Study On Dynamic Model Of Profitability System In Construction Firm And Its Application

The construction industry has changed significantly due to accelerating ofglobalization, development of information technology and increased marketcompetition. China construction companies are harder to operate in the newsurroundings. In order to improve profit margin, they urgently demand to manage theirperformance more effectively to enhance competitiveness and increase company value.However, traditional management theory cannot meet the needs and constructioncompanies require innovative theory and method.As an attempt and exploration this study applies a new theory of system science toperformance management of construction firm, and proposes a process-based, systemic,dynamic, complex and adaptive profitability system. And this study develops a modelof the profitability system by System Dynamics to analyze the profitability ofconstruction firms. With profit chain as the core, this model includes basic units ofconstruction organization and several interest subjects. These units and subjects areinteractive and related to profit chain from many aspects, and thus have impact onrealization of profit and profitability of construction firm.With a typical medium contractor as simulating object, this study is mainlyconcentrated bidding, cash management and supply sub-systems in the profitabilitysystem. Based on the bidding system model, the simulation results indicate thatcurrently strategy of small profit but quick turnover for China construction firmactively influences the profitability. Path dependency exists in the bidding system, andstochastic disturbance in initial condition is amplified until it plays a significant impacton behavior of the profitability system. In addition, contractor generally needs toprovide tender bond and performance bond, therefore bond capacity limit lead toprofitability decrease. However, bidding agent can adjust bid pricing strategy bylearning to improve profitability. The outcomes of simulating cash management systemdemonstrate that the longer construction owner delay payment to contractor, theheavier contractor suffer financial loss. Though contractor can relieve the lack of cashby delay payment to labor and supplier, the loss brought by material discount may beheavy. Optimizing project schedule using an kind of improved genetic algorithm helpto increase project profit. Cash farming in multi-project cash management system isbenefit to save use cost of capital and raise the whole profitability of construction firm. As for supply system, simulation results show that instability of supply system cause toincrease of supply cost and weaken profitability, so stability management of supplysystem is very important for improving firm profitability. Optimization of inventorycontrol with dynamic storage model help construction firm to decrease inventory costand raise profit.