25 ESTABLISHING THE COST CONTRIBUTION OF SIGNIFICANT CASH FLOW FACTORS IMPACTING ON BUILDING PROJECTS PROFITABILITY E. A-G. Adjei, F. D. K. Fugar and E. Adinyira Kwame Nkrumah University of Science and Technology-Kumasi, Ghana Email: akoi26@yahoo.com Abstract: The competitive construction industry is vital to a nation’s economy. Low mark -ups are introduced by contractors in job biddings to afford chance of job acquisition. This results in cash flow challenges and profitability that lead to company failing. This paper tries to determine the cost contribution of established significant cash flow factors on building contracts to aid in the effective cash flow and profit management. Purposive and census sampling techniques were employed which resulted in 39 D1 contractors and a response rate of 87.18% was obtained. It was established that wages of labour and staff and replacement of defective work accounts for 26.75% and 3.53% respectively of contract sums. It was therefore established that projects are mostly financed with short-term loans from banks and contractors’ own financing due to late payment. Late payment issue motivates contractors to seek for various funding options and it was established that this contributes 20.44% average loss of projected profit and that affect quality delivery. Consequently, this results in defective works which was established to accounts for 3.53% of the contracts sum. The onus therefore rests on management to effectively manage these factors through application of suitable techniques to enhance profit through effective cost minimization. Keywords: Cost, profitability, cash flow, construction industry 1. INTRODUCTION Lee (2009) proffers that construction is a high-risk industry however an important sector of any national economy. Liquidity is the utmost significant resource for every construction firm is, with cash flow forecasting seeking to evaluate the distribution of expenditure and revenues of projects. Considerable profitability for any firm’s growth is vital but contractors experience challenges in meeting targeted profit (Akintoye and Skitmore, 1991). This is ascribed to the tremendously competitive atmosphere in which the industry runs, and contractors cannot survive without effective management (Liu et al., 2009). Consequently, contractors are influenced to present low profit margins in bids to compete within the industry (Mohamid, 2012) and this affects company liquidity. Studies have identified lack of liquidity and represents a major challenge towards the failure of construction projects and bankruptcy of construction companies (El-Kholy, 2014; Singh and Lakanathan (1992). The enhancement of profit has been shown by contractors through cost control measures to reduce cost and increase revenue (Chen and Chen., 2005). Construction managers has similarly been reported by Lee (2009) of paying limited attention to profit but rather contract sums relating to site and fixed costs which explain why only a third of medium-to-large companies make profits but are low on turnover and capital. The risks in cost of production underestimating makes contractors liable to the risk of failure though this may lead to the realisation profit in the long term. Several construction firms in the US fail as a result of impractical profit earned on projects executed (Halim, 2014). Profit margin reduction is informed to have an impact on the quality of delivery which later influences the industry’s contribution to the economy (Gundecha, 2013). Predictive models have been established on forecasting, planning and management in studies in the construction and other industries. Given that contractor cash flow shortages remain general and entrenched within the Ghanaian construction industry, this research aims to develop a model(s) of cash flow factors that predicts profit. In realizing this aim, the research objectives seek to: i) establish the cost contribution of identified significant quantifiable cash flow factors. An accompanying objective is to safeguard that such research contributes to conserving the invaluable contribution that the construction industry makes towards a nation’s economic prosperity 2. CASH FLOW AND LIQUIDITY IN THECONSTRUCTION INDUSTRY The construction industry is reported to be key to a nation’s economic health and contributes closely 7-10 percent of gross domestic product (GDP) value (Yong and Mustaffa, 2012). Approximately 7%, 8% and 5.5% within Europe, the United States and Turkey respectively of all