A recent Construction Executive article writes that “the construction industry has been plagued for decades with projects coming in over budget and behind schedule. There are many reasons this happens, but it ultimately comes down to just one thing—a lack of connected information.”
This fact about the construction industry is mentioned time and time again, and yet there are still firms out there who willingly continue to work in siloed data environments without realizing the direct impact on their bottom line. Although no one can predict the future, for those using ineffective construction forecasting techniques, it can be guaranteed that a firm is destined to face at least—if not all—of the following challenges:
Challenge #1: Inability to Identify All Potential Cost Impacts
Cost-to-complete forecasts are only beneficial if all potential cost impacts are considered. Contractors must be able to anticipate every possible factor that could cause a project budget to go south, and then budget accordingly. “The biggest risk is not accurately forecasting how much money you are expecting to spend,” Scott Jennings, P.E., principal of SJ Construction Consulting, LLC, says. “The first thing I tell my construction clients is that you want to become more responsible with job costs. However, many construction companies lack the tools they need to follow this advice to its fullest.”
Challenge #2: Inadequate Projection and Control of Cash Flow
Cash flow is the lifeblood of the construction business, where the funding for one project often comes from the revenue of another. Cash flow affects the ability to acquire and maintain equipment, purchase supplies, run payroll, pay subcontractors and invest for future growth. Construction companies need to be able to forecast and manage cash flow precisely and on a continuous basis. That requires tools that allow them to input costs and budget changes, execute other calculations, and anticipate and keep track of each project’s cash requirements.
However, not all construction leaders have the wherewithal to manage cash flow. According to a 2018 survey conducted by TSheets and Zlien, “one in five construction companies says cash flow is a constant problem. As a result, these companies sometimes have a tough time making payroll, investing in future growth, or even taking on new projects.”
Challenge #3: Poor Resource Allocation
The construction industry has a productivity problem. Over the last 40 years, the productivity of construction labor in the U.S. has fallen, according to the World Economic Forum. The organization is conducting a multiyear project to help the industry evolve to meet new challenges because it represents 6% of global GDP.
Labor constraints impact the forecasting aspect of resource management by making it difficult, time-intensive and, worse, fraught with errors. The effects are detrimental. If project managers cannot project future resource needs quickly and accurately on a weekly or biweekly basis, they most certainly will have trouble keeping productivity on track.
Researchers identified four factors that have the greatest negative impact on construction productivity: work that must be redone or repaired, lack of materials when needed due to poor planning or delays in delivery times, project changes during the execution phase and poor workmanship.
Challenge #4: No Real-Time Visibility
In order to forecast accurately, contractors need to see up-to-date information on every business aspect relating to project costs.
In a survey of more than 500 construction executives and managers conducted by TrackVia, 78% of executives and 89% of managers said data coming from their jobsites was important to their success, with the most critical jobsite data being quality of work, the cost of time and materials, and safety. Fifty-two percent of executives reported that four or more departments in their organizations relied on data from jobsites.
How can your construction firm solve the 4 common challenges of forecasting? Read part 1 or part 3 of our Forecasting with Confidence series, or visit our Resources section to view our consolidated library of industry best practices and success stories.