Almost three-quarters of contractors reported longer than expected project delays and 84% experienced higher than anticipated costs last year due to supply chain disruption and price increases. These problems further heighten the financial pressures of an industry that has been experiencing a 20-year long slump in productivity growth and low profitability of just 5%.
The growing scale and complexity of construction projects means many current methods of financial control are no longer fit for purpose and are only geared toward short-term financial outcomes. In order to remain profitable under current market conditions and into the long-run, construction and engineering (C&E) project managers need data-driven control systems and integrated construction software to move toward proactive and away from reactive financial project management practices. Here are four steps to achieve long-term profitability with proactive fiscal management:
1. Take Pre-emptive Action
C&E projects are far more complex and contain many more high-risk factors than the standard business project, so project managers need more sophisticated systems for financial control than basic business accounting solutions. Add in the pressures of the current market environment, and C&E project and commercial managers need to shift to a proactive approach, where budgets and project progress are not just monitored and recorded but are forecasted and actively directed. In this model, pre-emptive action can be taken before an emergency arises that can set progress and profits back months.
Proactive management can be achieved with the integration of real-time data to provide project managers with a constant flow of information and the use of predictive analytics to foresee potential risks. Better informed projects are more efficient ones, as greater insight means greater control. Real-time data and predictive analysis equip managers with the best tools and insights to act before it is needed and avoid unexpected delays and budget overruns. This in turn improves the reliability of construction projects and could help avoid project crises altogether.
2. Simplified Practice is Best Practice
Part of the complexity of construction projects is the high-level coordination required to get resources to the right place at the right time to ensure projects are completed on time and on budget. Supply chain disruption and price instability make the already complex task of resource coordination and financial planning even more difficult. C&E project managers need to simplify financial planning as much as possible, where possible, to reduce the element of risk and make the task of predicting final cost, revenue and project margin and future cash requirements easier.
Here, uniformed practices for every project process will ensure the same result is achieved each time and all project participants are on the same track. This reduces the element of uncertainty, increases the predictability of project delivery, and makes it easier to plan timelines, budgets and forecast revenues and profits. It enables improved resource management, especially where supply chain disruption can significantly damage construction project progress. Standard practices create predictable project delivery outcomes, deliver high project performance, and ultimately profitable projects.
3. Excel Spreadsheets are a Liability, Not an Asset
A recent survey found 90% of spreadsheets used by construction companies contain clinical errors. Excel spreadsheets were never designed to handle the level of complexity required for the financial planning involved in a typical C&E project. Spreadsheets have insufficient capabilities, offering only limited data storage and organization functions. There is an inherent lack of visibility across multiple spreadsheets, creating disparate data sets that contain high levels of inaccuracy from manual data input and the risk of human error that naturally accompanies this. This lack of visibility leads to an increased risk of making decisions informed by inaccurate and out of date information, with the final impact being poor financial control.
Successful project management and control requires accurate and detailed real-time data to facilitate enhanced visibility and predictive analytics. Project monitoring cannot be maintained with multiple, disconnected Excel spreadsheets. The level of accuracy, visibility and control needed to manage complex construction projects requires a dedicated industry-specific software solution that can collate the many complex data sets involved in the management of large-scale and high-stake construction projects into a reliable, single source of truth.
4. Construction-grade System Architecture Will Future-proof Profitability
Continuous advancements in technology and updates to construction techniques mean that C&E firms often find themselves adding incompatible technologies onto their existing control systems, resulting in a poorly integrated and disparate network of software solutions. This constrains fiscal management as it is difficult to manage, distorts visibility across different project systems, and is more time-consuming and labor intensive to make essential updates to in the future.
C&E firms should deploy a simple, purpose-built system architecture that is not only designed for the industry but will evolve with it. An effective system architecture should seamlessly integrate different technologies and allow functions and processes to evolve as the industry changes. This will future-proof C&E businesses from the disruption of future digital transformation as technology continues to advance.
Building Profitability into Everyday Project Processes
It is in the everyday tasks, procedures and running of the construction business that long-term profitability can be achieved. Project managers need more than traditional business management systems to overcome the complex challenges that the C&E industry faces. Real-time data is needed to accurately forecast and guide projects rather than just passively reacting to where the market pulls the business. Construction financial software and system architecture is the only technology that has powerful enough functionality to enable C&E project and commercial managers to engage in proactive fiscal management practices and maximize project profitability.