What is Construction Forecasting

Nine out of 10 construction projects experience cost overruns, with an average overrun of 28%, according to Contimod. One way to avoid cost overruns is with effective construction forecasting, or the process of predicting future outcomes based on current and historical project data.

To mitigate budget overruns, contractors use past job costing data to identify trends, reduce unnecessary project costs and improve profitability on future projects.

Contractors who understand how to implement construction forecasting into their operations are able to stay ahead of cash shortfalls, manage budgets proactively and maintain stronger financial stability across projects in the construction industry.

The Ins and Outs of Construction Forecasting

Construction forecasting helps contractors analyze past job data to predict future project performance and make confident financial decisions.

Most past project data is useful for construction forecasting and plays a key role in effective project management. Whether it’s job costs, comparing your past estimates with actual costs to complete projects or reviewing change orders, all this information can be used in cost forecasting to answer key questions like:

1. Is the project on track to finish under budget?
2. How will upcoming expenses affect our profits?
3. What’s our project backload worth?
4. Are we pricing projects correctly to maintain profitability?

Contractors use construction forecasting methods like cash flow and revenue projections to build accurate cost forecasts that help answer these questions.

Accurate construction project forecasting allows you to make proactive business decisions to prevent problems instead of reacting to them after they’ve happened.

Why Manual Forecasting Falls Short

Manual forecasting creates blind spots because it relies on outdated spreadsheets, limited visibility and disconnected project data.

Historically, many contractors have relied on spreadsheets to forecast project financials. While that may work for smaller teams or short-term projects, manual forecasting becomes unreliable as projects become more complex.

Manual methods often:

• Lack real-time data — numbers quickly become outdated due to project progress and changes
• Are prone to human error — miscalculations or typos can lead to costly mistakes
• Don’t scale well — managing multiple projects across project teams becomes chaotic
• Limit visibility — it’s hard to see the larger financial picture or drill down into project-specific details

Without a reliable, real-time view of your financial health, it’s almost impossible to make informed decisions. That’s where construction accounting software with forecasting tools comes in.

Construction accounting software centralizes past project data and can compile it into financial reports for easier, more comprehensive viewing and forecasting. Contractors no longer need to sift through paperwork or try to communicate across multiple remote teams for project data.

How Construction Accounting Software Improves Forecasting

Construction accounting software connects your company’s larger financial data, job costing and forecasting tools into one centralized system.

This comprehensive solution empowers you to make more accurate, real-time predictions — and gives you the insights you need to stay ahead of risks and opportunities.

Here are a few ways construction accounting software helps you create reliable forecasts to maximize profit margins.

1. Live Job Cost Tracking

Real-time job cost tracking supports accurate forecasting by showing contractors how expenses are trending as the project progresses.

Forecasting can only be as good as the data it relies on. Having access to accurate, up-to-date job costs — like material costs, labor and equipment — shows you how a project is progressing and gives you the tools you need to build reliable forecasts.

When cost overruns threaten, you’re automatically notified so you can take actions to avoid or mitigate them and adjust your projections accordingly.

2. Greater Visibility Into Cash Flow

Cash flow visibility improves forecasting because it helps contractors understand when money is coming in, going out and how it affects upcoming project needs.

Accurately measuring cash flow is critical to your success because it forms the base of effective cash flow forecasting and helps you understand when money is coming in and when it’s going out and it plays a large role in construction forecasting.

By precisely tracking cash flow you’re able to see how much money you have on hand to spend, save or invest based on your company’s current and future needs.

Construction forecasting is the process of determining your company’s needs by leveraging cash flow, job costing data and financial reporting.

With forecasting tools built into your construction accounting platform, you can automatically build a cash flow projection based on scheduled payments, vendor invoices, payroll and job costs.

This helps you answer critical questions like:

1. Will we have enough cash to cover labor costs for all projects in the next month?
2. Do we need to delay a material order to avoid a cash shortage?
3. Can we afford to take on another job right now?

Construction accounting software with financial forecasting features provides you with the knowledge to keep projects on track while maintaining expected profits.

3. Leverage Detailed Financial Reports

Financial reporting enhances forecasting when contractors use income statements, WIP reports and productivity data to project future outcomes.

Construction accounting software gives you access to up-to-date financial reports so you can see where your projects stand at any time. These reports include:

• Income statements that report your profits and losses over a specific period of time
• Work-in-progress reports help contractors manage their cash flow by predicting future revenue streams and expenses
• Productivity reports give you important real-time insights into labor costs and production rates so you can forecast future outcomes while mitigating unnecessary costs

Each of these reports can be used to forecast profitability, costs and productivity so you’re prepared for whatever challenges pop up on your projects.

Create Better Construction Forecasts With FOUNDATION®

In an industry with tight profit margins, forecasting helps contractors plan ahead and improve their resource allocation throughout the project lifecycle of any construction business.  

By analyzing historical data and upcoming workload, contractors can anticipate cash flow needs before they become urgent problems.

Accurate forecasting also helps avoid costly delays, overstaffing and material shortages — all of which eat into already thin margins.

Manual methods only go so far, but construction accounting software — like FOUNDATION — give contractors the tools they need like:

• Real-time job costing to keep projects on track
• Accounts payable (A/P) and accounts receivable (A/R) features to manage payments and track cash flow
• Up-to-date financial reporting to see where projects stand and forecast future profitability and productivity

For more information about how FOUNDATION can help you take control of your financial future and give you a competitive advantage, speak with a specialist today.