Increase Project Success With Construction Profit Forecasting
There’s no crystal ball to accurately predict what the future holds, but when it comes to a contractor’s financial health, knowledge today can mean power tomorrow.
Thanks to technology advancements like the cloud, connected data and workflows, analytics and business intelligence solutions, and even machine learning and artificial intelligence, contractors have the tools at their fingertips to collect, process and better understand the mountains of data their projects produce in ways they never had before. As more contractors modernize and add these technologies to their operational tool belts, the days of manual pen-and-paper processes, disconnected software, overflowing email inboxes and siloed workflows are finally being retired.
The result is data-driven contractors running data-informed projects in real time—all while saving significant time and operational costs, as well as growing those once razor-thin profit margins. But what if these same contractors could also see into the future and know—long before projects are even bid on—just how profitable they’ll be?
The truth is that the same data they’re using to build better today can also be used to create accurate project projections and profit forecasts to better anticipate and plan for the work ahead.
Knowledge on Tap
Construction projects have always produced mountains of data, but contractors languished for years to pull it all together in a way that made it make sense. Even if they could analyze that data effectively, it would likely be months after the work was done, meaning relevant findings were largely only visible in hindsight.
Thanks to the cloud and today’s connected construction management platforms, however, those mountains of data can now be easily filtered through powerful and user-intuitive analytic and business intelligence tools in mere minutes—in some cases, built directly into connected construction management software suites themselves.
The best part is that contractors don’t need a team of data scientists and hours of labor-intensive work to get to this level of insight. Virtually anyone can get the data relevant to them or their teams with a few clicks of a mouse.
It’s not unlike having the ability to run an advanced simulation to show how projects and cash flow will look if workflows, costs, productivity rates and more stay at current levels or if they’re improved. And predictive analytic tools can also help identify where gaps or shortcomings might exist, allowing contractors to better plan ahead and produce more efficient, higher-quality projects—and ultimately win more work.
Redefining Construction’s Profit Prophecy
It’s not just about maximizing output on current projects, though. When intelligent algorithms are applied to large sets of data, the results can dramatically alter how future projects will actually fare.
Take the issue of profit fade, for example. Long a challenge within the construction industry as a whole, profit fade occurs when unexpected costs arise, misuse of labor, equipment or materials occurs or rework is needed on the part of contractors when something goes wrong.
According to the Construction Industry Institute, unnecessary rework can account for up to 20% of a contractor’s project costs, which they’re usually having to eat upfront before getting paid for work in different stages of progress. Even if rework were just a mere 5% of total expenditures in the construction industry, that’s still a staggering $60 billion-plus in lost revenue each year—revenue that could be recaptured through predictive analytics and business intelligence.
Data analytic models can compare current and historical cash flow data with other data like equipment usage metrics, labor and material costs and productivity metrics, enabling contractors to better predict if there will be profit fade on projects ahead of time, helping them mitigate and possibly reverse trends.
Some of today’s connected construction analytic tools allow users to simply drag-and-drop data already collected and sorted into data cubes on the back end and make virtually any comparison or query they want. Data can be put through particular algorithms, and correlations between data sets that contractors didn’t know existed can be uncovered. For instance, if the application of a predictive algorithm determines that condition Y nearly always occurs after some event X, and condition Y is undesirable, then they might want to take a hard look at event X.
These revelations, along with other data-driven patterns, can be used to create new benchmarks for contractors to track work with. Benchmarking not only uses historical performance to anticipate and improve current performance, but it can be used to test the different hypotheses that predictive analytic algorithms are finding—a complete circle of construction data intelligence.
Bid Smarter, Win More Work
Beyond the day-to-day management of projects, technologies like machine learning and predictive analytics can also help contractors win more profitable work down the line. Project estimating teams can use relevant data culled together from previous projects to better inform how they assess future work. They can hand-pick the best possible opportunities and precisely bid on them to maximize profit opportunities.
It can also help identify the right places and time frames to purchase things like materials or equipment or predict things like potential time lost due to expected weather patterns over the course of long projects to help optimize team performance. All of these and more can cut down expected costs and deliver more accurate bids. Or, it can help contractors build in more reliable wiggle room on projects, so they’re not having to consistently dip into cash reserves to cover their work in progress.
In a world where even a few hundred dollars can make or break winning a job or not being profitable, this is more important than ever. Especially as we begin to emerge from a global pandemic and more infrastructure and construction work becomes available, bidding is more competitive than ever and the ability to deliver quality work is being valued even higher.