Forecasting is at the heart of construction project success.
It's more than a financial exercise. Sound forecasting is the cheat code to success. Check this guide and find out how to deal with the forecasting process.
Forecasting in construction is the process of making predictions of a construction project's possible costs and outcomes. Forecasts are based on an analysis of past projects and current project data.
Forecasts are not wild guesses. They clear out the uncertainties around the project cost and help define clear objectives for all parties involved in a delivery.
"Forecasting tends to be looking into the future, trying to predict what the future budget is to be."
There are a few factors that you need to consider to deliver the most accurate cost forecasts:
How do you build cash flow forecasts when work hasn’t started yet?
You’ve probably delivered similar projects so look at the historical data and try to analyse:
Try to compare your company's current situation to the information from past projects. What has changed? The analysis should give you an idea of possible expenses and a solid base for further forecasting.
To predict a project's cost, you need to know what the project is about.
It seems simple, but we often focus only on the most critical and general tasks in project forecasting.
Unfortunately, the devil is in the details. And these details can heavily impact our project duration and final cost.
Work Breakdown Structure (WBS) is a project broken into deliverables with defined costs, scope, and deadlines.
With WBS, you can define and organise project tasks to deliver work with the desired budget, duration, and quality.
Project duration is strictly connected to the project scope.
A construction project is a network of related tasks that occur in a specific order. After all, you can't build something from materials that haven't arrived.
That's why in creating your WBS (or any other technique you choose to predict costs), pay attention to an expected delivery date.
Don't be a project manager who works too optimistically and gets hit with delays at every corner.
Instead, use historical data to see how much time your team took to complete specific tasks.
Leave some wiggle toom for unforeseen delays.
Also, consult your team on proposed deadlines, and as the project launches, track the delivery and end result to start with even more accurate data next time.
Did you know that labour accounts for 20% to 40% of a project cost?
It’s an essential expense that’s extremely difficult to predict.
That's why you shouldn't focus only on working hours in your forecast.
Instead, try to break your project into smaller deliverables requiring unique skills or assets to complete.
Once you know what key skills are necessary to deliver a task, you can assign an appropriate team member and calculate their working time.
Project forecasting is not just "pure guesswork."
At the same time, it's easy to make a mistake and create a forecast that ultimately does not fit how things are.
Why? Many factors can impact your business:
As a project manager, you must manage all these aspects to deliver accurate forecasts.
"A major challenge when it comes to cost forecasting is having access to data points that accurately describe all aspects of a given construction project.
“For example, if there are no exact comparisons or historical data available due to unusual conditions or complexities associated with a particular job site or job type – then predicting accurate costs becomes difficult."
A construction project is collaboration at its finest.
It's constant communication with your team, subcontractors, and suppliers.
And it can be one of the biggest obstacles in consistent cash flow forecasting. Why?
And you still need to manage your contractors and deliver sound forecasts in this information chaos.
"Don’t forget the human factor – stay in close communication with your team members throughout the process so that any changes or discrepancies can be identified quickly and avoided altogether."
Lisa Dietrich, Partner at Girokonto.io
The construction industry is unpredictable (understatement).
Could you imagine the global pandemic, interrupted supply chains, and rising inflation a few years ago?
Many external factors can change your project reality completely:
At the same time, many construction projects last more than a year. And in a year, anything can happen.
So, how to know how much money you'll need if you don't know in what reality you'll be operating?
Unfortunately, it's a challenge for every forecaster. And it's one of the most common reasons for exceeding budget.
"The main challenge lies in obtaining reliable and accurate data which is representative of the project, while also taking into account external influences such as market trends and inflation.
"The main challenge lies in obtaining reliable and accurate data which is representative of the project, while also taking into account external influences such as market trends and inflation. “It’s essential that all estimations are based on up-to-date information and fluctuations in order to avoid future issues or budgeting problems."
Robert Hoffmann, CashbackHero
Creating accurate forecasts takes a lot of work due to fast and unpredictable changes.
One of the techniques to deal with it is never to stop re-forecasting.
Re-forecasting has many benefits:
Your forecast shouldn't be a static document you create before work starts and then forget about it.
If you do that, you end up with a worthless set of numbers that doesn't help your project.
Instead, you should revisit your calculations regularly and adapt them to the new reality as the project progresses.
The people you're working with are key to your forecast success.
Your contractors, suppliers, and employees often know better how much time, money, and effort each task takes.
Also, they're first to know if any change occurs and if there's a need to update the forecast.
That's why, try to foster a collaborative environment with continuous improvement and communication.
Without it, you're left alone with a much higher chance of inaccurate forecasts.
"The most efficient technique for accurately predicting future costs is to use analytical software that takes into account historical performance metrics from previous projects and combines them with real-time data from current projects in order to create meaningful projections for future jobsites."
You can do your forecast on paper or in Excel.
But you must know that it exposes you to a much higher risk of mistakes. Not to mention extra time and effort spent on manual calculations.
But why else shouldn't you use traditional tools for forecasting?
Luckily you don't have to.
Nowadays, many solutions can speed up your work and support you throughout the process, like Archdesk.
Archdesk is a construction business management platform that provides solutions for construction-specific challenges.
Our platform supports cost forecasting and delivery of construction projects giving you a complete overview of your company's financial health.
With the use of technology, you can automate your forecasting process. And definitely, you should.
It will free you from manual and repetitive time, giving you more time on tasks that counts, like analyses and strategic decisions.
You can automate your processes with the use of software like Archdesk. The system assists in repetitive tasks like gathering data and creating reports.
Thanks to that, within a few clicks, you can track the changes, update tasks' importance, and verify contract specifications without spending long hours on it.
Of course, you can also manage without automation, but in a highly competitive construction market, it means losing customers to your competition.
"Accurate forecasting is imperative, and where spreadsheets and unconnected data can kill business.
Archdesk helps your business forecast the actual, not the assumed, enabling you to make informed and meaningful decisions based on a holistic “Control Centre” of your business cash and the related activities influencing it."
Having the same data stuck in different files or departments is a nightmare for anybody building forecasts.
That's why try to build a forecasting workflow. It means a sequence of steps to fulfill to create an accurate cost prediction.
You must also collaborate with your team and stakeholders to make it work. After all, they have data essential for your calculations.
Without a proper workflow, you risk organisational chaos, much longer and inefficient forecasting process.
They can be built in a construction system, like Archdesk, but you can also use more traditional methods.
A quality project delivered fast and with a small cost - a dream of every construction business.
Many forecasters succumb to this temptation and create forecasts that look fantastic on paper but have no real chance.
That's why try to create at least two forecasts. One optimistic and the other more conservative (with less favorable external conditions).
It may be discouraging to create more than one forecast. It takes extra time and effort. Also, it's counterintuitive as our brain likes certainties and precision.
But, creating more than one forecast has much more benefits than drawbacks:
The success of your forecast depends highly on external factors. One of them is your client.
Your clients aren't directly involved in the forecasting process but factor into budget and income.
That's why before starting your calculations, try to understand your client better:
With all these aspects in mind, you have a bigger chance to deliver a project that fits all expectations.
Is construction forecasting still foreign to you? It doesn't have to be.
It's a complex process, but once you get the knowledge, it will be easier with every new analysis.
Luckily on the Internet, there are many possibilities to improve your forecasting skills.
For example, on the Udemy platform, there's a course called Construction Project Cash Flow Forecasting which teaches:
The access is $19,90, but the platform often offers discounts or limited offers with courses for free.
Did you worry about cash in your project? Lying awake at night and analysing how much money it will take you?
Nocturnal forecasting is terrible for you and your business.
If you feel you've hit a brick wall and you're completely lost in your calculations, you can always invest in professional support.
Many financial forecast specialists can guide you through the process and show you step-by-step how to improve.
Sure, it will cost some money, but once you solve your blockers, it will be easier with each new forecast. And you'll be able to sleep soundly without worrying about another payment.
Properly prepared cost forecast has many benefits:
The most important rule in any type of forecasting: your calculations will always be wrong. But that’s completely normal as you cannot control everything.
Its goal is to show the possible project's path, with expected outcomes and predictions on how much cash (or other resources) it might require.
Based on that knowledge, you can adapt your strategy to manage your budget and obtain the expected level of funds.
Cash flow forecasting predicts how much money will come in and out of business in a specific period. It helps in establishing the cash balance and assures the company's financial safety in the long term.
Also, cash flow forecasting is extremely useful in deciding future projects and investments.
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