Roller Coaster Cash Flow: The Importance of Analytics-Based Forecasting
“Roller coasters are like math you can ride.” - Seanan McGuire
- A CFO or Controller can generate more profit on a project than a PM. It all comes down to how you manage the cash.
- The better you track your labor, material, equipment, subcontractors, and indirect costs, the more control you have over your cash inflows and outflows.
- Analytics-based forecasting gives you granularity into costs and can even predict your cash inflows and outflows better than an Excel spreadsheet.
Any executive in the industry knows cash flow in construction is a lot like a roller coaster: there’s a lot of ups and downs and sometimes makes even the most hardened of us nauseous.
Many factors go into cash flow, and keeping up with every cost on a project is a dizzying task that requires extreme attention to detail and precision. One minor slip up (which happens even among the most experienced of us) exposes the entire company to risk.
Forecasting cash flow is complex, but doing it well allows construction financial leaders to make calculated risks and take advantage of strategic opportunities that their competitors may not be able to do. Getting hyper accurate at cash forecasting is one of the most important things any construction company can do.
So, how does analytics help you do it better?
Analytics-based forecasting supplants your Excel spreadsheets and it replaces the dizzying math that Controllers must track. For CFOs and Controllers that want to make their projects more profitable, data analytics is the solution.
Unlike humans, modern analytics technology never forgets what happens, and it is always on the lookout for anomalies in the data. Predictive analytics technology can use your past project experiences and use them to help inform your current and future projects. For example, analytics will remember if payments from a certain client took longer to process so you can plan for that delay in the future. It can help you better plan your cost activities on projects and better understand how much labor will actually be required. It can gut check your field teams’ forecasts and assist your financial team in knowing what indicators to be paying attention to on certain projects.
TICKET TO RIDE
Now that you have better insight into how cash is flowing through your business, suddenly you have the latitude to make more strategic decisions about the business. Strategic joint ventures or outside investments now become possible. Moving into new markets, taking on more self-perform work, or even acquiring capabilities are all options that data analytics can help you to navigate.
Better cash management also helps manage through uncertain times. If business leaders are more confident of their cash position, it allows them to better strategically prepare for future economic downturns.
At the end of the day, financial leaders in construction can't be expected to keep all the variables regarding cash flow in their heads for every current and past project. They need a modern analytics platform that can store and organize all the data regarding the company's financial position, as well as to monitor other external market forces. This technology not only helps to make the company more profitable, but ultimately can help the business to think more strategically and prepare for the future, no matter the twists and turns that may await.