Automating financial management in construction offers a wide array of opportunities. Software solutions, in particular, have the potential to streamline operations and propel productivity. As automation continues to evolve, there are new ways to become more efficient in the construction industry.
What Is Financial Management in Construction?
Financial management keeps your construction business running by managing costs, budgeting and tracking all the finances of your projects. With proper financial management in construction, you can be assured that the project will be done on time and within budget.
The key considerations of financial management in construction are the following:
1. Creating a budget plan
Create a breakdown of project costs and diligently monitor them. That way, you get to outline all anticipated costs and maintain your budget objectives. Be sure to use historical cost data and construction industry benchmarks so your budget is data-driven.
2. Knowing which items to prioritise
When you know which items to prioritise for the project, you get to effectively allocate your resources and meet your objectives.
3. Understanding the costs of the project
Do thorough research on market data to get a better understanding of project costs and pricing trends. Gather information on subcontractor rates and materials prices when estimating project expenses.
4. Adjusting budgets as needed
Aspects of construction projects are always changing, and budget is one of them. Be open to changes and continuously monitor expenses to ensure transparency and accountability.
Construction costs
A construction cost refers to any cost associated with the contractor, such as labour, materials, contractor’s fees, plumbing and electrical.
The two types of construction costs are:
- Hard construction costs — Directly associated with the construction, such as materials and labour.
- Soft construction costs — Not directly associated with the construction, such as permit and insurance fees.
Who Is Responsible for Financial Management in a Construction Company?
The daily financial responsibilities in a construction project are handled by the project manager. They are on the front line and are responsible for the financial management of one project or a group of projects.
The main roles of the project manager in financial management in construction include:
1. Financial reporting and analysis
For this task, project managers analyse financial reports to get a clearer view of the financial health of the project. This is also the part where they compare performance to past projects or industry benchmarks.
2. Risk management
Project managers analyse and mitigate financial risks such as schedule delays and fluctuations in the construction market.
3. Procurement
Procurement includes obtaining materials, handling payments and managing contracts.
4. Budgeting
This is an essential task to make sure that all the costs align with the project goals within a specifically planned amount.
5. Cash flow management
The project manager also manages payments to vendors, bills to clients and the current balance.
6. Cost control
By doing cost control, the project manager tracks all transactions so they can be sure that they do not exceed the budget.
What Is the Importance of Financial Management in the Construction Industry?
When financial management of construction projects is properly implemented, it can help construction companies:
- Budget accurately
- Reduce costs
- Make timely deliveries
- Predict expenditures
- Meet business objectives
How Can I Improve Financial Management in My Construction Company?
1. Come up with a budget
A construction project cannot move freely without knowing the budget that it’s working with. One tip when coming up with a budget is to know your site. You should be familiar enough to identify the aspects that could delay the project. Research trends and demands that can impact costs and utilities.
2. Monitor the flow of expenses
The project manager must meticulously manage and monitor cash flow so you don’t fall short of money to pay for project expenses. Remember that a lot of factors can impact cash flow, such as the contract you've signed for the project and how accurately you bid.
3. Talk to stakeholders
Transparency and communication are key to any project. Be transparent with stakeholders so they know of any changes or issues happening.
4. Minimise risk through financial planning
Project managers know that no matter how prepared they are for the possible roadblocks, a new issue can still arise. This is why they must always implement risk management for finances, such as establishing a cash-flow reserve to fall back on.
5. Use finance management software
Invest in reliable finance management software that is capable of helping several industries like yours. Make sure it can track expenses, generate reports and create invoices.
What Are the Benefits of Using Construction Financial Management Software?
1. Accurate forecasting of construction finances
Any industry must always be capable of forecasting and planning for the future, but it’s extra critical for the construction industry. To forecast construction finances, project managers need accurate, real-time financial data—something that construction financial management software can provide.
2. Enhanced construction workforce management
A construction project is nothing without its workforce, which is why it’s highly essential to optimise construction workforce management. After all, labour costs represent a huge part of the project. With the right software, project managers can track the team’s productivity, manage the workforce and ensure the project's success.
3. Compliance management
Running a business requires compliance with financial regulations. Financial management software can streamline compliance processes and mitigate risks by providing project visibility.
4. Long-term savings
Financial management software helps with sustainability by eliminating the use of physical paper, thus encouraging cost savings.
Financial management software can empower construction companies by providing real-time visibility which, in turn, facilitates budgeting and forecasting for construction projects. The software can serve as a construction expense tracker so construction companies can optimise their operations, reduce costs and enhance profitability.
