Construction forecasting is a technique used to make predictions about the outcome of a construction project. A key aspect of construction forecasting is that it predicts how much capital will be required to complete a project. According to a report created by McKinsey, 80% of all construction projects overshoot their budget.
When a project is over budget, it means that the project owner needs to seek additional financing. If the project owner fails to acquire additional financing, the project can stall completely. It is for this reason that project forecasting is important.
Forecasting uses historical data to develop a predictive analysis of how much a construction project will cost. To do this, the contractor needs to compare how much a similar project has cost in the past.
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The types of construction project forecasting
There are several construction project forecasting methods that can be used. The most common methods are cost forecasting, duration forecasting, and labor forecasting.
Cost forecasting
This forecasting approach predicts the costs involved in managing a project. This approach is important because it creates a backbone for feasibility studies. Also, cost forecasting helps prevent payment delays and budget shortfalls that might delay a construction project.
To have an accurate cost forecast, you must understand the client’s needs and develop a cost breakdown structure. The cost breakdown structure should be based on the scope of work and involve the cost of materials and labor. Another thing you need to do when creating a cost forecast is identify suitable key performance indicators to ensure the project will always remain within budget.
Other basic budgetary factors are construction permits, insurance costs, and design budgets related to blueprints and engineering fees.
Duration forecasting
Duration forecasting is a technique used to predict how long a construction project will take. To estimate how long a construction project will last, you must have a clear project scope. Project scope is a document detailing all activities required to complete a construction project.
After you create your project scope, outline all tasks based on project stages. For example, when building the foundation, create a list of all activities that must be done during this stage. After that, create another list of activities required when building the first floor (or any other construction stage) until you complete the entire building.
The list of activities will vary depending on the construction project. After you have created this list, let your team determine how long each task will take. Collect data from key players, such as contractors and subcontractors for better accuracy. Finally, invite an independent contractor to provide their estimates.
Once you have this data, sum up all work hours required to create an accurate duration forecast. The more complex a construction project is, the more complicated it will be to create a duration forecast. You might find modern solutions like https://www.alicetechnologies.com/product/manage useful when handling such projects.
Labor forecasting
Labor forecasting is important because it determines how many hours employees will need to work to complete a construction project. Project managers will save money if the forecast is accurate, because they will avoid overstaffing. Additionally, labor forecasting enables contractors to plan for labor shortages, ensuring that construction projects are completed on time.
Other questions that labor forecasting tries to answer are:
- Do you have the capacity to implement your vision?
- Will you require specialized labor?
- When and how much will you pay for labor?
The first step of labor forecasting is utilizing your sales data. For this scenario, let us assume that you are making bids. In this case, you need to consider the number of people you depend on to create these bids. If you send out four bids weekly, consider whether you have enough people to create these bids.
A standard method used by contractors for labor forecasting is the Delphi method. The Delphi method is a forecasting technique in which a contractor sends out multiple questionnaires to construction experts. The aggregated feedback is then shared back with the experts for review.
In a nutshell, this strategy uses expert opinions to make accurate decisions.
Another strategy you can use is relying on historical data and learning from it. For example, if two hundred workers were required to work on a similar project, you can be relatively confident that your own project will need two hundred workers as well.
Or you could ask fellow contractors how many people they have hired for a similar project.
The benefits of construction forecasting
One main benefit of construction forecasting is that it saves money. This mostly happens when you use modern solutions that enable you to optimize your resources. Optimizing your resources prevents overstaffing, saving you time and money.
Another benefit is improving your inventory, especially if you create a material forecast. If you buy materials too early, they can get damaged, especially when dealing with delicate materials like cement. Therefore, project managers should have a comprehensive plan for procuring materials.
With a proper material forecast plan, you should be able to obtain materials on time, preventing delays that can increase construction costs.
You are advantaged when you create a labor schedule because you can plan for labor shortages. Similarly, the labor schedule can avoid overstaffing, saving you on labor costs.
Finally, cost forecasting enables property developers to know whether or not their project is feasible. If the project is feasible, property developers can forecast how much money will be required at each construction stage. This way, you reduce the chances of the project halting because of a lack of capital.
