BUILDING A RISK-AVERSE FOUNDATION
FOR CONSTRUCTION PROJECTS
November 2016
Construction firms are faced with an increasing amount of financial risk that can put the squeeze on profits. Top performers
rely on cloud project management software to improve visibility, which will also enhance agility and collaboration.
Building a Risk-Averse Foundation
The success of a construction firm rests on its ability to deliver
large-scale, high cost projects with many moving parts, on-time
and under budget. It is very likely that the project will experience
increases in scope and costs, as well as potential delays, due to
weather or lack of materials and resources. There are many
external forces that could very quickly cause a profitable project
to go south. Only by understanding the potential impact of risk
and then putting the tools in place to manage it, can construction
firms ensure their success.
A recent survey of architecture, engineering, and construction
firms (AEC) uncovered the challenges that those firms face in
today’s business environment (Figure 1). These challenges boil
down to a lack of visibility, increased costs, and increased risk.
Figure 1: Top Challenges for Construction Firms
Lack of available resources (skilled or
other)
Lack of visibility across multiple
projects
Increasing risk exposure across project
portfolios
Inability to determine profit potential
of new projects
Volatile business conditions (market
changes frequently)
47%
45%
26%
22%
19%
0%
20%
AEC
40%
60%
Percentage of Respondents, n = 73
Source: Aberdeen Group, October 2016
Due to a lack of visibility, construction firms cannot effectively
manage resources, guide projects towards completion, monitor
costs, or predict profitability. Many construction firms lack easy
access to the information they need to make effective decisions.
These challenges are exponentially greater in a volatile market
that lacks predictability. Construction firms are hindered by
increased regulatory and financial risk. In such an environment,
margins may shrink or vanish, compliance issues can rear their
ugly head, and the impact of poor decisions can be amplified.
Today’s construction firms must take a holistic approach to risk
and visibility.
The Solution
Top performing firms look to gain greater visibility and insight into
financial data and implement standards that enforce financial
discipline and compliance (Figure 2). This can be accomplished by
establishing a cloud solution for project management. This will
ensure that all essential project data is available to key
stakeholders. Making those solutions more accessible for
employees, no matter where they are, will ensure collaboration
across the organization.
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Percentage of Respondents, n = 135
Figure 2: Avoiding Risk, Managing Costs, Maintaining Compliance
Cloud project management
60%
No cloud project management
53%
47%
50%
40%
35%
35%
33%
30%
21%
20%
17%
20%
10%
0%
Real time visibility
into all project
budgets / estimates
versus actual costs
Source: Aberdeen Group, October 2016
Ability to share and
Real-time visibility
Financial and
integrate data with into project data and regulatory reporting is
the extended
information for
automated
enterprise
partners / customers /
suppliers
Through cloud software, construction firms can ensure that
accurate, timely, and relevant financial data is easily available to
stakeholders. This internal transparency must also extend
externally to customers, suppliers, and subcontractors.
Those with cloud solutions are 2.5 times as likely to share and
integrate data externally. For example, this could mean
connecting the timing of payments to project data, to better
manage costs from change orders. Much of the financial
information contained within these solutions is necessary for
financial reporting and maintaining compliance. Fortunately, those
with cloud solutions are also 2.4 times as likely to have automated
financial and regulatory reporting.
To further understand how cloud solutions can help construction
firms manage financial risk, examine the impact of these solutions
on the payment process (Figure 3). Those with cloud solutions are
98 percent more likely to have electronic payment workflows,
adding efficiency and visibility into payment processes.
Centralizing these processes will allow users to more effectively
match invoices to contracts, fix errors, and react to automated
reminders.
These solutions ultimately provide more visibility into how
payments are being made, enhancing external communication,
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and ensuring regulatory and compliance standards are enforced,
reducing financial risk. For example, construction firms can gain
broad visibility into the status of lien waivers, helping to ensure
that payments are made appropriately while managing a critical
risk.
Percentage of Respondents, n = 84
Figure 3: Cost and Compliance Management through Improved
Supplier and Contractor Collaboration
Cloud
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
No Cloud
90%
85%
71%
56%
50%
43%
44%
26%
Electronic
approval
workflow
Centralized
invoice
management
processes
Source: Aberdeen Group, October 2016
Ability to match
invoices to
contracts (i.e.
pricing, payment
terms, etc.)
33%
Automated
notification of
errors,
exceptions, or
other items
requiring
management
review
26%
Automated
reminders for
outstanding items
awaiting approval
Conclusion
By automating these processes through cloud project
management solutions, construction firms can better manage
costs while reducing risk and exposures as they attempt to deliver
profitable projects. In fact, research finds that those with cloud
solutions saw a 10 percent improvement in project profitability
over the past year. These solutions are the key to meeting project
goals and building a risk-averse foundation in a volatile
environment.
Author: Nick Castellina, Vice President and Research Group Director, Business
Planning and Execution
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About Aberdeen Group
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This document is the result of primary research performed by Aberdeen Group and represents the best analysis available at
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