How consolidating operational and financial processes reduces complexity and gives a strategic advantage
By Nick Nesbitt is Consulting Services Director at Tagetik UK
Construction companies were badly affected by the 2008 financial crisis. A steady pace of change is still affecting supply chains, business models and cost structures and those focused on innovation-led growth are increasing their investment into Research & Development and capitalising on new construction technologies to drive innovation and greater efficiency.
The construction industry is also currently facing many short-term challenges, from increased demand leading to workforce growth in size to shifts in the competitive landscape, from volatile energy and input costs to supply chain visibility to new technologies such as the industrial internet, from the skills needed to manage embedded technology and analytics to new customer requirements.
But change can be good, because it creates both challenges and opportunities.
Making finance a value-added partner
Having gone through a period of enormous uncertainty and change, the industry is now showing signs of recovery. It had however to radically adjust it operates.
And, to be fully effective, operational change needs to be accompanied by seamless financial processes. Shrewd players in construction should take advantage of new technology capabilities that enable cost reduction and efficiency increase and that drive operating margin improvement.
In construction, margins are squeezed, processes are complex and isolated and operational plans are disconnected from financial plans and performance. In addition, having significant financial impact, supply and demand decisions need to be optimised. It is key that construction executives know the impact of these changes on working capital, cash position, revenue and profitability of operational decisions – before those decisions are made.
But how can this be achieved?
Most construction companies struggle to reach the level of integration between financial and operational processes and data needed to achieve dynamic scenario planning capabilities, the desired level of forecasting accuracy and the strategic analytics required to deliver sustainable growth.
Firms in the industry need to step back now and re-consider their financial processes to be able to overcome challenges, gain competitive advantage and transform finance into a value-added partner.
What are the challenges?
Legacy systems can drain resources as ongoing effort is needed to maintain the software. Over time, maintenance costs rise and organisations grapple with complex upgrades and customisation while at the same time trying to keep systems aligned with current business requirements.
There is also the added problem of duplicate data entry coming from multiple sources. One particular challenge is the ability to summarise transactions and flow them directly into consolidated financial statements.
It is increasingly important to capture and store a wide range of information on material, quality, financial and supply chain activity. Construction systems should easily generate timely and accurate data so users take the needed action to improve business processes. Emphasis should also be given to business intelligence, making data easily collectable, accessible and actionable.
How to stop legacy systems holding you back
CIOs are then faced with a dilemma: pay for expensive re-coding of existing systems to match operational and financial needs or replace them with more modern alternatives. The rising cost of supporting legacy systems should, when understood, make that decision a lot easier.
Building your own home-grown system as a stop-gap could also be an option but has its limitations. The optimal choice is a robust and automated single Corporate Performance Management (CPM) system that incorporates operational driver-based planning and production planning with financial plans, cash flow, modelling and forecasting, project planning and sales and operations planning.
Excel spreadsheets require manual intervention that consumes loads of staff resource and this means that future-proofing will always be required of the software. And still with no guarantee that the data will be error free.
A unified CPM solution makes the most business sense because it has many benefits:
- It modernises legacy toolsets and automates manual processes to save time and reduce human errors
- It simplifies the planning process by allowing all users to employ a single solution for corporate, financial and operational planning
- It contains costs by analysing indirect costs and the impact of different business scenarios
- It instills confidence in financial data and information by using a trusting data source for financial reporting
- It gains insights from interactive dashboards, management cockpits and visualisations that impact strategic decision-making
- It leverages existing technology investments without the need to ‘rip and replace’ existing IT assets
- It reduces financial risk by improving forecast accuracy and achieving greater yield on cash
Through automated financial processes construction companies can achieve process, technology and finance costs reduction; a more effective finance function that drives value; fast processes that enable agility; analytics that provide superior insight and foresight.
Construction firms need to prepare for long-term growth and competitive advantage and this is easier to accomplish if empowered with the right technology, allowing time and cost spent on financial processes to be reduced so that focus can be on delivery and business priorities.