With the persistence of COVID-19, the challenges that the construction sector in Australia faces in 2022 are not getting easier. Everything that a successful construction site needs to finish the projects on time and on budget is constantly harder to get. We have listed some of the biggest challenges below.
Not enough skilled labour
When you are running a construction project, it is critical to have an experienced team on the site. Inexperienced subcontractors and workers can cause costly mistakes. These mistakes mean the whole project can be postponed or made completely unprofitable by a single mistake.
8 out of 9 construction companies are finding it difficult to find skilled workers. This means that almost all companies are not operating efficiently. This means that company growth is very difficult to achieve. It is also becoming more difficult to find field workers since most other sectors and jobs offer working from home possibilities. Most workers want to have hybrid jobs, where work is split up between the office and home. Unfortunately, this is not possible for field workers.
Material costs are rising too fast
From the point of winning a project to when the project finishes, the cost of materials has dramatically changed. This means that a construction company can not clearly predict whether they are on budget since there are so many moving pieces that changed. It is exceptionally difficult to keep on budget if the prices are increasing by more than 12% year-over-year.
One of the options is to hire someone to keep track of how the forecasts change so that you know exactly how where you are in terms of your budget. Even after considering the change of material costs and subcontracts compared to the original estimate provided to the client. Since finding qualified workers is difficult itself anyway, it could be easier to delegate this to a forecasting software that does it automatically.
Margins are too low
Due to inefficiencies in the workforce, low automation of tasks, and rapidly increasing material prices, the margins are also hurt. Since contractors are unable to make accurate estimates about the costs of the project, the margins often diminish or turn negative when prices of materials increase.
Since the efficiency increase of the construction industry is also comparatively very low, it means that there are no gains to be had from what the workforce does. All of this adds up to only a small potential to increase the margins.
Unsustainable or unknown cash flow
Since materials can be more expensive than expected, also the amounts that a company has to pay out can be larger than what the client has paid so far. This means that the company has to constantly balance the forecasted incomes and expenses. If they don’t do it, illiquidity can cause bankruptcy.
There are various ways to keep track of the cash flow. If their cash flow is fairly simple to follow, an excel-based template will do the job nicely. As soon as they have hundreds of jobs and multiple team members adjusting the cash flow, you might want to look at a specialized tool for cash flow tracking.
Not enough technological tools used
According to McKinsey, construction is one of the least digitalized industries. Qualified personnel is difficult to find and the improvement in employee efficiency is low, thus technology is useful. If companies used more technological tools, the efficiency of the sector would be visible.
The problem with various technological solutions is that they are location-specific. Due to regulations, a software solution that works in the US might not be suitable for Australia. Luckily, there are various construction software options for Australia as well. Using them might need initial investments, but in the long run, they will improve efficiency and thus also improve profitability.
Conclusion
The construction sector is a branch of business, where margins are small and projects are unpredictable. Projects that go over budget and over schedule are not anything out of the norm. It is supported by small efficiency gains and unpredictable costs due to material price increases.
Since it is difficult and costly to find specialists to make sure you mitigate these risks, looking towards technology to help can make sense. Construction software can help you keep track of your cash flow and material price changes to make sure you’re up to date.
The risk of not keeping track of your costs can mean that the company goes bankrupt due to illiquidity because the customer was not billed enough. Additionally, if you already see the problems coming, you could take credits to balance the cash flows.