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Construction Accounting and Financial Management (05 - Old Edition)by Steven Peterson
A few years ago I was asked to teach a course on construction accounting and finance. The course was to cover the fundamental principles needed by construction managers to successfully manage the finances of construction companies. In preparing to teach this course I found that these principles were scattered among many disciplines, including business management, engineering economics, accounting, estimating, project management, and scheduling. After I reviewed the available textbooks, two things were apparent. First, the material was often presented in a generic fashion and failed to address how the principles applied to the construction industry. For example, in most accounting textbooks only a few pages were devoted to the accounting procedures for long-term contracts, which comprise a bulk of the projects for general construction companies. Second, with the topics scattered among many disciplines and textbooks, the topic of how the different components of construction financial management were interrelated and interacted was being ignored.
Financial management may be defined as the use of a company's financial resources and encompasses all decisions that affect a company's financial health. Many everyday decisions affect a company's financial health. The difference between a marginally profitable and a very profitable company is good financial management. Business schools teach the fundamental principles of financial management; however, because of the many unique characteristics of the construction industry, the usefulness of these financial principles as taught by business schools is limited. To be useful, these principles must be adapted specifically to the construction industry. For example, in the construction industry equipment is mobile and may be needed for multiple jobs during a single month. Traditional accounting methods and financial statements do not allow a company to properly manage and account for its equipment.
This book was written to help construction professionals-both those who are working in the construction industry and those seeking a degree in construction management—learn how the principles of financial management can be adapted to and used in the management of construction companies. This book will be most useful for general managers and owners of companies who are responsible for managing the finances of the entire company; however, many of these principles are useful to project managers and superintendents. For the project manager or superintendent who desires to stand out in a company, there is no better way than to improve the profitability of their project through the principles of sound financial management. The book also discusses how owners and general managers can manage construction projects- by sound management of their project managers, superintendents, and crew foreperson.
This book explains common financial principles, demonstrating how these principles may be applied to a construction situation and how these principles affect the financial performance of a company. Many of the examples included in this book are based on actual situations encountered by the author.
This book is organized in five parts: introduction to construction financial management, accounting for financial resources, managing costs and profits, managing cash flows, and making financial decisions.
After reading this book, you should have a better understanding of the following:
This textbook brings all of the key financial management principles needed by construction managers under one cover, addressing how they are applied in the construction industry and how they interact. Many of the examples in this book are based on my fourteen years of experience in construction financial management. Join me on a journey of discovery as we discuss the fundamental principles of financial management that are needed to make a construction company a financial success.
Particular thanks are due to Laura Lucas (Indiana University-Purdue University, Indianapolis), Jonathan Shi (Illinois Institute of Technology), and Brent H. Weidman (Brigham Young University) for their assistance with the text review.
Steven J. Peterson, MBA, PE
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