Forecasting and the Construction Firm:How to do it and why you should bother
Table of ContentsWhat is forecasting and how is it used?................................................................ 3...
What is forecasting and how is it used?With the construction industry unwinding itself from the earlier holding pattern an...
Forecasting can help constructioncompanies large and smallSince construction projects often extend for months or even year...
obtain insight, according to Construction Executive.4 This will allow everyone to quickly work theconclusions into their d...
Sage15195 NW Greenbrier PkwyBeaverton, OR 97006-5701800-628-6583www.SageCRE.com©2012 Sage Software, Inc. All rights reserv...
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Forecasting and the Construction Firm: How to do it and why you should bother

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With the construction industry unwinding itself from the earlier holding pattern and looking to the
future, many firms will be devising strategies for building their business. But planning budgets and
thinking about potential expansion down the road are hard to do if a company doesn’t know what
its current financial standing is.
Forecasting helps answer questions, such as whether offering discounts is a feasible option, if the
company is in a place to accept new projects and where it may be “from a break-even standpoint”.1
Typically, a CFO would be able to use forecasting to answer these questions, but the task is extremely
helpful even in smaller organizations. From multinational corporations to local independent companies,
employees have to fulfill multiple responsibilities, including creating business reports on the state of
the company.

Learn more at the http://na.sage.com/sage-construction-and-real-estate

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Forecasting and the Construction Firm: How to do it and why you should bother

  1. 1. Forecasting and the Construction Firm:How to do it and why you should bother
  2. 2. Table of ContentsWhat is forecasting and how is it used?................................................................ 3Forecasting can help construction companies large and small ............................. 4A few tips regarding forecasting, and using software to help ................................ 4Conclusion........................................................................................................... 5 2Forecasting and the Construction Firm: How to do it and why you should bother
  3. 3. What is forecasting and how is it used?With the construction industry unwinding itself from the earlier holding pattern and looking to thefuture, many firms will be devising strategies for building their business. But planning budgets andthinking about potential expansion down the road are hard to do if a company doesn’t know whatits current financial standing is.Forecasting helps answer questions, such as whether offering discounts is a feasible option, if thecompany is in a place to accept new projects and where it may be “from a break-even standpoint”.1Typically, a CFO would be able to use forecasting to answer these questions, but the task is extremelyhelpful even in smaller organizations. From multinational corporations to local independent companies,employees have to fulfill multiple responsibilities, including creating business reports on the state ofthe company.“Many owners are satisfied to see money coming in, bills being paid, checks clearing the bank andthe accountant preparing the company’s tax return,” notes Gregg Steinberg, president of InternationalProfit Associates.1 “In addition, most owners are wrapped up in day-to-day operations and don’thave time to look at the company’s long-term growth and stability; however, this approach leavesvaluable money on the table.”An added benefit of forecasting is that it can give you more insight into cash flow, catching potentialsnags in profits and other problems that can affect the business down the line. In an industry likeconstruction, where the funding for one project often comes from the revenue of another, maintaininga steady and reliable stream of cash is vital to survival.The firm will have no hope of growing if it is only treading water. It needs tools to help it criticallyanalyze its current position and devise strategies for advancing in its market. This is where businessforecasting software can help.As Ken Kaufman, the president and CFO of CFOwise, notes, forecasting can be a valuable undertakingfor any enterprise, especially those that have “less predictable revenue streams and cost containmentefforts,” such as construction firms.2 When developing the forecast and the corresponding budget,be sure that the outlook takes into account variable factors and is regularly updated-things canchange fast in the construction industry.While at first glance, construction forecasting may seem similar to project estimating, the two fields areactually quite different. Estimations are typically related to a specific project, and take into considerationresource costs, the amount of work required and the total expense.3 Construction forecasting looksat factors outside and inside of the company, including economic conditions, the demand forservices, the performance of competitors in your region, the availability of skilled labor and a host ofother components. 31 http://www.constructionexec.com/Issues/August_2008/Special_Section3.aspx2 http://www.openforum.com/articles/why-you-should-reconsider-your-business-forecasting-strategy3 http://www.misronet.com/estimating.htmForecasting and the Construction Firm: How to do it and why you should bother
  4. 4. Forecasting can help constructioncompanies large and smallSince construction projects often extend for months or even years, it’s vital to know exactly how ajob will impact the rest of the business and to note if it has the potential to affect other work or partsof the company.In addition to improving the profitability of a construction firm’s projects, adopting a forecastingsystem can increase collaboration across the organization, since everyone involved in makingimportant decisions will have access to the same information, ensuring they are all coming to thediscussion equipped with the same facts and figures.Construction Executive magazine notes when each party engaged in a particular project knowsexactly how it is progressing, they are able to make better judgments about whether deadlines arerealistic or what budget rearranging must be done.4More businesses are using forecasting software and automating their processes.5 According to MichaelFauscette of the International Data Corporation, many organizations are spending more money onthe technology that can help them work smarter with the resources they have rather than on hiringemployees who will enable them to work more at a higher cost. Spending on automation software hasclimbed 26 percent, he notes, and is becoming more popular in service sectors.Companies are also turning to forecasting software and other solutions in order to determine howthey can increase their productivity.“Companies have come to the realization that technology, particularly software, can be a competitiveadvantage and serve to level playing fields between large, medium and small companies,” Fauscettenotes.5 “Through technology, companies can significantly increase productivity, lower costs, engagenew markets, innovate on business models and products, etc.”A few tips regarding forecasting,and using software to helpSometimes, a cost-conscious company will try to avoid additional expenses by using a basicspreadsheet for its forecasting process. However, this short-term solution can actually createmore problems than it solves in the long run. Generic spreadsheets fail to provide the kind ofcontext necessary to see how future costs and other factors-such as inflation, taxes and materialprice increases-will affect your finances and operations. With software that works in tandem withaccounting and management solutions, you can optimize your forecasting while also getting anedge on the competition.By adopting a forecasting system that meshes the project management and financial divisionsthrough software integration, firms can make the entire process made much more efficient and can 44 http://www.constructionexec.com/Issues/September_2008/Special_Section2.aspx5 http://community.nasdaq.com/News/2011-11/software-spending-and-the-economy.aspx?storyid=100786Forecasting and the Construction Firm: How to do it and why you should bother
  5. 5. obtain insight, according to Construction Executive.4 This will allow everyone to quickly work theconclusions into their daily responsibilities and start achieving the desired results.If you do use spreadsheets, you open up the chances of an error occurring, because multiple peopleare entering information at different entry points.4 Those mistakes can go undetected for a long time,if they are caught at all, and that method of forecasting also takes up valuable time.Before starting to forecast, it will be necessary to gather some information, such as historical dataon the costs of past projects, as well as the relationship between variables outside of your controland of the company. those you determine (market demand vs. productivity).6 When undertakingyour forecasting project, focus on labor costs, incoming revenue and material expenses. Keep aneye on a few key areas, such as increases in wages, commodity prices, prior sales and importantcontracts that are starting or wrapping up.6 Once you have a forecast for what the coming monthswill bring, you can go about creating a budget. When your business’ success relies on the whimsof consumers looking to build a new house or a local company’s decision to expand, being able toquickly adjust your forecast and update your budget for the year can be a vital asset.“The rolling forecast is a powerful, forward-looking solution to help entrepreneurs spot key trends,make critical pivots and maximize their performance and results,” Kaufman concludes.2ConclusionCharging blindly into the future is not a solid business model, as many people learned in the yearsafter the housing bubble burst. By basing expansion and other major decisions on hard data, andforecasting the effects that current conditions will have in the future, construction companies inparticular can plan for growth in a way that identifies and plans for any risks.There’s no crystal ball to let you know where your construction firm and the industry as a whole willbe in the next year or further into the future. But with forecasting software, you can better managecash flow and make decisions that may insulate your business from major economic shocks. 52 http://www.openforum.com/articles/why-you-should-reconsider-your-business-forecasting-strategy4 http://www.constructionexec.com/Issues/September_2008/Special_Section2.aspx6 http://www.misronet.com/estimating.htmForecasting and the Construction Firm: How to do it and why you should bother
  6. 6. Sage15195 NW Greenbrier PkwyBeaverton, OR 97006-5701800-628-6583www.SageCRE.com©2012 Sage Software, Inc. All rights reserved. Sage, the Sage logos, and the Sage product and servicenames mentioned herein are registered trademarks or trademarks of Sage Software, Inc., or its affiliatedentities. All other trademarks are the property of their respective owners. 12-02329 05/12

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