The construction industry continues to struggle to meet demand, with labour and materials shortages jeopardising project budgets and completion deadlines. Here, Carol Massay, head of construction at The Access Group, explains how having increased visibility of data is allowing finance directors to make informed decisions at peak capacity as well as mitigating risks.
The ongoing boom in the construction industry finally resulted in the sector pushing past pre-Covid-19 levels at the end of Q1 2021. While construction output in March was the highest (£14.3bn) since the first lockdown was imposed twelve months earlier, construction firms continue to face delays and price rises due to shortages of imported materials such as timber, steel and concrete.
This is increasing the pressure on finance directors (FD) at construction firms to plan ahead and mitigate serious risks and delays in their supply chains. To identify risks ahead of time, finance directors rely on information from multiple sources. Without project updates, cost-value reconciliations and business performance in one place, this information can get lost between the on-site, commercial and finance teams.
Implementing cost-value reconciliation
It’s highly unlikely that prices will stabilise any time soon, as the industry continues to struggle with the repercussions of Covid-19 and Brexit.
By implementing a central system, FDs can monitor all financial data for a construction project while drilling into the details for costs, revenues and retention balances for both clients and subcontractors.
Using cost value reconciliation (CVR) summary data from all projects, it is easy to deal with any overspend or under recovery, as well as prepare monthly management and period end accounts any time. CVR allows you to establish profitability and the status of work in progress quickly and easily. Key personnel can input and adjust profitability, cost, revenues, subcontractor liabilities and valuation adjustments from one smart dashboard, within a secure environment.
A fully digitised CVR process helps project teams better track monthly expenditure and revenue, ensuring project cash flow forecasting information is easily shared with the finance director who is ultimately responsible for the financial stability of a project and the company.
Manage price instability
The Construction Leadership Council (CLC) recently warned that the ongoing materials shortage is set to continue and prices could continue to rise, with timber, steel and concrete resources particularly strained.
While these shortages are no secret to the industry, it can be difficult to identify when costs begin to spiral, potentially jeopardising the overall profitability and success of a project, not to mention impacting overall business performance.
Using integrated systems assists in viewing and reporting on all cash book payments and receipt transactions with ease across multiple companies and bank accounts. It processes additional payments as required and automatically writes all payments from each module to the cashbook, providing real time visibility of your cash flow to stay in control of costs.
Transparency and analytics
One of the most important tools finance directors and management teams can use for more efficient business decisions is an accurate and up-to-date analytics dashboard.
Dashboards give businesses full visibility and intuitively present both graphical and list displays to see the trending data over any chosen period. The capability to obtain the current project, client, supplier, subcontractor and consultant financial information in a transparent, central system not only saves time, it also allows you to focus on what’s beneficial for your business.
Accessible from anywhere
This type of centralised technology not only focuses on providing visibility across projects, but also saves time and improves communication among contractors and subcontractors.
When web-based, it is accessible from any device, anywhere and anytime. Staff working on-site can instantly access and submit key data to the Enterprise Resource Planning (ERP) system, rather than keeping all the information in their head until they get back to the office, thus preventing confusion in delivering important data.
There is a great deal of strain on the construction industry to improve communication, costs and increase control and it is becoming vital that FDs implement the right systems to reinforce their operations. Investing in ERP software means that on-site and office-based teams can maintain full visibility and control of projects from start to finish, as well as mitigating the impact of disruption.
Companies can gain full visibility of all processes, identifying areas where productivity could improve, and helping the entire construction cycle run more efficiently in the long run as well.
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