In challenging times for construction, it all comes back to cash

As we write this, there is still a lot of uncertainty facing the construction industry due to the evolving Covid-19 crisis.

The UK’s construction sector represents 8% of GDP and 10% of employment and yet there have, as yet, been no clear guidelines from the government in terms of the continuation of current projects and keeping sites open. Firms are split: many have closed down all operations in an attempt to prevent contributing to the spread of the virus but others are still operating, albeit with stricter health and safety guidelines in place.

New variables to consider

With this inconsistency across the industry, individual businesses within project chains will be impacted in different ways as they react to the situation. Although the scale of the broader impact across the sector is not likely to become clear for months at least, businesses operating in the construction sector are likely to be directly affected in a number of ways:

• Supply chain disruption as measures taken to control the outbreak, particularly in China, impact the availability of steel and other key materials
• Reduced workforce as employees start to self-isolate for health reasons
• Restrictions on transport
• Freeze on new deals still in planning stage due to the uncertain short-term outlook
• Site closures enforced by companies or, perhaps at some stage, the government.

These factors could all have a severe impact on the ability for contractors to complete projects on time and within budget. The terms of relevant contracts will need to be carefully analysed to assess the position this leaves all the involved parties in.

Once everyone has managed to take stock of their current positions, it will be time to reflect and plan for the future. This is undoubtedly difficult when so many questions remain: When will projects be able to recommence? What additional safety measures will need to be implemented as standard? What will be the resulting impact on productivity? How are contracts going to need to change? Where are all the materials and how much are they going to cost in future?

Know your cash position

Ultimately, construction firms will need cash to survive. In a complex business involving multiple projects – each with its own ecosystem of suppliers, sub-contractors and commercial terms – managing cash is vital. Which means running scenarios based on all variables in order to make the best possible decisions to preserve cash flow.

This can be tough at the best of times but there are even more challenges now with everyone working remotely from the rest of their teams. Gathering data, considering scenarios, adapting assumptions and performing new calculations all requires time and collaborative effort. A static model requiring manual updates is not going to provide the speed and agility required to stay ahead of the evolving situation.

IBM® Planning Analytics provides a dynamic solution which allows for complex modelling of multiple scenarios at speed. This tool gives finance teams access to valuable insight when assessing potential scenarios and the likely impact of decisions on the organisation’s cash position.

In this unpredictable time, your finance team will become truly invaluable if they are able to help you plan on the fly as the situation develops. Get in touch today to find out more about how we can help you in these turbulent times.