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Industry Insight Tips & Advice Trends & Technology Ultimate Guide

Why Forecasting Project Costs Is Important For Your Construction Business

From day one on a construction project, the number one question everyone has is whether the project will meet the expected budget. You can wait to answer this question at the end of the project when you can’t do anything about it, or you can assess where the project stands as you progress through the work, allowing you to act proactively if an overage is found. In order to assess the project costs before completion, however, you must forecast or predict the potential costs to complete the work.

A forecast to complete the project is a well-educated guess of how much you have left to spend to finish the work. It’s based on the current costs, the percentage of the project that’s complete, and what’s remaining to be finished. The better you are at tracking your costs, the easier it will be to predict how much is left to spend.

Before we get into how to forecast final costs on a construction project, let’s look at why it’s important to know how much the remaining work will cost you.

The importance of forecasting final costs

One of the primary benefits of forecasting costs is that you get an early warning if a project is losing money. Since many contractors rely on their profits to fund future work, losses on today’s job can quickly lead to real problems when it comes time to start the next one. Without adequate profits to fund the work, contractors have to rely on alternative financings, like bank loans or credit cards, that ultimately cost them more in the long run, further reducing profits. It’s a never-ending cycle of higher costs.

Predicting final costs also allows companies to identify their future cash flow needs and address any issues before they become real problems. If contractors know that they won’t have enough money coming in to finance their payroll or other necessary business expenses, they have time to move money from investments or seek lower-rate financing options.

Sometimes forecasting final costs can help contractors identify change orders that have been missed or haven’t been processed yet. If a change hasn’t been made to the project budget but extra materials have been paid for or work has been completed, it may show up as a cost overage. The contractor can then follow up with the owner or architect to determine the status of the required change.

Finally, forecasting allows companies to learn valuable lessons about the accuracy, or inaccuracy, of their estimates. If a contractor is always going over budget on labor costs, they will see that sooner and be able to adjust future budgets accordingly. This will make their estimates more competitive and lead to more work.

How to forecast final costs

One of the most important things you can do to help forecast final costs is to monitor costs as you go. If you’re relying on data from a single point in time to predict costs, it can be difficult to make the appropriate assumptions and gather enough data to accurately predict future costs. By tracking costs as you go, with an accounting system that supports job costing, you’ll be able to monitor the project’s progress and see cost patterns that may not be visible with a static report.

To forecast final costs, you’ll be looking at three data points: the amount remaining in committed costs, amount remaining in your budget, and historical costs. Based on these three data points you should be able to predict, with a reasonable degree of accuracy, the final costs for a specific scope of work. Let’s look at an example to help illustrate how these data points help predict future costs.

Let’s say we are forecasting costs for the concrete scope of work on a project. The contract with the concrete subcontractor was originally for $100,000, and they have billed $80,000 so far, leaving $20,000 to bill. This is the amount remaining in committed costs. Based on our original budget, we know that we still need to purchase some rebar that wasn’t part of the concrete contract for $5,000. We also know, based on reviewing past projects and the amount of work left to be finished, that we have about $30,000 in work remaining to be completed. So, how do we predict what our future costs will be?

Remaining committed costs:                       $20,000

Remaining in the budget:                                     $5,000

Historical data:                                                  $30,000

The answer will be somewhere between $25,000 and $30,000, depending on whether we are looking at it for cash flow reasons or to assess what our profit margin is for this particular project. Either way, we are using the three data points to inform our prediction and will continue to improve the accuracy of each prediction as we analyze the data on more projects.

What to do when you’re over budget

The second most important question, after “Are we on budget?” is what to do when you’re over budget. The answer depends on why you’re over budget.

  • If there has been a change in the project scope that affects the budgeted costs but hasn’t been reflected in a change order yet, that could cause an overage.
  • If there was an unforeseen condition, such as bad soil, that caused additional costs, this may cause an overage.
  • Or, if the general contractor or a subcontractor made an error in their work, that could also cause a budget overage.

Depending on the cause, the contractor will need to either ask for a change order or make an internal budget transfer. The internal budget transfer will move excess monies from one line item of the budget to another to help cure the overage. It’s important to note the reason for the transfer for future lessons learned.

How Premier helps you predict future costs

Premier has made forecasting future costs in your projects easier with its forecasting module. Using this module, project managers can account for unexpected costs and request internal budget transfers to cover overages.

To see how Premier can help keep your projects on track, request a demo.

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Author Biography:

Dawn Killough is a construction writer with over 20 years of experience with construction payments, from the perspectives of subcontractors and general contractors. Dawn has held roles such as a staff accountant, green building advisor, project assistant, and contract administrator.  Her work for general contractors, design firms, and subcontractors has even led to the publication of blogs on several construction tech websites and her book, Green Building Design 101.

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Industry Insight Tips & Advice Trends & Technology Ultimate Guide

Why is Software Support Critical to the Success of Your Business?

We know that changing financial and project management software can be stressful. The transition is often bumpy and can take several weeks or months to implement. With Premier Software you get the help and support you need throughout the software implementation and use process.

We help ensure that you are getting the most out of your investment and that your team is working at its peak efficiency. Here’s how Premier Construction Software provides you with the support you need to improve your business success.

Continue reading “Why is Software Support Critical to the Success of Your Business?”
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Features Industry Insight Tips & Advice Ultimate Guide

Are Project Management Solutions Really the Solution?

When shopping for construction project management software, it can be difficult to determine if it’s best to go with a standalone service or an all-in-one that includes accounting. Both have their pluses and minuses, and a lot depends on how you run your business and the size of your staff.  

Premier Construction Software provides an all-in-one solution for your project management, accounting, and financial data needs. And while standalone PM solutions may look attractive, they really create more work than they save. Here are some of the features that Premier provides that standalone products don’t. 

Real-time cost data 

Some standalone project management solutions sync data with the accounting software at the end of the day or when told to manually. So, the data that is represented in the PM solution can be hours or days old. Project managers can’t be sure that they are looking at the latest and greatest information unless they sync the data themselves. 

With Premier, project managers have instant access to all cost and budget data and details as soon as it’s entered. This includes updates to project estimates when budget change orders are approved. The software automatically updates the budget and creates progress billing lines. Project managers can be confident that the information they have, even when accessed on a mobile device in the field, is accurate and up to date. This helps them make better decisions about the project to keep it on schedule and on budget. 

 

Access to all financial data 

Some standalone solutions provide only general information about costs, such as subtotals by cost type or grand totals. Managers can’t drill down into the data specifics because not all the data is shared with the PM solution. 

Premier’s financial data isn’t based on what one program does and doesn’t share with another. All of its information comes directly from the source, allowing project managers to get the information they need, including details and documents. They can look at all costs for a cost code and type and determine if a transaction has been coded correctly, ensuring that costs are properly allocated. Using the forecasting module, PMs can account for unanticipated costs and request internal budget transfers to keep the project on track. 

 

Custom billing forms 

Some solutions provide standard billing forms (like the AIA G702 and 703), but there isn’t much flexibility. Or they only provide templates for generalized invoices. Companies have to create their own invoice templates outside the system to meet their client’s needs. Then that information has to be entered into the accounting software, creating two sources for original data. This double-entry can lead to costly errors. 

Premier’s customized billing forms allow you to design just the form you need to match your client’s requirements. This flexibility allows you to present your billing the way your client wants to see it without adopting a workaround. You only have to enter the data once and have access to all the documents and reports you need to support the billing. Need to make a correction? Instead of a lengthy voiding process, our software allows you to quickly make one-click edits and simple invoice reversals. 

 

Detailed reporting 

Some standalone solutions only receive summary cost data from the accounting system. The export of data doesn’t include detailed information or images of documents to help users research issues. If a problem or question comes up, workers must look at multiple sources to find the information they need. 

Premier offers the ability to drill down to specific transactions and get all the information you need to solve a problem or answer a question in just one platform. Reports can be customized to provide as much, or as little data as is necessary. From generalized summary reports to detailed transaction reports, PMs can get the level of information they need to keep their projects on budget. This allows project managers to quickly get the accurate information they need to manage the project and make key decisions. 

 

Equipment and inventory cost integrations 

Some standalone PM solutions don’t support inventory or equipment cost and revenue tracking. Most companies choose to track these separately in a spreadsheet or by hand as a workaround. This can lead to potential mistakes and inaccurate cost and revenue data. 

Premier’s integrated equipment and inventory modules provide tracking, costing, and purchasing tasks that help ensure the accuracy of billing and cost data. You can track equipment-related expenses and assign mark-ups by the hour, day, week, or month. It also enables you to track historical supplier pricing and assign custom billing prices with custom mark-up codes. This ensures your company gets the revenue it deserves when using its own inventory and equipment and lets you know when it’s time to invest in new equipment or purchase more inventory. 

Automation 

Some PM solutions offer little or no automation of tasks. In addition, because data must be entered into the accounting system and the PM system, they require double the amount of work to keep data accurate in both systems.

Premier allows automation of routine and repetitive tasks, like repetitive invoice entry and automatic pay when paid payments. In addition, when an approved change order is received, the software auto-generates progress billing lines and creates and emails subcontract and purchase order change orders to subcontractors and suppliers. This saves workers time and creates workflow efficiency. 

And now for our verdict…

Premier allows contractors and subcontractors to get the real-time data they need to the level of detail they require, provide custom billing forms, track equipment, and inventory expenses and revenues, and take advantage of automation to increase productivity and efficiency. For more information or a free demo, invest in your business and contact Premier today.

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Author Biography:

Dawn Killough is a construction writer with over 20 years of experience with construction payments, from the perspectives of subcontractors and general contractors. Dawn has held roles such as a staff accountant, green building advisor, project assistant, and contract administrator.  Her work for general contractors, design firms, and subcontractors has even led to the publication of blogs on several construction tech websites and her book, Green Building Design 101.

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Industry Insight Tips & Advice Trends & Technology Ultimate Guide

Demand VS Supply in the Construction Industry

The current state of the construction industry is one of challenge. Contractors are in incredibly high demand for renovations, new home builds, and other projects. They’re poised for serious growth, except for one thing: There aren’t any affordable materials.

 

Demand VS Supply: What happened?

The pandemic caused a wild amount of demand for contractors and a shortage of materials. In the past, whenever either condition existed, it has pushed the price of building up. In today’s construction industry, it’s pricing both contractors and prospective project owners past their affordability breaking point.

Contractors are in High Demand

Contractors are in such demand because people want change. With so many folks leaving large cities for greener spaces, or so many working from home and needing a new environment to look at, contractors can’t answer the phone fast enough. These customers want to build new homes, renovate fixer-uppers they purchased in the country, or simply spruce things up a bit. And most of them want to hire a contractor to do it for them (keep “most” in mind).

Building Materials are in Short Supply

But, with materials manufacturing taking a massive hit during the pandemic, there just aren’t enough affordable materials around. With government imparted shutdowns, social distancing requirements, and a general lack of staffing across all industries, the amount of lumber hitting the shelves isn’t what it used to be. And, for the contractors that are able to find materials, they’re extremely expensive.

Workforce Shortages

For materials that aren’t necessarily in short supply, such as stone in the domestic mountain used for building products, or materials waiting at sea to be unloaded, the issue is a workforce shortage. With so many people choosing to remain out of work, material production can’t ramp up. And, there’s a lack of qualified truck drivers to move the materials that are produced. 

DIYers Played a Part

Consider this interesting point: DIYers caused some of these headaches as well. With so many people staying home instead of taking expensive vacations, many decided to tackle renovations and fixer-upper projects on their own. They headed down to the local home center or lumber yard and strapped studs and joists to the roof of the family sedan. This one group may have been responsible for the apparent disappearance of pressure-treated lumber in 2020, as new deck builds are a favorite of DIYers.

Governmental Impacts

Let’s not discount the effect that the government has had on the situation. The Biden administration imparted an 18% tax increase on softwood lumber coming into the US from Canada. Also, tariffs on concrete shipments from Japan are making a challenging scenario even worse. 

Issues for the Construction Industry

This chain of uncanny events is doing one thing: Making construction of any sort more and more expensive. Materials that were once affordable and readily available are typically neither anymore. 

 

  • When it comes to wood, the cost of 1,000 board feet of lumber nearly quadrupled over the course of the pandemic. It’s since dropped, but it’s far above pre-pandemic pricing.
  • The availability of concrete hasn’t changed much, but the demand and suppliers’ ability to move it to the job site has: There are fewer qualified drivers yet more places to deliver it to, causing a rise in price.
  • The cost of steel has been steadily increasing, forcing the price of fabrication and commercial construction to increase accordingly. Some estimates have the increase of steel mill prices as high as 141%. 

 

How To Overcome (or Avoid) These Issues Moving Forward

For many contractors, the time or ability to avoid the supply chain issues caused by the pandemic has passed. However, there are some ways they can avoid the impact these issues can have on their bottom line. 

Job Forecasting

One way to plan for current expenses is to use effective job forecasting methods. By utilizing data compiled from past projects, contractors are able to predict how much a project will cost. While spikes in materials costs do minimize this methods’ effectiveness, the longer the heightened costs occur, the more accurate forecasting will be.

This method requires more than just reviewing old invoices. Utilizing software designed specifically for contractors allows for in-depth analysis of spending, materials costs, labor, and other costs associated with certain projects. The more data collected, the more accurate the report.

Establishing Credit with Multiple Materials Suppliers

A more effective way to mitigate the impact of skyrocketing materials pricing in establishing lines of credit with several suppliers. Many contractors prefer to work with a select few suppliers, but this limits their ability to shop prices and material availability. What the supplier has is what the contractor gets.

While it’s true that many suppliers work off the same supply chain, everyone has a trick or two up their sleeve. Consider a contractor who ordered materials but the job fell through. Potentially, those materials are sitting in one particular yard, which means only one supplier will have access. If a contractor who needs those materials doesn’t regularly deal with that supplier, they may never locate those materials. 

That’s a specific instance, but one that isn’t uncommon. Access to materials often depends on who a contractor knows, which can make establishing accounts with several companies critical. For contractors that worry too many accounts will make accounts payable a nightmare, a solid construction software solution can automate and streamline payments.

Contract Clauses

While no contractor wants to adjust the terms of their contract or back out on a deal, it’s sometimes necessary. Including clauses in a contract that put the onus on the customer might be the best way to protect their bottom line.

For instance, such a clause might state that once a material increases over a certain percentage (which must be established in the contract), the customer will be expected to pay the additional costs. The customer then has the opportunity to sign or pass on the contract. If they sign, the contractor has some reassurance that price increases won’t derail their project or their company’s profit margin.

Hard Times Call for Smarter Measures

Things are tough right now. Though contractors might not be able to take full advantage of the demand for their services, with a few smart moves, they can still grow. The cost of materials may never reach pre-pandemic prices again, but contractors that analyze their established data, diversify their supply chain, and create safer contracts have a better chance of making it through the worst of it. When materials do begin to drop again, they’ll be in the position to fake full advantage and grow. 

Premier construction software is a cloud-based accounting and project management construction software

Check out Premier Construction Software to see if it fits your company’s strategies and goals.  Our construction management and accounting software provide teams with the tools they need to take advantage of these technologies. Schedule a demo by contacting us today.

We’re more than just construction financial software. We’re built to help your business.

Author Biography:

Tom Scalisi has over 15 years of experience working in the trades. Since moving to full-time freelance writing, he has developed a passion for helping construction companies grow. He enjoys teaching contractors how technology can streamline their businesses and educating them about their rights during payment disputes. 

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Industry Insight Tips & Advice

Pros and Cons of Working From Home

 

As pandemic restrictions are tightened again, and some areas go back into lockdown, workers are again being asked to work from home when possible. While construction companies are used to working from many sites, the office staff is generally located in a central office. Changing venues for office workers has its advantages and disadvantages. Here are some of the benefits and challenges for construction company employers of having workers work from home.

Benefits to employers

1. Higher productivity

When working from home, employees are often more productive than they are at the office. There are fewer distractions from coworkers stopping by to chat or ask questions. It’s easier to shut out time-suckers like email notifications and unnecessary meetings. A FlexJobs 2020 survey found that workers who thought they were more productive at home, were. Respondents cited fewer interruptions and quiet working environments as part of the reason for their increased productivity.

2. Recruit from a larger pool of candidates

When location isn’t a factor when hiring, companies can expand the pool of possible candidates for open positions. This can lead to hiring more highly skilled workers for key roles. When companies hire the best of the best, their products and services improve in quality.

3. Reduce turnover

The flexibility inherent in a remote job allows workers to stay with them longer. For example, if an employee needs to relocate because of a spouse’s job change, instead of quitting they can easily continue working for the same company from another location. Companies can keep key talent when there are fewer constraints on where they perform the work.

4. Reduce overhead costs

For some companies, overhead costs like office rent and supplies can be significantly reduced or even eliminated by employing a remote workforce. With fewer overhead expenses, profits increase.

Employees also save money. Since they don’t have to commute anymore, they save on gas, car repairs, parking, and lunches. This savings translates into more of their hard-earned money staying in their pockets.

5. Fewer sick days

Spending less time around other people, coworkers, and the public, results in less sick time. Workers reduce their chances of catching viruses, colds, and the flu. With less downtime, workers are more productive and are able to get more accomplished over the long haul.

Challenges to employers

1. Collaboration and communication

As contractors know, when teams are spread out over long distances, it can be difficult to maintain communication and collaborate with team members. Impromptu meetings and discussions are more difficult to have when workers aren’t in the same physical location.

Luckily there are several tech applications that can assist teams in maintaining their connections. From online messaging apps, like Slack, to videoconferencing programs, like Zoom, it’s easier than ever for teams to keep in touch when working remotely.

When it comes to accessing collective data, online SaaS programs allow everyone to get the data they need from any device with an internet connection. This ensures that everyone has the info they need when they need it. Using SaaS software also allows office teams to stay productive from wherever they’re working, as well as ensuring everyone is working off the same real-time data.

2. Distractions

While there may be fewer distractions at home than in the office, they are still a struggle to deal with. Children, pets, and household chores can quickly steal employees’ concentration. Workers must do their best to set boundaries and structure their work environment and schedule to reduce distractions as much as possible.

3. Technology struggles

Technology can be difficult to deal with, whether it’s at home or in the office. Programs crash, computers die, and internet connections are lost. While these problems can’t all be eliminated, there are some things that can be done to help prevent them.

  • Ensure that employees have the latest in hardware and software installed on their work-provided devices.
  • Develop a schedule for regularly replacing hardware every 2 to 3 years.
  • Employ IT workers or hire a company to provide remote service to all employees.

4. Time Management

Without the structure of the office environment to keep them on task, some workers may struggle with managing their schedules when working from home. They may lose track of their work time and blur the lines between home and work life. This can lead to added stress and burnout.

Allow workers to set their own schedules when possible, so they can effectively manage their work and home life. Encourage them to stick to their schedule as much as possible, with only occasional changes under special circumstances.

5. Dress code

When working from home it can be tempting to dress more casually than when working in the office. While an occasional day spent working in your pajamas is acceptable, workers need to be dressed properly the majority of the time. Clothing can be both professional and comfortable, keeping workers in the correct mindset when they’re on the job.

As construction workers and companies continue to navigate the ever-changing pandemic restrictions, it’s best to remain flexible, as this helps reduce stress. Teams can function successfully when working remotely with the help of technology and a little patience.

 

Check out Premier Construction Software to see if it fits your company’s strategies and goals.  Our construction management and accounting software provide teams with the tools they need to take advantage of these technologies. Schedule a demo by contacting us today.

We’re more than just construction financial software. We’re built to help your business.

Author Biography:

Dawn Killough is a construction writer with over 20 years of experience with construction payments, from the perspectives of subcontractors and general contractors. Dawn has held roles such as a staff accountant, green building advisor, project assistant, and contract administrator.  Her work for general contractors, design firms, and subcontractors has even led to the publication of blogs on several construction tech websites and her book, Green Building Design 101.