Rework and Rising Costs: Stay ahead with financial planning

Rising costs and rework are two huge challenges being faced by those in the construction industry. Building contracts were made with the assumption that building materials would not climb too far from average. However, in March, material prices skyrocketed, a large reason for this being supply chain disruptions. 

Now construction companies are locked into contracts promising one price, but, with much higher material costs, need to charge more to profit. Adding to this is the problem of rework. Rework means double the materials, and materials are valuable. Even before the March rise in costs, rework cost construction companies 273 billion dollars and was responsible for between 20 and 30% of a construction job's budget, according to McKinsey.

The answer to these problems is properly forecasting what is coming and increasing team communication to cut down on errors. That is what extended financial planning and analysis (xP&A) does. This guide will talk about three ways that xP&A can lower costs for construction companies and make their jobs easier.

Communication

The complex math of construction can often be daunting, so is left to finance. But to avoid rising costs and rework, everyone needs to be on the same page. That means that project blockers and change orders need to be communicated in real-time between the site and the office. Implementing xP&A plays a part in this. By sharing pertinent information cross-departmentally, teams gain a better insight and can assess the situation.

Financial planning

The CFM's job is accurate financial planning. However, they need to work with management to adjust their ideas. Management and the workforce hold a large part of the puzzle. They know what materials will be used, and they know when they'll be needed. CFMs need to adjust their financial plans around this information so that everyone has a shared vision. The best budget in the world does no good if it's not based on the project's facts.

Project planning

The final piece of the puzzle is an integrated planning strategy that involves all the working parts involved in the construction. When historical data can be used to make smarter projections, fewer mistakes are made and less rework is needed. xP&A making the numbers make sense to the executives will result in budgets that are more in line with real-world outcomes. Finally, project managers need to honestly communicate to finance what materials will cost and explain the scope of work to the teams on site. If all three of these steps are done properly, xP&A can help companies rework less and weather rising material costs more effectively.

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