While this might not be an existential issue in the short term, managing cash flow and improving project profitability is essential for maintaining resilience in the construction industry. Managing costs is an essential part of undertaking construction projects and more businesses have turned to technology to help them do so effectively.
3 reasons construction companies must achieve financial visibility across their entire business
1. Inefficient reporting hinders a business’ ability to respond to financial anomalies quickly
During construction projects, time is of the essence. Things are always in motion and business leaders who receive important information and require changes to be made should send orders out quickly. Any delay in identifying spending anomalies can compound and lead to further losses in working hours and rework costs.
Financial reporting processes are designed to give business leaders the opportunity to identify and respond to any issues promptly. However, in construction projects, these processes are often efficient. When financial reporting is incomplete and done using manual processes, there is a time lag between the issue cropping up and business leaders learning about it. To overcome this, businesses must build a holistic view of project finances.
2. Financial data is often stored in silos across multiple operational teams
Project finances are a complex undertaking for any business. This is especially true for construction companies since financial information exists across multiple departments and stakeholders. Construction projects require diverse stakeholders from different companies to come together. General contractors, subcontractors like roofing companies, electricians, and other trades, suppliers, and project owners all have their own financial goals to meet and their own metrics that they use to measure financial performance.
As a result, important financial data is usually kept across a series of spreadsheets and applications. This information is usually shared in periodic increments but this means that business leaders and project owners don’t have a complete and updated set of financial information until the end of the project.
3. Material prices can fluctuate throughout a project
Construction projects are extremely dynamic. Materials, timelines, budgets, and designs change all the time. Some of these changes have a direct impact on the bottom line of a project. The change that often has the greatest impact on cost is fluctuating material prices.
Construction projects can last years and material prices can change drastically during that period. In 2021, building materials experienced a more than 14% spike in price. These changes have to be reflected in financial plans and predictions must be adjusted in order to keep project budgets on track. Complete financial visibility allows business leaders to recognize changes quickly and find alternative materials or areas for cost adjustments in other parts of the project.
How technology can help business leaders improve financial reporting and increase visibility across their operation
Cloud-based reporting tools make financial reporting easily accessible to all team members
Financial reporting in construction relies on every team member doing their part to contribute to the bigger picture. Multiple businesses and stakeholders hold different pieces of the puzzle and all the pieces have to be brought together for project owners and business leaders to achieve complete visibility across a project. To facilitate this reporting, businesses must make providing that data as easy as possible.
Cloud-based software allows every team member to engage with financial reporting processes regardless of their location. While office staff might be using specialized software on a company-provided laptop, on-site supervisors and managers prefer mobile devices such as smartphones and tablets to conduct their work. Cloud-based software makes it equally easy for all these stakeholders to share financial data, regardless of their work device of choice.
Real-time reporting allows business leaders to flag spending anomalies in a timely fashion
Modern software also allows each team member to upload financial information in real time. The benefits of real-time reporting go beyond providing business leaders with a glance of where a project is at all times. It allows strategic decisions to be made with the most accurate representation of project progress and finances. Another benefit of using software to receive real-time financial data is that financial anomalies can be identified with minimal time lag.
Cutting-edge technology also allows construction teams to automate this process and flag spending anomalies to alert business leaders of issues as they happen. Construction teams can also use fully integrated systems to inform the rest of the team of any changes that might be necessary to fix the highlighted issues.
Advanced data analytics empower construction businesses to plan their finances ahead of time
Budgets and financial plans are designed to help business leaders project their expenses and profits even before a project starts. As projects evolve and plans change, construction teams need to keep their financial plans updated at all times. However, this can be a complicated and time-consuming process.
Modern software provides business leaders with the opportunity to build the most complete picture for financial projection. Once this is done, AI-based systems can take this a step further and provide analytics that inform business leaders of a project’s latest financial performance based on metrics of their choosing.
Financial management will always be an essential part of managing a construction project. As construction projects become more complex and more stakeholders are involved to manage this complexity, financial visibility becomes a challenge. Business leaders can overcome this challenge by embracing fully integrated software that closes the gap between operational silos and allows business leaders to achieve a true bird’s eye view of a project’s finances in real time.