In the commercial construction industry, managing through uncertainty is the norm. But with the price of fuel at a record high, backlogs in the supply chains of critical materials, and a labor shortage driving up wages coincident with the demand for projects remaining strong, construction organizations are facing added pressures to keep their businesses on track. As evidenced from the pandemic, having cloud-based financial planning and analysis (FP&A) tools with scenario planning capabilities is essential to helping commercial contractors remain nimble in how they handle an ever-changing marketplace and remain competitive.
IN A RECESSION OR NOT
Over recent months, inflation has continued to push prices upward, making it extremely difficult to accurately forecast projected cost to completion. Adding even more complication to the mix is the threat of a possible recession.
If the economy does begin to slow, contractors who have built static budgets and forecasts in Excel spreadsheets based on expected inflation rate, will struggle to keep up with their planning and budgeting as soon as market factors change. As a result, companies may overbid on projects and miss out on crucial business opportunities, or even worse, lose money.
This is where corporate performance management (CPM) solutions with scenario planning capabilities can make the difference between thriving and barely surviving continued economic uncertainty. Through “what-if” analyses and driver-based modeling, businesses can quickly evaluate the impact of shifting market conditions on project revenues, costs, and profitability amidst multiple scenarios, allowing them to more accurately bid projects, win business, and maintain their profit margins throughout the length of the projects.
SUPPLY CHAIN STRATEGIES
As unpredictable supply chain delays continue, commercial construction companies are beginning to adopt procurement strategies that would have seemed outlandish only 2 years ago. Before the pandemic, contractors relied on strong global supply networks to provide materials just in time for them to be needed on the jobsite, helping to save money in areas like storage and inventory management. But delays and shortages in the supply chain over the last 2 years have led to stalls in project timelines, risking both contractors’ bottom lines, and their reputations.
Nowadays, many commercial construction companies have adopted supply chain strategies that ensure materials are available “just in case,” including holding extra inventory and having multiple sources of supplies. To manage these supply redundancies effectively, contractors need strong visibility into different sources of raw data to prevent oversupply while warehouse space is scarce. And because holding excess inventory ties up working capital at a time when interest rates are on the rise, businesses need to be able to quickly evaluate the impact on their budgets and forecasts as inventory levels, cash flow, and job progress changes.
Unified CPM platforms with scenario planning tools centralize data in one place for easy analysis, providing commercial contractors with the visibility they need to dive deeper into work-in-progress reports and align project schedules with material and equipment levels. With this single source of “true” data, the entire construction organization—from the finance office to the project manager—is working with the most up-to-date cost information, preventing cost overruns, reworks, and reputation-damaging project delays—all which cut into a job’s profit margin.
NEW BUILDING CODES
At the beginning of June, the White House launched a National Initiative to Advance Building Codes, hoping to encourage adoption of new standards that will make communities more resilient to climate change. These impending building code modifications add a new layer of complexity to an already complicated patchwork of building requirements across different states and localities in the U.S. For commercial construction companies, these new regulatory changes will have wide-ranging effects, impacting everything from bidding, to budgeting, to project timelines. How do companies stay ahead of their competitors while maintaining compliance?
Automated CPM tools can mean the difference between success or failure in this type of evolving landscape. For instance, companies can model the implications of a new building code on their production capabilities and understand how the change would affect company financials. And because CPM software automates repetitive tasks, CFOs and their teams can become less reactive to these types of business changes, and instead, spend time uncovering new opportunities for strategic investment and growth for the company.
MORE DATA, MORE PROBLEMS
Through the continued digital transformation of the construction industry, added connectivity with jobsite technology has allowed for productivity and efficiency gains while improving visibility into job status. And these new technologies generate data points that, when leveraged correctly, can drive the business toward profitability.
To generate meaningful insights from this data, however, contractors need tools that seamlessly integrate data from disparate sources and automatically produce analyses. To this end, CPM systems can provide leaders with visibility into cash flow, accounts receivables and payables, and 30/60/90 timelines—information they can leverage to avoid borrowing capital in a time of rising interest rates. And CPM solutions integrated with artificial intelligence (AI) can sift through even more data and spot anomalies that the human eye might typically miss.
CLOSING THOUGHT
In an unpredictable industry during uncertain times, there’s no concrete answer for how to stay competitive and profitable. But by embracing digital tools like CPM solutions with AI capabilities, you can help identify meaningful insights and variances in real-time data, ensuring that your business can detect leading indicators of upcoming market conditions that other contractors may miss—giving you a competitive edge.
About the Author:
Daniel Fellows serves as product marketing manager for Prophix, a global leader in mid-market CPM software. For more, visit www.prophix.com.
Modern Contractor Solutions, July 2022
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