The biggest industry drivers behind the growing need for excellent project financial control | Dump Trucks Charlotte NC

In the competitive realm of project-centric companies, the universal goal is clear—ensuring project profitability. However, in the intricate dance of various industries, project margins are not created equal. Unfortunately, the construction industry finds itself towards the bottom of the profitability scale, where a 4% margin is considered a commendable achievement. With low profit margins, inherent unpredictability and intense competition on both domestic and international fronts, the difference between a successful project and a loss-making venture becomes precarious, putting the entire business at risk. Recent years have only heightened these challenges, with economic shifts, labor shortages and supply chain disruptions adding to the complexities faced by construction and engineering organizations.

The pressing reality is that the construction industry's susceptibility to risks is escalating. In response, effective project financial control is transforming from a desirable luxury to an absolute necessity. The critical question then becomes: How well do construction and engineering companies currently manage project financial control?

In broad strokes, the answer is disheartening—poorly. The complexity of effective project financial control extends beyond the capabilities of a mere accounting system. To truly excel, it must seamlessly integrate four key areas: Financial Accounting, Cost and Revenue Transactions, Project and Contract Management and Project Cost Control.

While every established business has an accounting system, managing project financial control effectively demands a more intricate approach. A robust accounting system, while crucial, is insufficient on its own. The four key areas are interdependent, requiring seamless interaction to deliver a fully integrated project financial control solution. A standalone accounting system falls short in managing critical elements influencing a project's current and future state, such as risks, cash flow, contract changes and forecasts to ensure project margins remain on track.

The challenging landscape in which many companies attempt to manage project financial control resembles a patchwork of disconnected systems and numerous Excel spreadsheets. This disjointed approach leads to sluggish and inefficient information processing, prone to inaccuracies and manipulation, presenting management with a distorted version of reality.

The four pillars of effective project financial control, as identified below, offer a more comprehensive and controlled approach to ensuring profitability:

1. Financial Accounting: A world-class accounting system serves as the foundation, supporting project accounting and integrating seamlessly with cost, revenue transactions and project cost control areas.
2. Cost and Revenue Transactions: Integration is key for an effective financial accounting solution. It must be fully integrated with all cost and revenue transactions, eliminating the need for manual entries and accruals, thereby enhancing efficiency and accuracy.
3. Project and Contract Management: Often supported by standalone Excel sheets, this critical area demands a more robust solution. It should encompass sales and subcontract management, contract and project change management, risk and opportunity management, estimating, pre-contract support, project progress tracking and integration with sub-plans.
4. Project Cost Control: Breaking down into project budgeting, cost monitoring, periodic reviews and forecasts and cash plans, this area is deemed the most critical. An effective solution must be fully integrated, utilizing information from the other three areas for accurate forecasting.

Companies aiming to implement best-in-class project financial control recognize the need for an integrated solution that is part of a digital Enterprise Resource Planning (ERP) platform. The benefits of such a future-proof and flexible solution are vast, including enhanced efficiency and profitability, reduced project and business risk and more informed, timely decision-making. 

For example, the IFS Cloud ERP solution for Construction and Engineering is specifically designed to integrate tight cost control and governance of complex construction projects, ensuring best practices for all business processes, management and reporting. 

As IFS continues to lead in delivering integrated project financial control, our customers are positioned to reap these benefits and navigate the challenges of project-centric industries with greater resilience, control and ultimately, business success.