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Financial forecasting is a difficult task in any industry. In construction, where companies need to manage volatile material costs, labour shortages and variation orders on a daily basis, fluctuations in budgets and costs make financial forecasting even more difficult. But the fact that profit margins in construction are ordinarily low means that many construction companies cannot afford to have a vague understanding, or assumptions, about their financial forecasting. 

An states: “When reviewing financial results per project, executives often lament the effect the few negative projects had on their overall performance.” For many construction firms, financial peril is only a handful of underperforming projects away. This makes accurate financial forecasting even more vital. While the financial uncertainty can feel disheartening, there’s good news. Today’s analytics tools are well-placed to reduce some of these forecasting difficulties and help construction companies achieve better financial visibility, improved risk management and higher profitability. 

Challenges Facing Construction Today

While the construction industry has benefitted from digital transformation in recent years, it still has a long way to go. In many firms, there has been scepticism around further digitalising processes beyond using email and spreadsheets. The “if it ain’t broke, don’t fix it” mindset can come into play in these more traditional companies. The same McKinsey article states: “The construction industry’s uptake of technology has been slow over the past several decades.” But this has led to a number of challenges:

Manual Errors When Entering Data

Human error is inevitable and relying on spreadsheets and manual data entry leaves your organisation vulnerable to these mistakes. In financial reporting and forecasting, a mistake can make a significant difference to the final figures, reducing the reliability of your data and potentially leading your firm into problems or disputes.

Data Siloes Causing Inconsistent Reporting

Data siloes occur when you have data housed in different applications or tools that don’t ‘talk’ to each other, for example some data resides in email chains and some in spreadsheets. This means that they cannot automatically update, so they won’t stay consistent unless you are able to regularly check the data and manually input figures across them.

Difficulty in Proactively Managing Budgets, Timelines and Vendor Relationships

Without a centralised, real-time view of your company’s budgets, payment timelines and adherence to construction programmes, it is a longer, more difficult process to get an accurate judgement of them.  

How Analytics Transforms Financial Forecasting

Financial analytics software is the key to solving each of these knotty administrative issues. With financial analytics, you not only gain clarity into the accurate state of your cost and budget data, you also gain the ability to make timely data-driven decisions instead of making decisions on guesswork. 

When correctly implemented, a financial analytics platform gives you real-time dashboards that executives and project managers can use to gain an at-a-glance view of the financial health of all projects and the business. It also offers predictive insights that highlight any variances in expected and actual figures, as well as raising early warning signs for financial risk areas. Preconfigured workflows capture data at every project stage so firms can trust that their forecasts are accurate and up to date.

Three Core Benefits of Financial Analytics Platforms

Clarity for Owners and Directors

One of the biggest benefits of financial analytics software is the clarity it provides for executive-level individuals who need to stay on top of financial data. People in these roles need to keep on top of the reality of the firm’s financial health, but may not have time to chase for data, hunt around in multiple systems or ask different staff members. Automated, centralised dashboards break down data siloes, eliminating the need to search for data in different places. They give users a clear understanding of whether budgets are on track and help support cost containment by providing early risk identification.   

Financial Transparency and Risk Management

Another key benefit of using financial analytics is the transparency it brings, which enables proactive, effective risk management. With all the data in one place, there is no excluded data which could give a false view of the financial status of either projects or the firm. Centralising the data in a ‘single pane of glass’ view provides the highest levels of transparency and visibility. The early risk identification mentioned in the last point comes into play here: getting early warnings of potential cost overruns means that you can proactively make tweaks that bring budgets back on course. This kind of risk management is not possible without the clear, early view of financial data that analytics gives you. 

Operational Efficiency and Collaboration

Financial analytics also empowers enhanced operational efficiency and collaboration. Having access to a unified data source guides everyone towards making better decisions and actions for the project. This creates a ripple effect of higher efficiency and smoother collaboration, as everyone is working from the same data. Deloitte’s reports that integrating digital tools “can augment workforce productivity by helping workers focus on high-value tasks”. With the reduction in manual work to keep financial data up to date, staff members are freed up to work on more pressing project work.

Practical Implementation Tips

Making the transition from working without financial analytics tools to using them can seem daunting, but there are some best practices that your firm can adopt to make the shift painless. 

• Conduct a technology audit

  Conducting a technology audit helps you assess your current data sources and flows, which will help you integrate them into a single system. Many organisations have ‘shadow IT’ — software which has been purchased without approval — so it’s important to find out the full picture of your IT and data.

• Undertake research for a tool that centralises all data

  Implementing an analytics tool that doesn’t integrate with all of your data sources will make limited improvements to an already fragmented data ecosystem. It’s important that you do your research and make sure that the solution you choose will create a centralised, single source of truth for your financial data.

• Set up automated reporting for key indicators

  It’s a great idea to set up automated reporting for key indicators, including cashflow projections, cost-to-complete and earned value. This means that the platform will generate these reports at a regular cadence without needing manual intervention, making your reporting and analysis even easier.

• Train teams to make decisions using data

  New tools are only as good as the people who are using them, so it’s crucial that you provide sufficient training to the team members who will be using the financial analysis capabilities. This will help them to make data-driven decisions and harness the benefits of implementing the software. Consider learning and communication styles, testing and incentives to increase the success of adoption. 
  
  By implementing financial analytics capabilities into your company, you’ll not only gain a clearer picture of the real state of budgets, you will also reduce guesswork and empower your teams to make strategic, data-driven decisions. Financial analytics is just one area of a broader construction analytics ecosystem, but it’s one that can instantly benefit your firm and deliver clarity from pre-construction all the way to project handover. 
  

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