The construction sector should start reaping the rewards of digital systems

Two years ago the construction sector was experiencing record building approvals, activity and strong profits.

With the benefit of hindsight this was the time many construction firms should have retired their spreadsheets and legacy IT and invested in new digital systems.

While adopting cloud-based financial systems wouldn’t have given firms the ability to foresee the economic downturn from global events, it would have given them a powerful tool to better understand their month-to-month revenue and costs, and critically their profitability. It would have also enabled them to make decisions based on real-time business data and pivot accordingly. 

According to the Australian Bureau of Statistics (ABS), construction input costs started picking up speed from the March 2021 quarter when they rose 1.1%, followed by 2.6% in the June 2021, quarter, before escalating again to record an average rise of 4% over the next four quarters to June 2022.

That’s an accumulative increase in construction input costs of more than 17% in the 12 months to June 2022 spearheaded by a 24% price rise in timber, board and joinery, according to the official data. However, anecdotally builders have put construction cost increases over the past year closer to 30%.

In a rising property market moderate cost increases and project delays can be ameliorated.

But double-digit cost increases in a softening market are deadly, particularly for businesses that don’t have instant visibility of their key financial drivers.

The issues I have seen many construction groups struggle with revolve around their access to critical information on labour and material costs and project tracking. While they know costs might be escalating, they continue to plough on with only a ‘guestimate’ of their financial position, hoping to ride out the market turbulence.

Businesses in the construction sector have been slower than most, to adopt game-changing cloud-based technologies, even though research shows cloud services deliver improved operational efficiency, productivity growth and improved access to new customer segments.

In the construction space there are a multitude of Enterprise Resource Planning (ERP) cloud-based platforms businesses can use to automate accounting, cost management and work-in-progress activities that give them instant visibility of their material and labour costs and contract progress payments. These systems house all business data in a single central ‘source of truth’ system. Yet only 1 in 2 construction businesses used cloud services in 2019-20, according to the ABS.

Cloud-based business solutions enable a more streamlined connection between building project sites and head office by incorporating digitised paper-based forms into automated workflows.

By using a digital form on a smartphone or tablet, project teams can log defect notices, project hours, materials used and project progress, directly into a single system. This gives head office instant access to the information they need to make swift decisions about singular projects or more strategic decisions about quoting on new projects. We conducted a webinar earlier in the year on this exact topic.

Once construction groups have a robust digital foundation in place, that can scale with their business, they can spend more time on value adding to their bottom line by leveraging the technology to run predictive analytics on scenarios such as higher labour or material costs to keep them well positioned to respond to economic headwinds.

Some larger companies have even taken the next step and incorporated new tools such as HoloLens – mixed reality smart glasses - into their digital toolkit. HoloLens enables site builders to overlay a 3D model of a project over a construction site to show workers the location of doors, walls, pipes and other building elements to identify risks and validate designs.

Navigating the technology landscape isn’t easy. That’s where RSM’s team of trusted experts can help. We have a specialist ERP consulting team who know the right technology to transform business operations, as well as experts in the construction sector who know the business structures, systems and strategies that will help companies not just survive but thrive in the future. 

For more information

For more information on the Property and Construction sector, contact your local RSM adviser who can guide you through the process.