Prior to COVID-19, the construction industry was on a slow and steady growth trajectory with stable forecasts across most sectors for 2020. Today, the industry is still working against a variety of state-level social distancing guidelines in addition to facing stalled or canceled projects, delays in materials, labor shortages, and workplace safety concerns. As a result, construction management and financial teams are under increased pressure to maximize margins on jobs, maintain or even decrease operating costs, and timely deliver analytics to reduce business ramifications with very different outlooks for recovery.

This article will explore some ways the pandemic has changed financial forecasting and how construction companies can benefit from technology during this time of unexpected market change.

Construction Outlook Remains Unclear

Some of the disruptions that the pandemic has had on the construction industry include jobsite shutdown orders, new procedures to comply with social distancing requirements, as well as material, fixture, and equipment delays, resulting in increased uncertainty on the outlook of the construction industry.¹

According to September 2020 results from CFMA’s CONFINDEXTM survey, 47% of CFOs believe it will take 1-3 years to regain momentum, 26% believe the market is beginning to rebound, and 19% say it could be in recovery a year from now.² These divided viewpoints and conflicting sentiments emphasize how construction companies and contractors need to rely on data in addition to industry trends as guidelines for their forecasting.

This is especially true when organizations are also working within different industry subsectors or geographic regions with different regulations. For example, this is important when reviewing CFMA’s 2020 Financial Benchmarker Results, which found that 71% of organizations surveyed identified

as an S corporation, which does not pay a corporate-level income tax, vs. 14% that identified as a C corporation.³ When you look at the ratios at a high level, they may be relatable to your business; but if you dig deeper, the mix of respondents more heavily favor S corporations. This emphasizes the importance of various peer groups and finding ones with which you most closely identify.

While some jobsites have been allowed to resume operations, not all owners and developers are moving forward with new construction projects.

The jobsites that have resumed have done so with restrictions and guidelines related to social distancing, mask wearing, cleaning, and other safety protocols related to COVID-19 in place. According to a survey conducted by Engineering News-Record, as much as 92.7% of CFOs surveyed noted they had project postponements or delays due to COVID-19.4 Many are worried about the near term but believe that they will see a rebound by the end of 2021, as a larger portion of the population becomes immune and construction spend picks up again from private or public funds.

Pandemic-Related Business Changes

Financial Administration

COVID-19 is forcing construction management to make changes to their internal operations, especially financial administration. Jobs that are moving forward may experience delays due to employees getting COVID-19 and/or having to quarantine, interruptions in the supply chain, postponements in delivery of critical building materials, and elevated costs to implement legally required safety measures at jobsites. Many contractors still have stalled or canceled commissioned construction projects and, as a result, the normal flow of cash has changed considerably. Often times without the right technology, they are figuring out what areas of operating costs can be cut while still maintaining a functional and efficient business. Running countless “what-if” scenarios and updating data sets manually makes the process of forecasting and business modeling unpleasant for most.

Backlog Reports

Backlogs coming from work-in-progress (WIP) reports have also become even more valuable in the current environment. Construction CFOs must look at each job in the backlog, assess the likelihood of the job continuing, and adjust as necessary to ensure estimated profits are enough to cover overhead expenses. For some contractors, in order to turn a profit, backlog gross profit must exceed 50% of general and administrative expenses, but if backlogs are falling, costs may be cut elsewhere.

Cash on Hand

CFMA’s 2019 Construction Financial Benchmarker Results showed a range of 18.5 to 21.3 days of cash on hand.⁵ In 2020, these results displayed an extreme shift at an average of 21.⁴ days of cash on hand, with smaller companies averaging almost 25.6 days, mid-market companies averaging 20 days, and larger companies averaging 23.6 days.⁶

This metric alone highlights the change in asset handling, cash management, and planning that construction companies have had to undertake and how dynamic, real-time forecasting and reporting can aid in their fight to maintain business continuity.

Without dynamic processes for the aforementioned forecasting and reporting in place, construction companies are wasting time and resources they cannot afford to lose for labor-intensive and error-prone financial reporting.