How forecasting can help improve your bottom line

Construction companies are always looking to set themselves apart. To succeed in today’s climate, smarter forecasting can change the game.

Construction companies are always looking for ways to set themselves apart from the competition. To succeed in today’s climate of fierce competition and razor-thin margins, you need to be forward-thinking in your management style.

Traditional approaches to business visibility (e.g., reporting, monitoring, and analyzing) are important and can help you gain insight into what has already happened and what is happening now, but having a solid understanding of what might happen in the future can help give you that competitive advantage.

Start by making forecasting an integral part of your business planning cycle. Your business planning cycle should look something like this:

  1. Analyze Data
    Consider information about company performance, your projects, the economy, and the marketplace.
  2. Identify trends
    Take note of patterns in your performance, marketplace trends, and other key indicators (such as material and labor costs).
  3. Forecast performance
    Apply your findings to predict how your business/projects will perform in key areas.
  4. Plan and budget
    Use forecasts to plan for the future (“Should we hire more workers?”) and to help scope projects (“Do we have the funds to cover cash outflows?”).
  5. Execute
    Act decisively based on your plans but prepare to make course corrections, as needed.

Be sure to forecast at both the business and project levels as well as for external forces. At the business level, your forecasts help you develop your budgets, establish a vision for the future, and create benchmarks to measure and reward performance. Use predictive indicators such as customer satisfaction, sales pipeline, and accounts receivable turnover to help you create your forecasts.

Construction Executive’s Guides to Business Visibility

Are you running your business through a “keyhole?”

Our series of interactive guides provides step-by-step instructions on how you can turn data into a blueprint for sustainable success. Download Guides

Construction site

Business forecasts to consider include backlog, new contract awards, direct and indirect costs, cash flow, net profits before taxes, gross margin, and revenue. Review your forecasts and examine any areas that show a significant change.

For example, be leery of forecasts that have your gross margin making a big leap. Costs that are high today will likely remain so in the future. When forecasting revenue, embrace your aspirations and build at least one set of projections with aggressive assumptions. Of course, you’ll also want to put together a contingency plan in case actual results fall below projections. It’s usually a good strategy to plan for the worst but project for the best.

Each project must be controlled carefully from beginning to end. Forecasting plays a vital role in identifying potential problem areas—after all, how can you know when a project gets off course unless you first understand the destination? Successful contractors are systematic with their project forecasts, typically requiring finance and operations to work together to provide monthly project forecasts.

Construction forecasts typically rely on accurate and timely input from field management for information such as percent complete and units in place. From these indicators, you can derive a forecast variance and make adjustments. To improve the timeliness of this data, companies are increasingly providing mobile access so field personnel can record project progress from the job site. Key project areas to forecast include net profit, cash flow, cost to complete, and equipment resources.

In addition to making projections regarding internal business performance, it’s important to consider how external factors will impact your organization. For construction businesses, these external driving forces typically fall into five categories: economic, political, social, technological, and environmental. Some questions to consider include:

  • Economic: How are financial markets performing?
  • Political: What new regulations are on the horizon? Where are taxes headed? How will government spending affect available work?
  • Social: How will an aging population and the effects of the pandemic change the type of buildings and services in demand?
  • Technological: How will innovations in mobile, cloud, and BIM impact the industry?
  • Environmental: In what new directions will the “green” movement pull the industry?

Without a crystal ball, the best way for construction executives to understand these forces is to use a method called scenario planning. According to the Journal of Accountancy, scenario planning is focused on answering three questions: 1) What could happen? 2) What would be the impact on our strategies, plans, and budgets? 3) How should we respond?

As with most business strategies, scenario planning is only as effective as the actions you take. Be prepared: develop a playbook to respond to various triggers identified during the planning process. This allows you to take proactive steps quickly and strategically, protecting—and potentially helping—your bottom line.

ERP software: 8 benefits of Enterprise Resource Planning systems

Learn what Enterprise Resource Planning (ERP) systems are, how they can benefit your business, and how to implement them effectively.

Keeping your business profitable takes continuous management of all the resources that make it up.

Letting this slip leads to inefficiency, which increases your costs and reduces revenue.

There are many ways for you to stay on top, but as your business grows, this can get more complex.

Before you know it, you’re juggling product stock, cash flow, and people challenges all at the same time, with no way of improving these areas and ensuring they work together.

Enter enterprise resource planning (ERP) software.

In this article, we’ll explore what this type of software is and how it can benefit your business no matter how big it grows.

Here’s what we cover:

  • What is ERP?
  • 8 benefits of ERP
  • ERP in action
  • ERP implementation challenges
  • Final thoughts

What is ERP?

Enterprise resource planning (ERP) software lets you integrate and manage all your core business processes in real-time.

That includes everything from finance and HR to supply chain and customer relationship management.

In other words, ERP acts as a central, unified hub that connects your data and lets you improve processes across many areas of operations.

Where some businesses have specialist solutions in each department (e.g. one for paying employees, one for managing stock levels, and another for storing customer details), ERP users have the advantage of keeping everything connected.

This brings many benefits, particularly to complex, medium-sized businesses that struggle to extract the full value of multiple separate solutions.

8 benefits of ERP

1. Boost efficiency and productivity

ERP systems enhance multiple areas of operations and provide the opportunity to eliminate a large number of manual processes with a single solution.

For example, your finance team could automate generating invoices, while your sales team automates the processing of customer orders.

Since every corner of the system is working from the same data, any process that can’t be completely automated is at least streamlined.

You can reduce mistakes, duplication of effort, and the use of outdated information.

People from every team can do more with fewer resources, in less time, and with fewer mistakes.

2. Enhance data accuracy and integrity

Having a single source of real-time data for your entire operations is perhaps the greatest strength of ERP.

This gives every department the best possible foundation for decision-making since the information and insights they use are always accurate and used by other teams.

This is essential for strategic planning and resource allocation, which often relies on teams ensuring their goals and actions are aligned.

3. Improve collaboration

Speaking of alignment, the integrated nature of ERP makes it great for eliminating silos between your departments.

People can collaborate more easily, both within their teams and across functions.

The sharing of data and other resources, as well as dedicated features specifically designed for collaboration (such as those within project management modules), does the following:

  • Breaks down communication barriers
  • Facilitates smoother project execution
  • Keeps everyone on the same page.

4. Save costs 

Being able to efficiently allocate resources and get fast access to financial insights will help you consistently find ways to save costs.

For example, your procurement team could use an ERP system to manage and compare vendors, leading them to spot more competitive prices and negotiate better deals.

This can be the case for almost every area of the business, helping you directly use ERP to boost your bottom line.

5. Delight customers

A unified view of all your customer data allows you to find ways to delight those you service.

Customer relationship management (CRM) capabilities give you more control and visibility over every customer touchpoint, from tracking interactions and learning their preferences to receiving their feedback.

This gives you everything you need to tailor your services, offer more personalized and timely experiences, and build stronger relationships.

6. Simplify regulatory compliance

Many ERP systems have compliance features embedded into their modules.

This minimizes the effort required from your teams to ensure you’re doing everything correctly, whether that’s how you’re managing sensitive data, running your finances, or anything in between.

These features will be tailored to the region you’re working in and are often automatically kept up to date by the software vendor, which means you’ll be able to stay compliant even as rules change.

By removing so much friction from compliance, you’re not only protecting your business against potential fines and legal action, but you’re also able to instill more trust in stakeholders.

7. Scalable and adaptable

Today’s world is unpredictable.

ERP systems are designed to accommodate this by allowing you to scale different areas of the software as you need to.

If your business suddenly grows, or you need to quickly shift strategies, you can adjust the parts you need to suit.

For example, you might be pushing to expand your product line and need to integrate new sales channels.

ERP can evolve as your business does, and help you adapt to unexpected external shifts without compromising efficiency.

8. Data security and confidentiality

Most ERP solutions include robust built-in security measures that are perfect for protecting data confidentiality.

From encryption and access controls to regular security audits, they ensure the protection of any sensitive information you handle, which creates confidence among stakeholders and enhances your reputation in the market.

ERP in action

Organizations in every sector can benefit from giving their business processes a central hub.

By linking everything together, ERP can streamline your entire operations, from the point where your customers buy products to manufacturing and delivery.

Empire Candle is a great example of this. After a rapid growth period, the company brought in Sage X3 to help manage inventory and manufacturing.

This sudden expansion made determining supply to meet demand much more challenging, so an end-to-end solution to manage both efficiently was chosen.

Robert Turtledove, president and CEO of Empire Candle, says: “The right systems don’t just make IT better or technology better. They make the company better.

“That’s what you want. This is the central nervous system of the company.”

Having such control of operations has saved Empire Candle 30% of unproductive labor, and productivity increases have helped the company save around $400,000 per year.

ERP implementation challenges

Leading ERP solutions are designed to be fast and easy to implement, even for complex businesses. However, some common challenges can arise if you don’t take a considered approach.

Here are the hurdles you might encounter and some strategies to overcome them.

Challenge 1: Resistance to change

It can be difficult to get employees on board with new processes and technologies, especially if you’re a long-established business and your people have been doing things the same way for a long time.

You need them to buy into the new system, otherwise it won’t be used to its full potential.

Solution 1: Conduct training

A lot of the resistance will be down to a lack of confidence or knowledge of how to use a new system.

If you conduct comprehensive training and highlight the benefits, most will see the value and start to embrace it.

Also, offer ongoing support and ensure everyone has the resources they need to stay current with the software and its capabilities.

Challenge 2: Data migration

To make the transition as smooth as possible, you’ll need to migrate the data from your existing solutions into the new ERP system.

This can be an intricate and lengthy process, and if done incorrectly, data discrepancies can cause problems later.

Solution 2: Meticulous planning and testing

Think about how you’re going to migrate data well in advance of bringing the ERP system in.

Create a detailed plan for extracting data from each existing solution, working closely with current vendors to ensure accuracy.

You can also ask the ERP vendor which additional tools can be used to transfer data.

Once you have the system in place, do some data validation and testing before it goes live.

Challenge 3: Customization

Being able to customize ERP is great for helping you achieve specific business goals.

However, sometimes this introduces some system instability that you may have to compromise on.

Solution 3: Set priorities

Identify which customizations are essential, and which you could live without.

Work with the ERP vendor to understand what sacrifices each might require, and let them guide your decisions on tailoring the solution.

Challenge 4: Integration with existing systems

Even with a new ERP system, you may still have some software that you want it to integrate with.

This can present compatibility issues, but if you neglect integration, you’re more likely to maintain the silos that ERP is so good at eliminating.

Solution 4: Compatibility assessments

Work closely with ERP vendors to assess compatibility before committing to bringing in their solutions.

When researching your options, ask whether systems have APIs that allow integration, and work with third-party IT experts if you need to.

Challenge 5: Budget overruns

As with any large implementation project, there is always the potential for the budget to creep beyond your initial estimations.

This can be down to how the implementation is managed–both by your own team and the ERP vendor–as well as the technical complexity of the solution itself.

Solution 5: Cost analysis and planning

Before bringing an ERP system on board, conduct a thorough cost analysis and err on the conservative side.

Ensure you have contingency plans in your budget to create some room for unexpected mishaps that require more money to solve.

Take a phased approach to implementation, starting with critical functionalities that provide the most value.

To control costs internally, create a detailed implementation plan that outlines tasks, timelines, and responsible stakeholders.

Final thoughts

When implemented correctly, ERP systems can help you better manage your business operations.

Having a single, fully integrated system for all your departments will help you work more efficiently, give you faster access to insights, and reveal ways to enhance profitability.

Bringing in an ERP system also gives you the opportunity to get rid of all those under-used apps that aren’t adding much value and that may even be creating friction between your teams.

With this in mind, think of ERP as a strategic investment that could not only boost operational efficiency but also improve your internal culture by removing barriers and making life easier for your people.