PROFIT MEASURES FOR CONSTRUCTION PROJECTS.pdfVIP

PROFI T MEASURE S FOR CONSTRUCTION PROJECT S By Tun g Au, 1 F. ASCE , an d Chri s Hendrickson, 2 A . M . ASCE ABSTRACT: The basic issues related to profit measure s of a construction project for the contractor are presented . Specifically, the problem of measuring gross operating profit and financing costs under fluctuating economic environments which has been heretofore inadequately treated in the literature of construction management is addressed . A framework for analyzing financing costs under different financial mechanisms , including the effects of overdraft and other bor- rowing arrangements , is presented . The general procedure is also applicable to the analysis of the effects of inflation and of work stoppages on profit. Finally, the cost of a project to the owner and the relationship between uncertainty and contract price from the views of both the owner and the contractor are consid- ered. INTRODUCTION The gros s profit for a construction project undertake n b y a contractor is commonl y measure d b y th e differenc e betwee n th e tota l incom e re - ceived an d th e tota l expens e incurre d in all tim e period s agree d upo n in th e construction contract . Despit e thi s convenien t measure , it i s als o well recognize d tha t th e term s of paymen t in th e contract affect th e cash flow profile of expense s an d incom e durin g th e life of a construction project (3) . However , eve n amon g th e mos t luci d treatmen t of text - book c