We’ve all been there. You’re trying to budget a project only to have one thing after another force you to change your plans.
You could find unexpected rock formations underground, messing with your strategy for the foundation. A small labor dispute a few states over could disrupt your lumber supply chain, forcing you to shift your bill of materials. You might be hit by an unexpected safety inspection, slowing work for a few days and forcing you to either hire more staff or pay for overtime to compensate. When you’re in the construction industry, you’re used to dealing with unpredictability, but you can get uncertainty under control. What you need is an enterprise resource planning solution built for the specific needs of builders.
If you’re a general contractor, the problem is simple: Projects have so many moving parts that any small change has a far-reaching effect on your spending. A simple roof repair could escalate because tearing up the old shingles reveals a larger structural issue, for example. Suddenly, the number of work hours in a project goes up, the bill of materials increases and you need to update the budget. Again.
In most cases, general contractors have had to deal with broad guidelines during budget forecasting. However, new technologies are available. Now, there are opportunities for precision and coordination that weren’t readily possible in the past. If a project leader goes to buy siding and the vendor raises prices, he or she can immediately update the ERP so you know about the change.
Why construction budgets tend to fail
As a small construction organization, chances are you’re running your business on a solution like QuickBooks or Quicken. If all you need to do is balance the books, that’s fine. But your growing business requires more. You need visibility into every part of a project so you can anticipate costs.
A project’s success often comes down to two big questions. Was it on time? Did you make money? If you can’t get ahead of your budget, the costs will get ahead of you. To do this, you need to get your whole team on board. CIO Magazine laid out the challenges this way:
Evaluate the needs and desires of all stakeholders and create clear lines of communication.
Explain the budget to the project team and provide regular updates.
Identify the types of surprises that are likely to arise and include wiggle room in the budget.
Evaluate the project on an ongoing basis and readjust the budget forecast accordingly.
Practically speaking, many construction companies lack the tools they need to follow this advice to its fullest. With so many moving parts depending on one another, it’s easy for project details to slip through the cracks when relying on communication between people using different technologies to manage the job. The good news is that this situation is changing. The cloud is bringing big-business functionality to firms in sectors that have long held off on major IT projects.
The budget forecasting answer has arrived
Small construction companies have avoided emphasizing IT for good reason – to focus on building things, not managing technology. The cloud lets you use advanced tech without having to take on too much overhead.
A Frost & Sullivan study found that digital transformation is beginning to hit the construction sector as organizations work to overcome challenges such as poor supply chain practices, limited automation efforts and a general lack of planning.
The research indicates that construction firms are embracing digital technologies to:
Use analytics reports to reduce unpredictability.
Reduce project overruns.
Establish visibility across platforms and processes.
Manage large amounts data.
Create a more collaborative workplace.
Cloud-based enterprise resource planning systems designed for the construction industry let you coordinate work across your teams based on interfaces designed specifically for the demands of building projects. This improvement in day-to-day project efforts then creates a data trail that can be used for more precise reporting on potential costs associated with any project.
ERP systems make possible the immediate transparency you need to create single sources of data truth. Inaccurate records and redundant documents are eliminated. What’s more, you can use this accurate data to generate reports that let you predict how much a typical problem will usually cost.
So let’s go back to the start. Budgets can go south fast. But if you run into a foundation problem, your workers can take photos, upload them in the system and add notes about the problem. You can use those details to look up past projects, see how much similar issues cost, and update the budget with precision. If your typical lumber vendor increases prices, you can go into the ERP to compare quotes from other providers and see if they can get you closer to your original quote. Very simply, you get the data visibility throughout the project to not only make a better prediction of costs, but also adjust budgets with precision along the way. Construction unpredictability isn’t going away, but modern ERP systems let you respond to change and optimize your budgets.