Tinaye Mahohoma, Financial management skills as enabling factor in project performance of small business in the construction industry in Gauteng Province: theoretical and practical implications (2024)

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Article by Tinaye Mahohoma of the Department of Town and Regional Planning at Durban University of Technology, published in the International Journal of Business Ecosystem & Strategy 6(6) (2024), 243-253, on financial management skills as an enabling factor in project performance of small construction businesses in Gauteng Province. It concentrates on BCO Construction in Johannesburg and identifies competencies including liquidity management, sustaining profitability and use of Net Present Value (NPV) and Earned Value (EV) management. The findings report that the absence of trained financial personnel, ineffective payment systems and liquidity issues are substantial obstacles, intensified by variable interest rates and regulatory change during the COVID-19 pandemic. The study used standardized questionnaires with eighty participants, analysed in SPSS version 29.

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INTERNATIONAL JOURNAL OF BUSINESS ECOSYSTEM & STRATEGY 6(6) (2024), 243-253

Business Ecosystem & Strategy
IJBES VOL 6 NO 6 (2024) ISSN: 2687-2293
Available online at www.bussecon.com
Journal homepage: https://www.bussecon.com/ojs/index.php/ijbes

Financial management skills as enabling factor in project performance
of small business in the construction industry in Gauteng Province:
theoretical and practical implications
Tinaye Mahohoma (a)*
(a)
Post Doc Fellowship, Department of Town and Regional Planning, Durban University of Technology, cnr Steve Biko Rd & Botanic Gardens Rd
Durban 4001 P O Box 1334. Durban 4000, South Africa

ARTICLE INFO ABSTRACT

Article history: The study significantly enhances the current literature by highlighting the importance of financial
management skills in the success of MSMEs, especially in the context of small construction firms
functioning under unstable and uncertain economic conditions. It offers insights on how effective
Received 18 July 2024 financial management can alleviate the negative impacts of economic uncertainty, including variable
Received in rev. form 29 Sept 2024 interest rates and regulatory modifications, which were intensified by the COVID-19 pandemic. This
Accepted 08 October 2024 study concentrates on BCO Construction in Johannesburg, examining the distinct financial issues
encountered by small construction firms and the potential solutions through improved financial
Keywords: management strategies. The research delineates numerous vital financial management competencies
needed for project accomplishment. This encompasses the capacity to manage liquidity efficiently,
Financial Management, Project sustain profitability, and utilize financial instruments such as Net Present Value (NPV) and Earned
Performance, Construction Industry, Value (EV) management. It emphasizes the significance of abilities in managing financial leverage,
which can facilitate the attainment of project objectives within budgetary and temporal limitations.
Financial Literacy, Strategic Planning. The findings indicate that the absence of trained financial personnel, ineffective payment systems, and
liquidity issues are substantial obstacles for BCO Construction. Consequently, it is advisable to tackle
JEL Classification: these difficulties through specialized financial literacy and management training to enhance overall
M1, M2, M4 project performance. The study employs a quantitative methodology, including standardized
questionnaires administered to eighty (80) participants to gather data regarding the problems and
competencies required for financial management in building projects. The analysis conducted with
SPSS version 29 indicates that enhancing communication channels, integrating strategic financial
planning, and implementing thorough training programs are essential for aligning financial objectives
with overarching corporate goals. This alignment is essential for optimizing resource allocation,
guaranteeing financial stability, and improving competitiveness in the construction sector.

© 2024 by the authors. Licensee Bussecon International, Istanbul, Turkey. This article is an open access
article distributed under the terms and conditions of the Creative Commons Attribution 4.0
International license (CC BY) (http://creativecommons.org/licenses/by/4.0/).

Introduction
It has long been known that small and medium enterprises (SMEs) play an important role in economic growth and income distribution
in the world's major economies. It is widely recognized that SMEs not only play a role in the business environment but are also
important for the country's economic stability (Afthanorhan et al., 2019). Afthanorhan et al. (2018) show that SMEs also create
employment opportunities for people, leading to income generation and distribution. In many countries, small and medium-sized
enterprises account for more than 90% of business enterprises; for example, 99.7% of entrepreneurial organizations in the United
States are small or medium-sized businesses (Shams et al., 2018). According to the Small Business Development Agency (SEDA)
(2018), SMEs are also recognized globally as a key source of innovation and flexibility, thus playing an important role in creating
sustainable jobs. However, the failure rate of SMEs in South Africa is about 75% (Fatoki & Odeyemi, 2010).
Due to globalisation, the fourth industrial revolution and increased competition from multinationals, South African SMEs face new
challenges in measuring their performance. The result can also be called business success. To respond to these challenges, SMEs

* Corresponding author. ORCID ID: 0000-0003-1899-6339
© 2024 by the authors. Hosting by Bussecon International Academy. Peer review under responsibility of Bussecon International Academy.
http://dx.doi.org/10.36096/ijbes.v6i6.585
T. Mahohoma, International Journal of Business Ecosystem & Strategy, 6(6), (2024) 243-253

must adopt efficient and effective performance measurement models. SME performance measures have been widely debated by
scholars and practitioners for the past three decades. There is little agreement among researchers on the purpose of entrepreneurship,
which leads to variations in definition and measurement from country to country. Traditionally, small and medium businesses in the
South Durban area prioritized financial indicators for business success and subjective or non-financial indicators such as market
share, customer satisfaction, sales volume, cash flow or new product development are not used. With limited knowledge of how to
measure company success, SMEs in the South Durban region of South Africa called for this study, a comprehensive approach to
measuring the performance of small and medium enterprises (SMEs).
To compete in a constantly changing environment and maintain a competitive advantage, it is important for small businesses to
understand and monitor their company's operations. An effective performance management system (PMS) is essential to help
organizations improve operational efficiency. Interestingly, research conducted by Neneh and Van Zyl (2012) in South Africa shows
that, among other business practices, proper performance measurement increases the competitive advantage of SMEs (Neneh & Van
Zyl, 2012). There is a real need for SMEs in SA to use modern performance measurement systems, which will increase the success
rate of SMEs and thus lead to increased business performance. To do this, a practical PMS design and implementation framework
for SMEs in South Africa is needed. However, currently, according to the researchers, there is no such performance measurement
framework. This study aims, among others, to close this gap in the literature.

Looking at the various literature related to small business performance, it may be reasonable to assume that small business
performance is synonymous with success and growth. Therefore, business performance, success, and growth are considered
synonymous because they are measured by similar indicators, such as survival, profitability, return on investment, sales growth,
headcount, employee happiness and reputation. Consequently, the terms productivity, success and growth can be used
interchangeably in the small business context.
The purpose of this research is to provide an alternative, multidimensional model of measuring the performance of SMEs. This is
based on different aspects of SMEs that are different from companies. This performance measurement model is a complete model
that has not been extensively researched in SMEs. This research is expected to be in line with the size of the performance measures
used before, especially non-financial indicators, and will be the agenda for future research. The objectives of this research were to
explore the various financial and non-financial dimensions employed by SMEs in measuring performance; to ascertain the
association between the business age and performance of SMEs; to determine the link between business size and the performance of
SMEs, and to provide recommendations that may improve the performance measurement of SMEs.
This paper is organized as follows: following the introduction part, a second part is a literature review with theoretical and empirical
studies that shed a light on linkage between theory and practice. The third part introduces the background information on research
and methodology. After analysis and findings of the study, authors provide discussions and implications. Finally, this paper concludes
with key points, recommendations, future research directions and limitations.

Literature Review
Theoretical and Conceptual Background
The relationship between financial management skills and project performance in the construction industry can be effectively
analyzed through the lens of the Resource-Based View (RBV) theory. The RBV theory posits that firms can achieve a sustainable
competitive advantage by strategically managing and utilizing their internal resources and capabilities (Barney, 1991; Purnomo,
2024). In the context of BCO Construction, financial management skills represent a critical internal resource that can significantly
influence project performance.
Resource-Based View (RBV) Theory
The RBV theory highlights the importance of resources that possess the qualities of being valuable, rare, inimitable, and non-
substitutable (VRIN) in order to gain a competitive advantage (Barney, 1991). Financial management skills within this framework
encompass the capacity to produce precise financial statements, create thorough budgets, efficiently handle cash flows, maintain
meticulous record-keeping, and improve financial literacy (Amankwah-Amoah, Danso, & Adomako, 2019; Boso, Story, & Cadogan,
2019). These abilities empower companies to make well-informed financial choices, therefore enhancing project results and overall
business effectiveness.
Efficient financial management enables the most efficient use of resources, guaranteeing that projects are finished within the allocated
budget and schedule (Fatoki, 2020; Abor & Quartey, 2010). The efficiency in allocating resources has a direct impact on project
performance by lowering costs and preventing delays. Effective financial management procedures aid in the identification and
reduction of financial risks, guaranteeing consistent cash flows throughout the duration of the project (Amankwah-Amoah, Danso,
& Adomako, 2019; Polisetty et al, 2021). Ensuring stability is essential for preserving connections with subcontractors and suppliers,
so averting any interruptions in project implementation. Managers that possess financial literacy and management abilities are able
to make strategic decisions that improve the competitive position of the organisation (Boso, Story, & Cadogan, 2019; Fatoki, 2020).

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Developing effective payment systems helps optimise processes and enhance stakeholder confidence, resulting in enhanced project
performance.
Although the RBV theory offers a strong foundation for comprehending the influence of financial management abilities on project
performance, there are several gaps that require additional investigation. The majority of research has concentrated on developed
economies, resulting in a lack of comprehension regarding the impact of financial management skills on project performance in
developing contexts such as South Africa (Abor & Quartey, 2010; Polisetty et al, 2021). Further investigation is needed in the realm
of financial technologies (FinTech) and their incorporation into financial management practices. The precise impact of these
technologies on financial management abilities and project performance is not yet comprehensively known (Amankwah-Amoah,
Danso, & Adomako, 2019). Financial management skills are essential, but the importance of implementing comprehensive training
and development programmes for both managers and personnel is often disregarded. Comprehensive plans that combine financial
management with broader organisational growth are necessary (Fatoki, 2020; Boso, Story, & Cadogan, 2019).

The Resource-Based View (RBV) hypothesis offers a beneficial framework for assessing the influence of financial management
skills on project performance within the construction sector. By utilising these skills as strategic assets, companies such as BCO
Construction may enhance project results, efficiently handle risks, and attain a competitive edge. Nevertheless, it is crucial to address
the identified gaps by conducting research that is specific to the context, integrating technology, and implementing comprehensive
financial literacy programmes. This is necessary in order to fully capitalise on the potential advantages of financial management
skills (Abor & Quartey, 2010; Amankwah-Amoah, Danso, & Adomako, 2019; Boso, Story, & Cadogan, 2019; Fatoki, 2020; Polisetty
et al, 2021).

Empirical Review and Hypothesis Development
Linkage Between Financial Management Skills and Project Performance in Small Business
Empirical research has extensively examined the correlation between financial management abilities and project performance in
small enterprises operating in the construction industry. Financial management skills include practices such as budgeting, cash flow
management, financial reporting, and strategic financial decision-making. These skills are important for improving project outcomes.
Empirical studies consistently show a positive relationship between effective financial management skills and project performance
(Fatoki, 2020; Polisetty et al., 2021). Abor and Quartey (2020) conducted research that shown a positive correlation between effective
financial management techniques in small and medium-sized enterprises (SMEs) and greater project success rates. These successful
projects were characterised by strict adherence to budgetary restrictions and timely completion. Boso, Story, and Cadogan (2019)
emphasise that companies with improved financial literacy and managerial abilities generally encounter fewer instances of cost
overruns and demonstrate greater efficiency in allocating resources throughout project implementation.

Insufficient proficiency in financial management frequently results in unfavourable project results. Amankwah-Amoah, Danso, and
Adomako (2019) found that small and medium-sized enterprises (SMEs) who lack financial expertise face difficulties with cash flow,
which impede their ability to acquire essential resources and make timely payments to subcontractors. These factors lead to delays
in the project and unhappiness among those involved, which has a detrimental impact on the overall performance of the project.
Additionally, Fatoki's (2020) study highlights the importance of financial resilience in reducing project risks and improving
performance. Small and medium-sized enterprises (SMEs) who possess strong financial management abilities are better able to
negotiate economic uncertainties and unexpected hurdles, so assuring the ongoing success and profitability of their projects.
Tinarwo and Sibanda (2020) elaborate on the correlation between effective financial management methods and the enhancement of
stakeholder relationships and trust. Prompt payments to subcontractors and suppliers promote favourable relationships, resulting in
more efficient project workflows and improved performance indicators. The empirical research clearly emphasises the crucial
significance of finance management abilities in influencing project outcomes in the construction industry. By incorporating these
abilities into their day-to-day activities, small enterprises can enhance the allocation of resources, reduce financial risks, and attain
sustainable growth in the face of competitive pressures (Boso, Story, & Cadogan, 2019; Amankwah-Amoah, Danso, & Adomako,
2019).

The empirical research analysed consistently demonstrate a positive correlation between proficient financial management skills and
improved project performance in small business construction businesses. Efficient allocation of funds, careful monitoring of cash
inflows and outflows, and thoughtful financial planning are crucial for meeting project deadlines, staying within budget limits, and
satisfying stakeholder demands. On the other hand, a lack of proficiency in financial management abilities results in delays in projects,
exceeding the budget, and unhappiness among stakeholders. Hence, it is crucial to promote financial literacy and incorporate effective
financial management strategies in order to maximise project results and maintain a competitive edge in the construction sector (Abor
& Quartey, 2010; Fatoki, 2020).

Null Hypothesis (H₀): There is no significant relationship between financial management skills and project performance in small
businesses within the construction industry

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Project Performance and Operational Challenges

Project performance in the construction industry involves several aspects, such as meeting budgetary limitations, completing the
project on time, ensuring high-quality work, satisfying stakeholders, and complying with regulatory standards (Osamudiamen et al.,
2022; Kumar et al., 2023; Osei-Kyei & Chan, 2015). It signifies the effective attainment of project goals while handling limitations
like as resources, time, and scope.

The operational issues encountered by project management teams in the construction industry are varied and have a significant
influence. Managing cash flow is a substantial obstacle, as it involves dealing with problems such as late payments, uncertain funding,
and exceeding budgeted costs (Osamudiamen et al., 2022; Kumar et al., 2023). These issues have an impact on the acquisition of
materials and the payment of subcontractors, which in turn affects the smooth progress and effectiveness of the project. Effectively
managing project scope and stakeholder expectations is a crucial challenge, as inadequate management of scope changes can result
in cost overruns and delays (Osei-Kyei & Chan, 2015; Osamudiamen et al., 2022). Project management is made more complex by
regulatory compliance and safety standards, which necessitate meticulous planning and strict adherence to legal obligations (Kumar
et al., 2023; Osei-Kyei & Chan, 2015).

Workforce management constraints, such as a lack of skilled workers, low labour productivity, and safety concerns, have a direct
impact on project performance (Osei-Kyei & Chan, 2015; Osamudiamen et al., 2022). These elements have an impact on productivity
levels and raise the risks associated with projects, which requires the implementation of strategic management and allocation of
human resources. Efficient project management entails tackling these operational difficulties by employing methodical planning, risk
management tactics, engaging stakeholders, and consistently monitoring and evaluating the project's progress (Kumar et al., 2023;
Osei-Kyei & Chan, 2015). Construction firms can achieve sustainable growth in competitive markets by addressing operational
difficulties and improving project performance measures.
H₀: Operational challenges in project management do not significantly affect project performance in the construction industry.

Research and Methodology
In order to successfully plan and carry out a research study on the impact of financial management abilities on project performance
at BCO Construction, a strong research design is crucial. Bell et al. (2022) define research design as a methodical framework for
conducting research, which encompasses the collection and analysis of data that is pertinent to the study subject. Due to the study's
quantitative character, various design choices were taken into consideration. The selected methodology employed a descriptive study
design, which, according to Clark et al. (2021), seeks to systematically observe, quantify, and analyse variables in order to
comprehend a particular occurrence or circumstance. The choice to use a descriptive design was highly appropriate for this study as
it facilitated a thorough assessment of the influence of financial management abilities on project performance within BCO
Construction. This methodology allowed for the gathering of data that enabled accurate measurement and analysis of factors relevant
to the research goals.

The research philosophy adopted in this work was guided by positivism, as described by Ryan (2018). Positivist philosophy maintains
that the social world may be comprehended objectively by means of empirical observation and analysis. The researcher's function is
highlighted as an impartial analyst, separating personal biases to guarantee impartiality and rigour in study findings. It was necessary
to adopt a positivist strategy for this study in order to assess, investigate, and suggest measures that promote the progress and
advancement of BCO Construction. The survey method was executed to collect firsthand data from personnel inside the operational
department of BCO Construction in Johannesburg, South Africa. Surveys, as described by Ratten (2023), entail the methodical
gathering of data through the use of structured questions posed to respondents, followed by the analysis of the obtained results. The
research employed this methodological approach to directly obtain insights from the target audience, enabling a thorough
comprehension of the correlation between financial management abilities and project performance. Turner (2020) recommended use
simple random sample for this investigation in relation to sampling. This approach ensured that each employee within the operational
department had an equitable opportunity of being chosen, so reducing prejudice and guaranteeing the representativeness of the
sample. The survey had a participation rate of 80 respondents, resulting in a substantial dataset for analysis.

The main method used for data collecting was the administration of structured questionnaires. These questionnaires were specifically
prepared to be in line with the research aims and to guarantee that the replies obtained were objective. Data analysis was conducted
using the Statistical Package for the Social Sciences (SPSS), version 29. Descriptive statistics were employed to summarise and
explain the findings (Stratton, 2021). In order to assess the reliabilty of the research tool, the Cronbach's Alpha coefficient was
calculated, resulting in a score of 0.755. This value indicates a high level of internal consistency among all the items in the
questionnaire (Broesch et al., 2020). This measure of reliability highlights the strength and consistency of the data collected and the
responses given by respondents. The study placed great importance on ethical considerations, as specified by Broesch et al. (2020).
The study properly followed measures such as anonymity, confidentiality, voluntary participation, and informed permission to protect
respondents' rights and promote research integrity. Approval was secured by BCO Construction, providing additional confirmation
of ethical compliance and institutional endorsement for the project. The research employed a methodological framework that ensured
thorough exploration of the influence of financial management abilities on project performance at BCO Construction. The study

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utilised a descriptive research design, adhered to a positivist philosophy, employed a survey strategy, implemented simple random
sampling, utilised structured questionnaires, and applied robust data analysis techniques. As a result, the study generated valuable
insights and practical recommendations for improving organisational effectiveness and project outcomes.

Findings and Discussions
Sample Characteristics

The demographic data collected from the study respondents provides a comprehensive overview of the sample population's age,
gender, population group, period of employment, and educational qualifications. The analysis begins with the age distribution of the
respondents. The majority of respondents fall within the 36-45 years age group, representing 39.2% of the sample. This is followed
by those aged 26-35 years, constituting 28.4%. Respondents aged 46-55 years account for 21.6%, while those in the 56-65 years
bracket make up 9.5%. Only 1.4% of the respondents are 25 years and below.

Table 1: Demographic factors

1 Age Frequency Percentage (%)
25 years and below 1 1,4
26-35 years 21 28,4
36-45 years 29 39,2
46-55 years 16 21,6
56-65 years 7 9,5
2 Gender Frequency Percentage (%)
Male 47 63,5
Female 27 36,5
3 Population group Frequency Percentage (%)
African 39 52,7
White 31 41,9
Indian 2 2,7
Asian 2 2,7
4 Period of employment Frequency Percentage (%)
Less than 5 years 21 28,4
5-10 years 28 37,8
11-15 years 19 25,7
16-20 years 4 5,4
Over 20 years 2 2,7
5 Educational qualification Frequency Percentage (%)
Up to Grade 12/ Std 10 3 4,1
Diploma/Degree 23 31,1
B-Tech/ Honours 30 40,5
M-Tech/Masters/MBA 17 23,0
D-Tech/Doctorate 1 1,4
Source: Author’s Construction

The gender distribution reveals a predominance of male respondents, who constitute 63.5% of the sample, whereas female
respondents make up 36.5%. This gender disparity reflects the demographic characteristics of the construction industry, where male
workers are typically more prevalent.

In terms of population group, the data shows that African respondents are the largest group, accounting for 52.7% of the sample.
White respondents follow at 41.9%, while Indian and Asian respondents each represent 2.7% of the sample. This distribution
highlights the racial diversity within the workforce at BCO Construction.

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The analysis of the period of employment indicates that the largest segment of respondents has been employed for 5-10 years,
comprising 37.8% of the sample. Those with less than 5 years of employment constitute 28.4%, while respondents with 11-15 years
of employment account for 25.7%. Employees with 16-20 years of service make up 5.4%, and those with over 20 years represent
2.7%. This range of employment periods demonstrates a mix of relatively new and experienced employees within the company.
Regarding educational qualifications, the majority of respondents hold a B-Tech or Honours degree, which accounts for 40.5% of
the sample. This is followed by those with a Diploma or Degree, comprising 31.1%, and those with an M-Tech, Masters, or MBA,
making up 23.0%. Respondents with up to Grade 12 or Std 10 represent 4.1%, and only 1.4% have a D-Tech or Doctorate. This
educational distribution indicates a well-qualified workforce, with a significant proportion holding advanced degrees.

Descriptive analysis
The examination of the financial indicators depicted in Figure 1 offers a comprehensive comprehension of the importance of financial
management expertise in improving project performance within small enterprises in the construction sector. The relevance of
important financial performance metrics, such as Net Present Value (NPV), Earned Value (EV), Financial Leverage (FL), Liquidity,
and Profitability, in the effective execution and management of construction projects is emphasised by the respondents' perceptions.

0.0%
0.0%
Very unimportant 0.0%
0.0%
0.0%

0.0%
2.7%
Unimportant 0.0%
0.0%
0.0%

16.3%
20.3%
Neither important nor unimportant 20.3%
17.6%
5.4%

45.9%
41.9%
Important 29.7%
29.7%
33.8%

37.8%
35.1%
Very important 50.0%
52.7%
60.8%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0%

Positive NPV Earned Value Financial leverage Liquidity Profitability

Figure 1: Project Performance Measures; Source: Author’s Construction

The respondents greatly value the Net Present Value (NPV), with 94.6% expressing its significance. Specifically, 60.8% consider it
extremely significant, while 33.8% consider it important. The widespread agreement on this matter demonstrates the crucial
significance of NPV in the assessment of projects and the process of making decisions. NPV, as defined by Shou (2022), quantifies
the present worth of forthcoming cash flows and serves as an indicator of project profitability when it is positive. The evidence
indicates that a positive net present value (NPV) is crucial for guaranteeing dependable and steady cash flows, which are necessary
for sustaining project performance and financial stability (Shou, 2022; Aramali et al., 2024; Tretiak et al., 2022; Kerzner, 2022).
EV management is a vital indicator, regarded as important by a substantial majority (77%) of respondents. Earned Value (EV)
management combines cost, schedule, technical scope, and risk factors to offer a thorough evaluation of project advancement in
comparison to a baseline (Aramali et al., 2024). According to the statistics, EV management is seen as a useful instrument for
accurately assessing financial situation and quantifying schedule progress. Nevertheless, the fact that 20.9% of respondents expressed
neutrality and 2.7% regarded it unimportant reveals a potential deficiency in skills and expertise within project teams at BCO
Construction (Aramali et al., 2024; Shou, 2022; Tretiak et al., 2021; Kerzner, 2022).

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Financial Leverage (FL) is considered crucial, as 79.7% of respondents acknowledge its significance. Financial leverage entails
utilising borrowed funds to buy assets, specifically in the context of construction, this refers to the acquisition of materials, equipment,
and other resources. Although leveraging can boost project capacity, it also amplifies the risk of financial failure if not effectively
managed. The 20.3% of respondents who expressed neutrality towards FL demonstrate a lack of comprehension of its impact on
project performance. This highlights the necessity for enhancing financial literacy among project teams (Aramali et al., 2024; Shou,
2022; Tretiak et al., 2021; Kerzner, 2022).

Fifty two percent (52% )of respondents consider liquidity, which refers to a company's capacity to fulfil immediate financial
obligations, to be highly significant, while 29.7% regard it as important. Swift cash generation is essential to prevent operational
setbacks caused by financial deficiencies (Tretiak et al., 2021). The 17.6% of respondents who expressed a neutral opinion may not
have a complete understanding of the importance of liquidity management. This indicates a need for potential training and
improvement in financial management skills. (Shou, 2022; Aramali et al., 2024; Tretiak et al., 2021; Kerzner, 2022).

The significance of profitability as a performance measure is acknowledged, with 83.7% of respondents considering it to be either
highly significant (37.8%) or significant (45.9%). Profitability is a metric that assesses the financial success or failure of a project. It
offers valuable information about the project's overall financial well-being and helps in making decisions regarding project selection
and continuance (Davila et al., 2020). The emphasis on profitability highlights the importance of implementing strong financial
management procedures to guarantee that projects make a positive contribution to the company's overall financial performance (Shou,
2022; Aramali et al., 2024; Tretiak et al., 2021; Kerzner, 2022).
The study emphasises the crucial significance of financial management skills in improving project performance within small
construction enterprises. The respondents' acknowledgment of the significance of NPV, EV management, FL, liquidity, and
profitability highlights the requirement for thorough financial literacy and management training to equip project teams with the
essential abilities to effectively handle these crucial performance indicators.
Table 2: The operational challenges faced in project management

Neither agree nor

Strongly Disagree
Statements

Strongly Agree
Agree disagree Disagree Total
Scope creep 40,5% 32,4% 18,9% 8,2% 0,0% 100,0%

Budget restrictions and 73,0% 14,9% 9,5% 2,6% 0,0% 100,0%
changes

Lack of communication 43,2% 35,1% 14,9% 6,8% 0,0% 100,0%

Team conflict 43,2% 24,3% 24,3% 8,2% 0,0% 100,0%

Poor risk management 37,8% 43,2% 17,6% 1,4% 0,0% 100,0%

Source: Authors’ Construction

The analysis of Table 2 reveals significant insights into the operational challenges faced by small businesses in the construction
industry, with a particular focus on financial management skills and their impact on project performance. One of the critical
challenges identified is scope creep, which 72.9% of respondents acknowledged as a significant issue. Scope creep, as defined by
Ajmal et al. (2020), occurs when stakeholders continually add new deliverables or extend deadlines, leading to project delays and
disruptions. The majority agreement on this challenge underscores the importance of stringent project management practices to
mitigate the adverse effects of scope creep on project timelines and budgets (Martins, 2022; Turner, 2020; Bell et al., 2022).
Budget restrictions and changes are also highlighted as substantial operational challenges, with 73% of respondents strongly agreeing
and 14.9% agreeing. This consensus points to the inflexibility that budget constraints impose on decision-making processes,
especially when material prices fluctuate. The inability to adjust budgets in response to changing circumstances can lead to stalled
projects and increased operational difficulties. Effective financial management skills are thus crucial in navigating these changes and
ensuring project continuity (Clark et al., 2021; Ryan, 2018; Ratten, 2022).
Communication issues within project teams are another critical area of concern, with 43.2% strongly agreeing and 35.1% agreeing
that lack of communication poses operational challenges. Effective communication channels are essential for the timely exchange of
information among project members, stakeholders, and managers. Miscommunications or delays in information dissemination can
significantly hinder project progress and lead to operational inefficiencies. This finding highlights the need for robust communication
strategies to enhance project performance (; Kumar et al., 2023).

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Team conflicts are recognized as operational challenges by 67.5% of respondents, who either strongly agreed or agreed. Conflicts
within teams can arise from various factors, including miscommunication, misunderstandings, and interpersonal issues. These
conflicts can disrupt workflow, reduce productivity, and compromise the quality of project outcomes. Addressing team conflicts
through effective conflict resolution strategies and fostering a collaborative work environment are essential for maintaining
operational efficiency (Osei-Kyei & Chan, 2015; Davila et al., 2020; Aramali et al., 2024).

Finally, poor risk management is seen as a significant operational challenge, with 81% of respondents acknowledging its impact.
Kolisi (2015) emphasizes that risk management is a key discipline in project management, enabling managers to identify, assess, and
mitigate risks effectively. Poor risk management can lead to unforeseen issues that disrupt project timelines and budgets, resulting in
operational challenges. The data suggests that enhancing risk management practices is vital for improving project performance and
achieving successful project outcomes (Tretiak et al., 2021; Kerzner, 2022; Shou, 2022).

The study underscores the pivotal role of financial management skills in addressing operational challenges and enhancing project
performance in small construction businesses. The recognition of scope creep, budget restrictions, communication issues, team
conflicts, and poor risk management as significant challenges highlights the need for comprehensive financial literacy and
management training.
Table 3: The link between financial management skills and project performance

Statement

Disagree
Strongly Strongly

Agree Agree Neutral Disagree Total
Financial management skills enhance project 38,7% 26,4% 15,0% 16,0% 4,0% 100%
performance by ensuring effective budgeting and
resource allocation, reducing the risk of cost
overruns.

These skills help manage financial risks, 39,2% 28,7% 9,0% 17,3% 5,8% 100,0%
preventing losses and project failures, thereby
improving project outcomes.

Proficient financial management ensures 40,2% 30,5% 6,2% 18,4% 4,7% 100,0%
consistent cash flow, avoiding delays and
disruptions that can negatively impact project
timelines and success.

Financial management utilizes metrics like EVM 46,4% 39,7% 8,9% 5,0% 0,0% 100,0%
and NPV for accurate financial health
assessments, guiding informed decision-making to
enhance project performance.

Strong financial management supports strategic 47,6% 32,4% 0,0% 15,0% 5,0% 100,0%
planning and decision-making, aligning project
objectives with financial goals for better
performance and profitability.

Source: Author’s Construction

The significance of financial management skills in improving project performance within small construction enterprises is crucial.
Proficiency in financial management guarantees efficient budgeting and distribution of resources, so substantially mitigating the
likelihood of exceeding costs. The study found that 65.1% of respondents strongly agree or agree that these abilities improve project
performance by reducing cost overruns. This indicates a widespread agreement on the significance of financial competence in
preserving budget discipline (Ajmal et al., 2020; Kolisi, 2015). Efficient budgeting allows project managers to distribute resources
in the most effective way, ensuring that all components of a project receive sufficient funding and any financial shortages are
minimised.
Moreover, proficiency in financial management is crucial for effectively handling financial risks, so eliminating any potential losses
and project failures. A total of 67.9% of the respondents strongly support or agree with this statement, highlighting the crucial
importance of financial risk management in achieving project success (Shou, 2022; Aramali et al., 2024). Efficient financial risk
management entails promptly recognising potential financial hazards and formulating solutions to alleviate these risks. By adopting
a proactive approach, projects are protected from unforeseen financial setbacks, leading to improved project outcomes.

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T. Mahohoma, International Journal of Business Ecosystem & Strategy, 6(6), (2024) 243-253

Effective financial management also guarantees a steady flow of funds, which is essential for preventing delays and interruptions
that can have a detrimental effect on project schedules and outcomes. Based on the study, 70.7% of respondents strongly support or
agree that sustaining a steady flow of funds is crucial for the success of a project (Tretiak et al., 2021; Kerzner, 2022). Regular cash
flow evaluations enable project managers to verify the availability of adequate funds to cover ongoing project expenses, thus avoiding
work interruptions caused by financial limitations.
In addition, financial management employs measures such as Earned Value Management (EVM) and Net Present Value (NPV) to
conduct precise evaluations of financial well-being. These metrics provide valuable information for making informed decisions in
order to improve project success. A significant majority of respondents, specifically 86.1%, express strong agreement or agreement
about the significance of these indicators (Aramali et al., 2024; Davila et al., 2020). The Earned Value Management (EVM) technique
offers a holistic assessment of project advancement by incorporating measurements of cost, schedule, and scope. On the other hand,
Net Present Value (NPV) aids in assessing the profitability of projects by taking into account the present value of future cash flows.

Effective financial management is crucial for supporting strategic planning and decision-making. It ensures that project objectives
are aligned with financial goals, leading to improved performance and profitability. According to the poll, 80% of respondents
expressed strong agreement or agreement with this statement, emphasising the crucial significance of financial management in project
planning (Kerzner, 2022; Shou, 2022). Strategic financial planning include the establishment of financial objectives, the prediction
of forthcoming financial circumstances, and the formulation of strategies to accomplish these objectives. This alignment guarantees
that project initiatives are economically feasible and make a positive contribution to the organization's financial performance

Conclusions
The results of this study highlight the critical role of financial management skills in enhancing project performance within small
construction enterprises. The descriptive analysis reveals that respondents place high importance on key financial performance
metrics such as Net Present Value (NPV), Earned Value (EV) management, Financial Leverage (FL), liquidity, and profitability.
These indicators are crucial for effective project execution and financial stability. For instance, 94.6% of respondents emphasized
the significance of NPV in decision-making processes, underscoring its role in ensuring dependable and steady cash flows necessary
for project success. Similarly, EV management was deemed important by 77% of respondents, indicating its utility in assessing
financial status and progress against project baselines.
The analysis of operational challenges faced by small businesses in the construction sector further underscores the necessity of strong
financial management skills. Issues such as scope creep, budget restrictions, lack of communication, team conflicts, and poor risk
management were identified as significant obstacles to project performance. For example, 73% of respondents cited budget
restrictions as a substantial challenge, highlighting the inflexibility and operational difficulties caused by financial constraints.
Effective financial management can mitigate these challenges by ensuring proper budget allocation, improving communication
channels, and fostering team collaboration.

The link between financial management skills and project performance is reinforced by the survey results. A significant proportion
of respondents agreed that proficient financial management enhances project performance through effective budgeting, resource
allocation, and risk management. For example, 65.1% of respondents agreed that financial management skills reduce the risk of cost
overruns, while 70.7% emphasized the importance of maintaining consistent cash flow to prevent project delays. Additionally,
metrics like EVM and NPV were recognized by 86.1% of respondents as essential for accurate financial assessments and informed
decision-making.

Based on these findings, we reject the null hypothesis (H₀) that states there is no statistically significant correlation between financial
management abilities and project performance in small enterprises operating in the construction industry. The evidence clearly
demonstrates that financial management skills are vital for the successful performance of small business projects in the construction
industry. The key financial indicators such as NPV, EV, FL, liquidity, and profitability play a crucial role in project execution and
financial stability.

Furthermore, the null hypothesis (H₀) that operational issues in project management have no substantial impact on project
performance in the construction industry is also rejected. The significant operational challenges identified, including scope creep and
budget restrictions, can be effectively managed through enhanced financial literacy and management practices. The findings indicate
that addressing these operational issues through strong financial management can lead to improved project performance and
successful outcomes.

Suggested measures consist of establishing comprehensive financial management training initiatives, enhancing channels of
communication, including strategic financial planning into project goals, and consistently refining financial management procedures.
Effective financial management is crucial for the success of construction projects, and improving financial management practices
can greatly enhance project performance at BCO Construction. First and foremost, it is essential to undertake comprehensive financial
management training programmes. The primary objective of these programmes should be to provide project teams with
comprehensive knowledge and skills in budgeting, cost control, financial analysis, and risk management. By providing team members

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T. Mahohoma, International Journal of Business Ecosystem & Strategy, 6(6), (2024) 243-253

with these abilities, BCO Construction may guarantee more precise budgeting, improved resource allocation, and proactive risk
management, therefore minimising the chances of exceeding costs and encountering financial instability during projects.
Furthermore, it is crucial to enhance the communication channels within project teams. Effective communication procedures,
frequent project meetings, and the incorporation of technology for immediate updates can improve collaboration, decision-making,
and problem-solving. Efficient communication guarantees that all parties involved have accurate information and are in agreement
with the goals of the project, thereby avoiding any confusion that may result in project delays or mistakes. This enhancement in
communication cultivates a cooperative atmosphere where problems are swiftly dealt with, hence improving the overall effectiveness
of the project.

Finally, incorporating strategic financial planning into project objectives is crucial for aligning financial objectives with
organisational plans. This entails the process of making predictions about the company's financial situation in the long run, analysing
several possible scenarios, and making sure that the financial decisions made for projects align with the company's overall growth
goals. Through the implementation of strategic financial planning, BCO Construction may enhance the allocation of resources, reduce
financial risks, and enhance financial transparency and accountability across various projects. Adaptability and continual
improvement in financial management techniques are ensured by continuously refining processes through performance monitoring,
feedback mechanisms, and benchmarking against industry best practices.

Although the study offers significant insights, it recognises limitations such as the dependence on self-reported data and the
requirement for more longitudinal research to evaluate the long-term effects of enhanced financial management practices. Potential
areas for future research might investigate the incorporation of cutting-edge technologies in financial management specifically within
the construction industry. Additionally, comparison studies across various industries could be conducted to pinpoint transferable best
practices.
The sample of 80 respondents may not fully capture the diversity of financial management practices and project performance at BCO
Construction, limiting the generalizability of the findings. The study's single-point-in-time data collection may not reflect the dynamic
nature of financial management practices, missing long-term trends and changes. Longitudinal studies would offer a more
comprehensive understanding.

Acknowledgement
All authors have read and agreed to the published version of the manuscript.
Author Contributions: Conceptualization, Tinaye Mahohoma, methodology, Tinaye Mahohoma.; formal analysis, Tinaye Mahohoma.;
investigation, Tinaye Mahohoma.; resources, Tinaye Mahohoma.; writing—original draft preparation, Tinaye Mahohoma.; writing—review and
editing, Tinaye Mahohoma.
Ethical approval: The study was approved by the Faculty Research Ethics Committee (FREC) under ethical level one, that does not need ethical
clearance from the institution. Informed written consent was sent to all respondents of the interviews and questionnaires, and additional verbal consent
was obtained at the start of the interviews. Data was treated confidentially. The respondents were assured that they could withdraw from the study at
any time without needing to give any explanation. All data was properly stored according to Durban University of Technology research policies. The
study design, procedures, and participant interactions adhered to the principles outlined in the Declaration of Helsinki and were approved by the
FREC before initiation.
Informed consent: All respondents provided their informed consent before participating in the study. They had a clear understanding of the study's
purpose, procedures, potential risks, and benefits, and they knew that they had the freedom to withdraw from the study at any time.
Author contributions As the only author, everything was done by me. I contributed to the study conception, design, data collection and analysis.
Furthermore, I wrote the first draft of the manuscript, and read and approved the final manuscript.
Availability of data and materials The datasets generated and/or analysed during the current study are available from me, Tinaye Mahohoma, as
the main author, on reasonable request.
Conflict of interest: This study was funded by Durban University of Technology under the Postgraduate Scholarship programme. I hereby certify
that I have no affiliations with or involvement in any organization or entity with any financial interest or non-financial interest in the
subject matter or materials discussed in this manuscript. I, as main author, declare that there is no conflict of interest.

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