Predicting costs in an unpredictable climate: The problem with financial data in construction

Financial teams face tough challenges in any sector, but in an industry as complex as construction, forecasting can easily become guesswork. This increases the risk of budget overruns, cash flow issues, and misallocated resources.

Industry leaders are battling to turn raw numbers into reliable, actionable insights, but the fractured nature of your data could be holding you back. In this article, we’ll examine the construction-specific challenges finance teams face and how connecting data is the key to improving your businesses’ financial futures.

The construction industry’s financial data problem

Financial leaders in the construction industry face a constant battle of balancing budgets, managing assets, and forecasting costs. It’s an incredibly unpredictable sector where material prices fluctuate, supply chain disruptions cause costly delays, and unforeseen site conditions or labour shortages can disrupt even the most carefully planned projects.

This uncertainty makes accurate budgeting and forecasting extremely difficult; a reliance on disconnected legacy systems and time-consuming manual reporting only compounds the problem.

You’re probably familiar with at least one of these issues:

Siloed and disconnected financial data

This fragmented nature of financial systems means construction companies store key data independently across multiple ERP, Procurement, and Project Management platforms.

Without seamless integration between these tools, financial leaders struggle to gain a clear 360-degree view of project costs, cash flow, and risk. This makes accurately evaluating the business's overall financial health extremely difficult.

Having project managers, finance teams, and procurement specialists all managing data in these separate systems also leads to inefficiencies, duplicated work, and conflicting data points. This creates delays in reporting and decision-making, resulting in cost overruns and missed opportunities for savings.

It also leads to a lack of standardised data for finance teams to use when benchmarking performance across projects and maintaining regulatory compliance.

Combined, these factors make it extremely difficult to avoid cost misallocation, reporting errors, and compliance issues without huge time investment and manual intervention at every step.

Manual reporting and inefficient workflows

Generating useful insights requires teams to manually pull data from multiple systems, reconcile inconsistencies, and then build reports from scratch. This leads to inefficiencies and delays in decision-making.

Meanwhile, this reliance on spreadsheets and disconnected tools not only introduces liquidity issues but also leaves processes vulnerable to human error. For example, invoices get missed and supplier relationships become strained.

Inaccurate forecasting and budget uncertainty

Cost overruns and unexpected expenses are part and parcel of the construction industry. Traditionally, this has made creating precise financial forecasts extremely difficult.

Without access to real-time financial data, finance teams rely on outdated reports that don’t reflect current spending trends. At best, this inaccurate forecasting leaves businesses more vulnerable to risk. At worst, it can result in genuine cash flow constraints.

It also makes it impossible to perform scenario modelling to evaluate how each factor across the business is likely to impact project budget. This makes contingency planning difficult and compounds the heightened risk incurred by poor forecasting.

Why unified data management is the answer

To address these challenges, companies need to consolidate financial data to streamline reporting and ensure greater transparency of key financial metrics.

The best solution is a unified data platform, which centralises all of a company's financial data from a multitude of individual platforms and tools into a single source of truth. As a result, data becomes standardised, making it easier for analysts to report on the health of existing projects and accurately forecast future revenue and costs.

Let’s look in detail at the key benefits that a unified approach to financial data can deliver.

1. Improved financial insights

By unifying data from key systems like ERP, Procurement, and Project Management, finance teams can leverage real-time dashboards to accurately measure financial health.

Revenue, expenses, profitability, and cash flow can all be easily evaluated. Meanwhile, the elimination of manual reconciliation means financial insights are always accurate and up to date.

This approach streamlines access to key performance indicators (KPIs) such as profit margins, total liabilities, and budget variances. Finance teams can then make data-driven decisions about managing cash flow and mitigating risk.

This greater efficiency, combined with clever automation in areas like invoicing and procurement, also ensures that payments are optimised and bottlenecks in cash flow are eliminated.

2. Automated budgeting and forecasting

With financial data unified and structured into one shared location , teams can then leverage the next piece of the puzzle: AI-driven analytics. These cutting-edge tools can analyse both real-time and historical data to predict future costs and identify budgeting trends.

This migration from static spreadsheets allows finance teams to make more accurate financial projections and allocate resources far more effectively. Predictive analytics can also be used to run simulations, test different budget scenarios, and proactively mitigate risk.

For example, scenario modelling capabilities allow companies to assess the impact of rising materials costs, labour shortages, or delays based on previous occurrences. This allows for budgets to be adjusted dynamically instead of exclusively after month-end reports.

3. Improved cost control and profitability

The shift to unified data management represents a shift to truly proactive cost control. With real-time tracking and automated reporting, finance teams are able to identify budget overruns before they escalate, keeping project expenses within planned limits.

The consolidation of data also means finance teams can rapidly monitor profitability across every project within the business, with outliers and anomalies quickly flagged based on operational norms.

Integration with project management data also means that budget control can be aligned with real-world project performance. For example, spending can be optimised based on project timelines and task completion rather than static assumptions made during the planning phase.

4. Streamlined compliance and financial reporting

With sustainability regulations tightening by the year, regulatory compliance is a growing concern for construction firms. Unifying your data means all financial records are not only accurate but easily formattable and auditable, reducing discrepancies and the risk of incomplete reports.

Centralising data also means that storing and reporting complex data such as emissions is no longer an administrative nightmare. Information streams required from contractors, sub-contractors, and external suppliers can be set up as automated data streams rather than needing to be manually chased down. With the right solution, all data will be efficiently standardised.

How 5Y transforms financial data management

The 5Y platform is an all-in-one solution designed to empower finance teams with real-time insights and consolidate data from across every area of the business. As a unified data lakehouse, 5Y cleans and structures financial data, eliminating inefficiencies and enhancing decision-making.

5Y also works with your full stack of existing finance tools, including Microsoft Dynamics 365 Finance, QuickBooks, Business Central, and over 100 other common data sources. This allows for real-time financial data without manual reconciliation, letting you focus on analysis rather than data compilation.

Since 5Y is built on the Microsoft Azure architecture, you aren’t locked into expensive and restrictive proprietary software and you can add or remove other tools as you please.

5Y also delivers 80% of the most common financial dashboards and reports straight out of the box. Combined with 180+ predefined financial calculations and 30+ Key Financial KPIs, this allows you to gain an accurate 360-degree view of financial performance.

Key capabilities include:

• Live updates on cash flow, accounts payable, and receivable.

• Profitability trends and cost control measures across projects.

• Debt-to-equity and return-on-assets ratios for long-term planning.

• AI-driven forecasting models for financial trend prediction.

• Customisable reports tracking KPIs like profit margins and working capital.

• Automated compliance reporting for regulatory adherence.

With everything in one place, you can leverage the power of 5Y’s predictive analytics to simulate scenarios, assess risks, and proactively manage cash flow. If you are upgrading or replacing core business applications, the legacy data is also preserved in a data vault, meaning these analytics can also be used to leverage historical data even if it’s not stored in modern, compatible or active systems.

Turning financial uncertainty into strategic opportunity with data

In a volatile industry where cost control, financial visibility, and accurate forecasting are already difficult, traditional data management simply isn’t enough.

5Y offers a transparent view of financial health while offering powerful tools to de-risk investments, optimise resource allocation, and boost profit margins. It also reduces the admin and intense workload of manually creating reports from siloed information.

Read our guide to learn more.