance, portfolio performance)
net cash flow, inflow, outflow, cash flow
executing, monitoring and controlling, Project PoM processes groups and
analysis) closing) interactions (defining, aligning and
Main project financial management Risk identification (risk sources, risk authorizing)
processes and interactions with other breakdown structure, risk register, risk PoM process implementation (assessing the
knowledge areas (costs, risks, time identification techniques) current state, defining PoM vision and plan,
management)
implementing PoM processes, improving PoM
Qualitative risk assessment (assessing the
Project financial planning (identification of probability and impact of project risks)
processes)
financial needs, understanding the contract Portfolio strategic management (developing
requirements, estimating financing costs, Quantitative risk assessment (assessing the
probability and impact of project risks) portfolio strategic plan, portfolio charter,
establishing the financing points, sensitivity portfolio roadmap and managing strategic
analysis, developing and testing the Selecting strategies and implementing change)
financial project plan, assigning response plans to address project risks (risk
responsibilities) Tools and techniques for PoM (for elicitation,
owner, individual risk profiles, response
strategy and plan, residual risks, structure analysis, component categorization,
Project financial control (monitoring key portfolio review, weighted ranking and scoring,
influences and taking corrective measures contingency and fall back plans)
quantitative and qualitative analysis, capability
when necessary) Administration and Interpersonal skills in project risk and capacity analysis, scenario analysis, value
records (designing and maintaining a management (involvement and influencing scoring and measurement analysis, benefit-
financial information database) of others, communication) realization analysis)
Interpersonal skills in project financial Evaluate and monitor risks, opportunities Interpersonal skills in PoM (communication)
management (involvement and influencing and implemented responses
of others, communication)

These topics are grouped into several training modules, aiming the development of the following knowledge and
skills types: subject-specific skills (related to processes and methods), systemic skills (skills closing the gap between
theory and practice) and generic (subject-independent) skills, such as: interpersonal and instrumental skills.
452 Augustin Purnuş and Constanţa-Nicoleta Bodea / Procedia Engineering 123 (2015) 449 – 461

According to this typology of skills, we can identify the following four categories of modules in the courses on
this subject:

x Core modules (groups of topics which make up the backbone of the respective subject)
x Specialized modules (list of topics of which participants want to understand to a larger extent). A special
specialized module is the transferable skills module (e.g. work experience / practice, projects, dissertation,
business games, etc.)
x Modules on interpersonal skills, such as: module on communication skills.
x Support (instrumental) modules, such as: mathematics, statistics, Information Technology (list of topics which
complement those included in the core modules);

The learning outcomes are the statements of what the participants are expected to know, understand and be able
to perform at the end of the course/module. The learning outcomes are defined in terms of competencies which will
be developed or enhanced by the course/module. Alignment to the international/national qualification frameworks
and professional standards is an important constraint in defining learning outcomes. The Biggs’s constructive
alignment principle [13] requires that the learning outcomes determine what teaching and assessing methods have to
be applied. The different complexity of cognitive skills [14] to be developed requires different teaching approaches.
Table 2 shows recommended teaching and assessing methods for the teaching the subject Project financial risk
management.
Table 2. Recommended teaching and assessing methods for the subject Project financial risks management

Complexity of the cognitive skills (based on Recommended teaching methods Recommended assessment methods
Bloom’s taxonomy)
Lower complexity Lecture, Visuals (audio, video) Presentations, Participation in learning
(Remembering and understanding levels in presentations, Examples/illustrations, activities, Exam
Bloom’s taxonomy) Guest Speakers, Discussion groups,
Presentations writing, Assessment
reports

Medium complexity Practice demonstrations, Presentations, Participation in learning

Simulations, Role play, Discussion activities, Assignments, Exam, Project
(Applying and analyzing levels in Bloom’s
taxonomy) groups, Case studies, Assessment reports, Group work, Essays
reports, Problems, Case studies,
Critiques

High complexity Practice, Problems, Case studies, Essays, Extended writing

Creative exercises, Brainstorming
(Evaluating and creating levels in Bloom’s
taxonomy) sessions, Simulations

Simulation technologies represent powerful educational tools that are becoming widely used due to their
effectiveness in providing valuable learning experiences. Simulations performed during the training sessions are
referred as educational simulations, in order to differentiate them from other simulation types, such as: experiments
for decision support, entertainment and imitation [15]. Recommendations, guidelines and procedures were defined
for a good educational simulations implementation. Heineke and Meile [16] consider that for simulations to be
effective, they should provide an “aha” effect (the insight gained should be unknown before simulation take place);
they should require students to generate date instead to receive date; they should be less stressful and use simple
materials. The teacher must be very well prepared in running the simulation sessions. The teachers have to adopt a
less intrusive role in student learning process, acting more as coaches, and not as instructors.
 Augustin Purnuş and Constanţa-Nicoleta Bodea / Procedia Engineering 123 (2015) 449 – 461 453

Students typically support the games and simulations usage, rating these methods quite highly in their list of
preferences. Students reported that the simulations developed their abilities to solve problems systematically,
perform forecasts in uncertain environments and to measure objectives. Klassen and Willoughby [17] applied two
assessment instruments: before and after questionnaires and playing the game twice, to see if student performance
improved the second time. The simulation games provide good learning experiences because students make
decisions, and after that, they make further decisions based on the first results. The students better remembered the
educational material learned from games than a classical lecture. This might be the most important reason for using
games in the classroom. Besides this, the students developed positive feelings toward the course, improving the
chance of paying attention and learning even during other class sessions ([18], [19]).

The usage of educational simulation in German universities and institutions of higher education in the field of
construction industry is described in [20]. According to this research, the business games and educational
simulations are mostly used for students in advanced phases of bachelor programs or master programs. The
competency-orientation in curricula development could enhance the content-related quality of the educational
simulation. The methodological competency, the awareness of relationships and the transfer of subject-specific
competency were identified as being the most important ones in designing the educational simulation applied in
German universities. As most relevant examples of educational business games and simulation products are
considered: Bauwirtschaft, Unternehmensplanspiel Bau, BawiPLAN, Unternehmensplanspiel, Virtual Construction
Company Competition, TOPSIM Project Management and Easy Start-Up. In [21] and [22], there are reported
excellent results in implementing e-learning solution in construction management programmes.

3. Developing a Simulation Platform for Teaching Construction Project Financial Risks Management

3.1. The Architecture of the Simulation Platform

The objective of the educational simulation in construction project financial risks management is to contribute to
the development of students’ competencies in this subject. Graphical features of the tools used in the learning
process allow the students to understand and to apply the recommended concepts, tools and methods. The visual
mechanism of the educational simulation is developed from the contractor perspective and consists of several
components for project financial risks management. The business logic for the educational simulation is the
following:

The project portfolio structure and the details projects are presented and discussed with the students. They get
information regarding the projects description, the construction company capabilities, its position on the market,
project stakeholders, assumptions and constraints, the type of contracts (based on measured quantities or lump sum),
duration and the payment conditions.

Organized in teams, the students analyzes each project from all aspects related to scope, time, resources, cost,
contract conditions of payments during the projects execution and those related to risk identification and
prioritization and risk response plan. Based on the project’s specific technology, the student’s teams establish the
activity level of detail and identify the construction processes to be performed. Once the activities sequence is
defined, they estimates the needed resources according the volume of work and productivity, in order to fit the
project duration within the contractual terms, and analyze the effect of limited resources on the execution terms.
Based on historical information and databases, the students estimates the cost of resources and develop each project
budgeting. According the contract clauses related to payment of works, they develop the schedule of payments and
generate each project cash-flow. After that, the student’s teams identify and prioritize the risk events, developing
each project risk response plan. With this information, the student’s teams define three project scenarios: optimistic,
most probable and pessimistic, which will be used after that in risk quantification using Monte Carlo method.
454 Augustin Purnuş and Constanţa-Nicoleta Bodea / Procedia Engineering 123 (2015) 449 – 461

Having these results, all the student’s teams participate in the aggregation of projects into the project portfolio on
all three scenarios, identifying and analyzing the need of resources for projects completion and developing the
portfolio cash-flow. Each student’s team has now as aim the development of financing and return of financing
scenarios in order to get a project portfolio cash-flow always positive, thereby providing complete support in
performing all the projects within the project portfolio. This is intended to establish both the time and the amount of
funding for covering the projects implementation in each time period and respectively the time and the amount of
return of funding. The result is represented by the combined cash-flow of cost, incomes, financing and return of
financing which must be always positive.

With the three project portfolio scenarios resulted from the aggregation of the optimistic, most probable and
pessimistic projects scenarios and applying Monte Carlo method, the student’s teams will establish the amount of
financing with a reasonable probability to be achieved in order to ensure the implementation of all projects within
the contractual terms. Such information is very useful in decision making, allowing the student’s teams to establish
the priorities for sustaining the projects both with physical resources and mostly with funding’s.

The figures 1 and 2 present the detailed business and technique architecture, at project and portfolio levels.

analysis Proj ect Analysis Phase

Existing
Knowledge about
Project
Advices
Management
«trace»
eLearning Simulation
Team Project Adviser (Role) Student Group
Platform (Actor)

Platform Input Information

Information about Company Team Project (Role)

Realizes Execution Time (Artefact)

Information about Project
Development
Environment Project Project Analysis Phase
Information Optimistic Scenario
Input (Artifact)
Information about Legal 1.Project Analysis 2.Establish and 3.Resources
Issues based on Input Data Schedule Activities Estimation

Information about
4a. Activities 4b.Resource Limitation 5. Cost Estimation
Other Aspects Most Probably
Scheduling Effects over the Deadlines. and Project Budget
Scenario
(Artefact)

6.Payment and 7.Risk Events and 8. Scenarios

Costs Plan Uncertainties Identification Design

Pessimistic
Scenario
(Artifact)

Risk Answer
Plan (Artefact)

(a) The first phase of the simulation (at the project level)
 Augustin Purnuş and Constanţa-Nicoleta Bodea / Procedia Engineering 123 (2015) 449 – 461 455

class Proj ect Portfolio Analysis Phase

Optimistic Scenario Portfolio

Information about Amount of Money
1.Financial Scenario Required by the Portfolio

Result - Combined
Information about Information about Cash Flow
2.Financial Return Pozitive Cash Financing Time Terms Costs / Income based on
Funds Scenario Flow Graphic Realized Activities / Financing
/ Financing Return
Team Project 1 M ost Probably Scenario Portfolio

Student Group Information about Financing

1.Financial Scenario Time Terms

Information about Amount of

2.Financial Return Positive Cash Money Required by the
Flow Graphic Portfolio Result - Combined Information
Funds Scenario about Cash Flow Costs /
Team Project N
Income based on Realized
Pessimistic Scenario Portfolio Activities / Financing /
Student Group N
Financing Return
Information about Financing Time
Terms
1.Financial Scenario

Information about Amount of

Positive Cash Money Required by the
2.Financial Return
Flow Graphic Portfolio
Funds Scenario

Result - Combined
Information about Cash Flow
eLearning Simulation Team Project Adviser Costs / Income based on
Platform Realized Activities / Financing
/ Financing Return

(b) The second phase of the simulation (at the project portfolio level)

Fig.1 The Detailed Business Architecture

Fig.2 Technological architecture of the simulation platform

3.2. Simulation scenario: a Case Study

For any construction company the projects and projects portfolio financial aspects under the risk and
uncertainties represents a real challenge. One major issue is to find an optimal or closed to optimal solution for
ensuring financing and return of financing in such way the project portfolio cash-flow is always positive and to
quantify the amount of financing for a reasonable probability under risk and uncertainties conditions. For this
reason, the student’s preparation in the master’s degree program aims to achieve multiple skills aligned to project
management best practices.
456 Augustin Purnuş and Constanţa-Nicoleta Bodea / Procedia Engineering 123 (2015) 449 – 461

Such a case study is presented further. The project portfolio is consisted on several different type of construction
works, including the construction of waste water plants, two rehabilitation of water supply and waste water network
and one the rehabilitation of a road, on a total duration of 36 months.
The projects parameters – duration, contract price and estimated profit – are presented in the table 3:
Table 3. Projects parameters

Project Duration Contract Price Estimated Profit

(Euro) (Euro)
Project 1 21 months 12,415,171 620.758
Project 2 14 months 9,350,193 467.509
Project 3 24 months 4,461,781 204.608
Project 4 18 months 8,971,046 427.192
Portfolio 36 months 35,198,191 1.720.069

The project portfolio Gantt chart is shown in Fig. 3.

2014 2015 2016 2017

Name
I F M A M I I A S O N D I F M A M I I A S O N D I F M A M I I A S O N D I F M
Portfolio
Project 1
Project 2
Project 3
Project 4

Fig.3 Project Portfolio Gantt chart

Each project is analyzed from scope, time, resources and cost point of view. The project’s cash flows are
developed taking into account the contractual clauses related to payment of works. In fig. 4 are shown the results of
the cash flows for each project, consisted from the combination of costs with scheduled payments.
 Augustin Purnuş and Constanţa-Nicoleta Bodea / Procedia Engineering 123 (2015) 449 – 461 457

Project 1 Project 2
1,000,000 1,000,000

0
0
-1,000,000
-1,000,000
-2,000,000
-2,000,000 -3,000,000

-3,000,000 -4,000,000

-5,000,000
-4,000,000
-6,000,000
-5,000,000
-7,000,000

-6,000,000 -8,000,000

Project 3 Project 4
250,000 1,000,000

0 0

-250,000 -1,000,000

-500,000 -2,000,000

-750,000 -3,000,000

-1,000,000 -4,000,000

-1,250,000 -5,000,000

-1,500,000 -6,000,000

-1,750,000 -7,000,000

-2,000,000 -8,000,000

Fig.4 Projects Cash Flow

Analyzing the projects cash-flow, we can conclude that construction projects involve a tremendous financial
effort. The peak of cash-flow varied from project to project based on the nature of works and the contractual clauses,
as shown in the table 4.
Table 4. Projects peak of cash-flow

Project Peak of Cash-Flow Weight

(Euro)
Project 1 5,876,473 47.33%
Project 2 7,918,731 84.69%
Project 3 2,021,374 45.30%
Project 4 7,594,419 84.65%

With peak of cash-flow varied from 45% to almost 85% from the contract price, the construction projects are a
real challenge from financial point of view. However, aggregating the projects into the project portfolio may balance
these weights due to the different time distribution of the component projects.

Aggregating the optimistic, most probable and pessimistic project’s scenarios, we obtain three project portfolio
scenarios which will be used in quantifying the amount of needed financing with a reasonable probability to be
achieved in order to ensure the implementation of all the projects in contractual terms.

For the most probable project portfolio scenario the cash-flow is presented in fig. 5.
458 Augustin Purnuş and Constanţa-Nicoleta Bodea / Procedia Engineering 123 (2015) 449 – 461

Portfolio Cash-Flow
3,000,000

1,000,000

-1,000,000

-3,000,000

-5,000,000

-7,000,000

-9,000,000

-11,000,000

-13,000,000

-15,000,000

Fig.5 Project Portfolio Cash Flow

The project portfolio cash-flow is consisted from each project total cost (material, manpower, equipment,
transport and overhead), the profit and the incomes resulted from the schedule of payments. For the most probable
project portfolio scenario the peak of cash-flow is 14,317,383 Euro, representing 40.68% from all the contract price.

An always positive profile of the cash-flow at the project portfolio level which will ensure the implementation of
all the projects involve an iterative process of establishing both a financing from internal or external sources and
return of financing. For the time periods when the cash-flow has a descending trend, there will be established the
time and the amount of funding able to cover the cost of works, while for the time periods when the cash-flow has
an ascending trend, there will be established the time and the amount of the return of financing.

The results of this iterative process representing both the time and the amount of financing and return of
financing are shown in fig. 6.
2,000,000
Financing
1,000,000

-1,000,000

-2,000,000
Return of Financing
-3,000,000

-4,000,000

-5,000,000
27-01-14
27-03-14
27-05-14
27-07-14
27-09-14
27-11-14
27-01-15
27-03-15
27-05-15
27-07-15
27-09-15
27-11-15
27-01-16
27-03-16
27-05-16
27-07-16
27-09-16
27-11-16
27-01-17
27-03-17

Fig.6 Portfolio Financing and Return of Financing

The cumulative curves of financing and return of financing together with the project portfolio cash-flow are
shown in fig. 7. The financing cumulative curve covers in fact the project portfolio cash-flow when it has a
descending trend, while the return of financing cumulative curve is overlapping with the time period when the cash-
flow trend is ascending.

Consolidating the total cost of all the projects and the estimated profit with the incomes from schedule of
payment together with the financing and return of financing resulted from the iterative process, we will obtain the
combined cash-flow of the project portfolio. The results are presented as a graph (fig. 8) always positive,
representing a feasible and reasonable scenario for projects implementation both technical and financial.
 Augustin Purnuş and Constanţa-Nicoleta Bodea / Procedia Engineering 123 (2015) 449 – 461 459

The optimistic, most probable and pessimistic project portfolio scenarios are used to quantify the amount of
financing for a reasonable probability to be achieved.
For this purpose Monte Carlo method is applied with sufficient number of iterations in order to ensure the
convergence of results.

15,000,000

12,500,000

Financing
10,000,000

7,500,000

5,000,000

2,500,000

-2,500,000

-5,000,000

-7,500,000
Portfolio Cash Flow Return of Financing
-10,000,000

-12,500,000

-15,000,000

Fig.7 Portfolio Cash-Flow and Cummulative Financing and Return of Financing

3,250,000
3,000,000
2,750,000
2,500,000
2,250,000
2,000,000
1,750,000
1,500,000
1,250,000
1,000,000
750,000
500,000
250,000
0

Fig.8 Portfolio combined Cash-Flow: financing, income from payments, costs and return of financing

The probability distribution and cumulative curve for our case study is shown in fig. 9.

100.00% 45

90.00% 40
80.00% 35
70.00%
30
60.00%
25
50.00%
20
40.00%
15
30.00%

20.00% 10

10.00% 5

0.00% 0
13,919,701
13,961,746
14,003,790
14,045,835
14,087,880
14,129,925
14,171,970
14,226,667
14,266,667
14,306,667
14,346,667
14,386,667
14,426,667
14,466,667
14,506,667
14,413,333
14,573,333
14,626,667
14,666,667
14,706,667
14,746,667
14,800,000
14,843,226
14,886,451
14,929,677
14,972,902
15,016,128

Fig.9 Cummulative probability curve for portfolio financing

460 Augustin Purnuş and Constanţa-Nicoleta Bodea / Procedia Engineering 123 (2015) 449 – 461

Analyzing the results of risk quantification, for a reasonable probability of 75% which allows to cover the
technical and financial risks and uncertainties, the total amount of financing is 14,500,000 Euro. Having sources for
financing this amount of money will ensure the implementation of project portfolio within the contractual terms.

4. Conclusions and future work

Presenting high financial risks due to their complexity, the construction projects require competent project
managers with skills and knowledge in project financial risks management. The classical approach in education,
based on traditional methods for knowledge transfer has clear limits. The active and experiential way, stimulating
the students to think creatively and to act properly as project managers brings value in their education. The
experience gained in the master program of Project Management in Construction held in the Technical University of
Civil Engineering, Bucharest, shows that educational simulations in construction project financial management
contribute to the development of students’ competencies in this area. Using graphical features of the tools in the
learning process allow the students to understand and to apply the concepts, tools and methodologies used in project
financial risks management. As future work, we consider to enrich the collaborative environment for simulations.

References
[1] A. Borghesi, B. Gaudenzi, Risk Management: How to Assess, Transfer and Communicate Critical Risks, Springer, Milan, 2013.
[2] N.N. Hlaing, D. Singh, R.L.K. Tiong, M. Ehrlich, Perceptions of Singapore construction contractors on construction risk identification,
Journal of Financial Management of Property and Construction, vol. 13, no. 2, pp. 85-95, Emerald Group Publishing Ltd., 2008.
[3] A. 3XUQXúC.N. Bodea, Project prioritization and portfolio performance measurement in project oriented organizations, Procedia - Social and
Behavioral Sciences, 27th IPMA World Congress, 119(2014), pp. 339–348, Elsevier Ltd, DOI: 10.1016/J.SBSPRO.2014.03.039, ISSN:
1877-0428.
[4] KPMG International, Climbing the curve, Global Construction Survey 2015”, KPMG International Cooperative available at:
http://www.kpmg.com/global/en/issuesandinsights/articlespublications/global-construction-survey/pages/global-construction-survey-
2015.aspx (accessed 10 May 2015).
[5] A. 3XUQXú C.N. Bodea, Correlation between Time and Cost in a Quantitative Risk Analysis of Construction Projects, Procedia Engineering,
Volume 85, Pages 436-445, Elsevier Ltd, 2014.
[6] S.H. Han, J.E. Diekmann, Y. Lee, J. H. Ock, Multicriteria Financial Portfolio Risk Management for International Projects, Journal of
construction engineering and management, May/June, 2004.
[7] Project Management Institute, Construction extension to the PMBOK® Guide Third edition, Project Management Inc., 2007.
[8] S. Marttonen, Creating risk measurement model to project portfolio management in construction company, Lappeenranta University of
Technology, School of Industrial Engineering and Management, Tampere, 2014.
[9] A. 3XUQXú C.N. Bodea, A probabilistic approach of construction project financial management, Creative Construction Conference, Budapest,
2013, pp.649-660.
[10] T. Zayed, Y. Liu, Cash flow modeling for construction projects, Engineering Construction and Architectural Management, Vol. 21, No. 2,
2014, pp. 170-189, Emerald Group Publishing Ltd.
[11] Project Management Institute, The Standard for Project Portfolio, Third Edition, Project Management Inc., 2013.
[12] International Project Management Association, International competence baseline, V.4, 2015.
[13] J. Biggs, Teaching for Quality Learning at University – What the Student Does 2nd Edition SRHE / Open University Press, Buckingham,
2003.
[14] L.W. Anderson, D.R. Krathwohl, A Taxonomy for Learning, Teaching and Assessing: a Revision of Bloom’s Taxonomy. New York.
Longman Publishing, 2001.
[15] T. Orehn, Modeling and simulation: a comprehensive and integrative view, in: Yilmaz L., Oren T. (eds): Agent-based Simulation and
Systems Engineering, Wiley-VCH, GmbH&Co, KgaA, Weinheim, 2009.
[16] J. Heineke, L. Meile, Classroom service game, Decision Science Institute Annual Meeting, November, 2000.
[17] K. Klassen, K.A. Wiloughby, In class simulation games: assessing student learning, Journal of Information Technology Education. Vol. 3.
2003.
[18] T. Korman, M. Kasensky, O. Drnek, K. Rahn, Using Simulations to better train future and existing Construction Management personnel,
Proceedings of the Creative Construction Conference, 21-24 June, 2014, Prague.
[19] J. Zimmermann, W. Eber, Development of key performance indicators for organizational structures in construction and real estate
management, Proceedings of the Creative Construction Conference, 21-24 June, 2014, Prague.
[20] C.K. Karl, Simulation and Gaming in Construction; Business, Design of a module-oriented modeling approach based on system dynamics
and its prototypical implementation in research and education, PhD Dissertation, Department of Engineering Sciences, University of
Duisburg-Essen, Germany, 2014.
 Augustin Purnuş and Constanţa-Nicoleta Bodea / Procedia Engineering 123 (2015) 449 – 461 461

[21] Bokor,O., Hajdu, M. (2014). Teaching Construction Management Core Subjects with the Help of eLearning, Proceedings of the Creative
Construction Conference, 21-24 June, 2014, Prague, ISBN: 978-963-269-434-4.
[22] Bokor,O., Hajdu, M. (2014). Writing E-Learning Materials for Construction Management Subjects, Procedia - Social and Behavioral
Sciences, 119, 758 – 765.

View publication stats