Construction businesses have to meet urgent needs for new housing, commercial and government facilities, and public infrastructures. Coming out of the pandemic, construction firms face high expectations from clients, increased costs, and shortages of critical supplies, and a lack of skilled talent. The right business management technology can make it easier for construction companies to run and grow a profitable, efficient, competitive business. In a series of five short blog posts, we take a closer look at industry conditions and how software solutions delivered by Sikich can help construction companies thrive.
In this first post, we consider societal and industry trends that impact construction companies.
Recovery amid challenges
Congratulations if you succeed in today’s construction industry climate! You do so against overwhelming odds and likely facing financial and professional risks. As has been widely reported, difficult conditions are pervasive in the industry. For example, almost half of all construction projects in the U.S. result in a financial loss. Extremely narrow profit margin benchmarks of 1.5 to 2 percent, which used to be common only in industrial and commercial construction, have now become prevalent industrywide. When entrepreneurs start a new small construction business, they have just a 36 percent chance of surviving into their fifth year.
Construction began recovering from the pandemic earlier than other industries, but it could not escape the worldwide supply chain disruptions that impacted almost every business. Both shortages and cost increases buffeted the industry. Between January 2020 and January 2021, the price of softwood lumber increased by 73 percent while the costs of iron and steel grew by 15.6 percent.1
A new wave of workers and clients
During the pandemic, generational turnover in the construction workforce accelerated and some jobs were lost. At this time, construction companies across the U.S. need to hire approximately 430,000 people to meet market demand.2 Similar to other industries, construction businesses compete for talent. Younger professionals looking to grow their construction careers are not just attracted by interesting project portfolios and supportive working environments, but also prize digital technology in helping them succeed. Many construction firms have not stayed current with technical developments that might benefit them, putting them at a disadvantage in recruiting.
Clients have high expectations for more collaboration, better visibility, and greater responsiveness from construction services. They may want to use technology to engage with construction companies, receiving bids, progress reports, invoices, and other documents electronically and meeting with project managers in virtual spaces. Construction companies that adopt modern software technology and make it part of their processes would have an edge with many prospects and clients.
Visibility is key
As margins shrink, the costs of supplies increase, and the expectations of clients and job prospects become more challenging, construction companies urgently need to gain better visibility and control of their business. However, many are operating at a high risk with only minimal and often delayed transparency. They may not know if a job is profitable or not until it is complete, and they may not be able to assess in real time whether their labor costs are in line with estimates or result in overruns.
Many construction firms still run on largely paper-based processes, where it’s next to impossible to review projects and business events as they happen. Others use software across the business, but record their data in multiple systems that are not integrated. In many companies, such areas of the business as finance, project planning and management, HR, and subcontractor management have their own, stand-alone software tools. Employees are forced to spend unproductive time on partly redundant data entry, and it’s next to impossible to avoid data falling out of sync. Too often, project and business managers may not even have direct access to reports and information, but need to ask their colleagues for assistance.
By operating with limited visibility and control, construction companies can inadvertently create obstacles to the health and profitability of their business. Inaccurate work-in-progress reporting is one shortcoming we often see in construction companies that don’t make good use of technology designed with them in mind. Not infrequently, job costing is flawed because of inaccurate tracking of cost elements. Other companies may find it difficult to plan and coordinate materials management across construction jobs and service contracts.
Giving software a new role in your business
Executives in some construction firms see technology as a financial drain with limited value for the business. They may purchase new hardware or software only when older products fail. Many don’t have an IT department of their own and make only sporadic use of consultants. Elsewhere, small or single-employee IT shops are overwhelmed by day-to-day technology management and never get to review and plan it strategically. As a result, software may not always be at the best and latest version, which may throttle productivity or make companies vulnerable to security threats like ransomware. When technology is static, it sooner or later tends to turn into a roadblock as the company grows or business requirements change.
Other vulnerabilities loom when employees find software too hard to learn and use, and create their own workarounds instead, or when they feel that security protocols are too intrusive and cumbersome. A lack of technical expertise can also hold a company back. Some construction firms run into issues because they cannot reconcile data from a variety of software systems to ensure dependable, realistic jobs planning with proper allocation of workers and materials.
However, you don’t need to compromise on technology that does not quite fit your industry or that is not aging well. You could take advantage of software that is designed specifically for construction purposes, deployed in the cloud by people who understand your business. We’ll talk more about that in the following posts.
Taking the next step
When you decide it’s time to find out how modern software technology and deep industry expertise can help you run a successful, profitable construction business, here are some next steps:
- Contact Sikich for an exploratory conversation.
- See how Sikich solutions and services support construction businesses.
- Read the following posts in this series:
- Designing a solution: What construction companies need from technology
- Racing toward results: A business management software foundation for construction firms
- Enabling profitability: Business insight and construction-specific capabilities in your business software
- Getting it built: working with Sikich to deploy your cloud construction software
1Construction Dive, “Skyrocketing steel, lumber costs threaten to slow construction jobs,” at https://www.constructiondive.com/news/skyrocketing-steel-lumber-costs-threaten-to-slow-construction-jobs/594969/
2Associated Builders and Contractors, “The Construction Industry Needs to Hire an Additional 430,000 Craft Professionals in 2021,” at https://www.abc.org/News-Media/News-Releases/entryid/18636/abc-the-construction-industry-needs-to-hire-an-additional-430-000-craft-professionals-in-2021