The construction industry has faced a multitude of challenges over the last two years. In recent months the industry seems to have reached a breaking point with the collapse of several major companies, in what experts predict could be the “tip of the iceberg”. As far back as 2020, the results of a Master Builders Survey indicated a 40% reduction in forward bookings, driven by border closures, cancellations and lockdowns. Since then, construction projects have continued to suffer uncertainty and delays, intensified by natural disasters, severely disrupted supply chains and the rising cost of supplies and resources.
In this fast-moving and volatile environment, the key challenge facing the construction industry is staying in control of costs, cashflow and profitability. With already tight margins on construction projects, managing cashflow is key to achieving resilience in a volatile market. The combination of a spike in demand and price for materials, as well as an increased level of debt because of COVID-era support and stimulus, means keeping a close eye on costs and timelines is more critical than ever. Many companies have found themselves in the position of taking advance payments but not adequately factoring in changes to timelines or costs, which leaves them open to risk.
Responses in the recent MYOB 2022 mid-market report – Bold Ambition – indicated costs were top of mind for construction businesses. In the survey of over 500 mid-market businesses, 77% of respondents from the construction industry have, or plan to, increase their prices in the short term.
Increasing costs are only part of managing turbulent conditions. As cost and scheduling are closely intertwined, a significant shift in one, or both as in the current climate, will significantly affect the profitability of construction businesses.
While recent media paints a gloomy picture of the construction sector, there is hope for recovery with continued infrastructure investments – even if there are some more high-profile insolvencies still to come. Despite a challenging outlook, results within MYOB’s Bold Ambition report indicated that 92% of construction industry respondents felt confident or very confident about reaching their business ambitions in 2022.
To achieve these bright ambitions, technology is fundamental. Respondents identified that the right technology is key to managing the key variables that are currently affecting profitability in the construction industry – timelines and cost in a fast-changing environment. More than three quarters of mid-market businesses have indicated they plan to make operational changes to their business in 2022, and top of mind here is investment in business management technology such as ERP, payroll and workforce management.
MYOB’s General Manager for Enterprise, Kim Clarke, notes: “With a significant proportion [of mid-market businesses] planning to increase their investment in upgrading or implementing new tech in their business, our latest findings demonstrate there is clear recognition of the role digital solutions will play in helping secure their success.”