Our extensive involvement with the construction industry has given us significant experience of delivering industry-standard cost value reconciliations (CVRs) to monitor and measure expenditures against budget.
Running CVR processes is a hugely useful exercise but, in our experience, they often don’t get carried out as often as they usefully should.
A CVR delivers a snapshot of the current cost of a job prior to completion. Although an initial contract costing estimate will have been carried out, it’s unlikely those figures will remain static as the work progresses: costs and client requirements change and even weather conditions can have an impact on the profitability of a job. This real-time visibility of the status of each contract gives your finance team the information they require to not only track the value of contracts across the business as a whole but also establish the current cash position of the company.
Undertaking regular CVR processes can provide early warnings of potential cashflow issues before they have the chance to impact upon the company’s operations. Problem contracts are also highlighted and with adequate warning, measures can be put in place to steer these back on track before they have a negative bearing on the business.
For smaller companies, the CVR process can be a huge drain on the resources of their finance team, resulting in a reduced frequency of reporting. Without the insights provided, it is almost impossible for businesses to assess the true value of contracts against their budgeted value and forecasts and so they are unable to view the bigger picture behind their numbers.
With more than one billion data points sitting behind each business, it is easy to see why some companies avoid CVR processes for the unwieldy nature of having to manipulate that much information within spreadsheets. And the more projects being run, the more painful the process becomes for the finance team. However, the larger the scale of the operation, the more potential there is for problems to arise and having a regular, accurate overview of the status of contracts vastly minimises the risk as it allows organisations to change course and make more informed decisions before issues can take hold.
When the finance function are in a position to provide the full story behind the numbers, it allows the rest of the business to take action and align structures around specific, real-time challenges which arise. With such a focussed approach, companies are able to be fully-responsive to the issues they are facing at any given time, using the numbers to hand to redirect their attention to the most valuable areas.
Given that being able to run CVRs on demand will make your business more responsive and will increase your performance, what is stopping you from adopting the tools which will enable you to work in this way? Let Spitfire Analytics help you to power more profitable decision making with IBM® Planning Analytics.
You can find out more about exactly how we’ve helped one of our clients in the construction industry in this series of posts. Or get in touch today to get the conversation started.