Predictive analysis and forecasting go hand in hand as essential parts of the strategic planning process in the construction industry.  And when the time is taken to review, analyze and implement forward thinking strategies effectively, it is your company’s bottom line that is impacted.

Picture this:  for the first four months of a project, everything seems to be on budget and going as planned. Months five and six, however, the project gets stuck at 75% complete due to a delay in material production and delivery, and the budget starts to get tighter.  Month seven rolls around and there tends to be something in the air as several machines are all of a sudden needing repairs at the same time, two crew members are sick and another is hurt on the job. The project manager has to face the realization that the forecasted budget has now been blown out of the water and calls for a dreaded meeting with the management team in an effort to pull some type of profit out of a project that has gone south.

Sound familiar?  This sort of scenario happens to companies across the industry all the time.  It is not unusual for cost overruns and surprise expenses to send forecasted budgets back to the drawing board, scrambling for creative ways to get back on track.  

The solution?  Improved forecasting strategies are the only effective ways to avoid these types of profit-sucking scenarios.  Are your forecasting strategies accurate enough?

Working with construction companies and project managers to improve efficiencies and increase profitability, I have seen my fair share of inaccurate cost-to-complete (CTC) forecasting. Although forecasting all of the direct costs is an important element in developing an accurate CTC, it is the variables of those direct costs that are often the most underestimated.

Factors to Consider

Some of the most common areas in which predictive analysis can provide more accurate construction project CTC forecasting include the following components.

Expected costs:

• Planning and design
• Operational and supervisory labor
• Material production and/or delivery
• Equipment maintenance and usage
• Insurance and taxes
• Inspection and testing
• Contingent, or unexpected costs:
• Design development changes
• Schedule adjustments
• Wage rate changes
• Differing site conditions
• Material production delays
• Equipment repair
• New permit regulations

Ways to Ensure Successful Forecasting & Profitability

A truly valid forecasting technique is created from the collection, review and analysis of historical data. Predictive analysis is the practice of utilizing existing data to predict future trends and outcomes. A strong predictive analysis will include what-ifs and an overall strong risk assessment and management strategy.  

Make sure the data you are collecting is the right data.  Project managers can spend hours looking at the wrong reports.  It is worth the time to set up your company’s reports the right way from the beginning.  For instance, equipment inspection reports should highlight outliers, so that the focus can be on the right data and equipment downtime can more easily be predicted.

Pay attention to the trends and repeat past struggles. If past budgets show that your company consistently falls short, use this data to analyze common causes and make changes where necessary.

Review your data consistently. Failing to periodically review past and present forecasting data leaves your company vulnerable to understating, or overstating, rates on future proposals. This danger will ultimately impact your company’s profitability and could affect your competitiveness in the marketplace. Underbidding will hit your bottom line and overbidding may make you lose out on the award of a profitable bid.

It can be tempting to take last year’s budget and simply plug in a few numbers to draft your project’s CTC forecast, but this is a mistake. As a growing company, it is crucial to make informed decisions and financial decisions that will positively impact your profitability. Taking the time to build a new budget from the ground up every year – if not for every new project – will help you avoid the mistake of assuming contingent costs won’t affect your overall budget.

Rely on new technology to help you pull more accurate reporting for more accurate predictive analysis and forecasting with easy to use and implement apps such as eesyQ. With eesyQ, your company will easily standardize your daily walk-around inspections and provides valuable reporting in just two clicks. This one app can decrease your equipment downtime, optimize your revenue per hour, and easily access important data. Click here to schedule your free demo and see firsthand how it will impact your bottom line.