The last few years have been as turbulent a time for major construction and development projects as there has been in recent memory. The impacts of the Covid-19 pandemic, the war in Ukraine and the unprecedented inflation rises have all had far-reaching consequences when it comes to the costing of projects, and current market instability is further exacerbating the challenges. Consider a four-year project that started in late 2019. The investors and financiers behind the project will have made their decisions for backing it based on prices that will have been reflective of the market at the time. However, this perfect storm of external factors - coupled with the “normal” cost inflation that is expected over longer-term projects - mean that those forecasts now aren’t worth the paper they’re written on. This is a growing challenge for consultancies that are acting as the eyes and ears of the investors, who are increasingly looking at ways in which more data-centric approaches can be taken to financial forecasting and bring about a long overdue move to the digital age. A Changing Picture The biggest challenge when it comes to financial forecasting for construction schemes - particularly those that have a larger gross development value and are therefore more attractive to funders - is that they are by their very nature long-term projects. Ignoring the extreme challenges that have been prevalent over the past couple of years, short-term issues can generally be mitigated by taking a flexible and collaborative approach with the contractor and supply chain. However, the peaks and troughs of the business and economic climate are much more pronounced on projects that can take multiple years to complete and - in turn - bring return on investment for funders. There are a multitude of factors at play in this equation, but typically it boils down to having a budget that works for the build programme, and vice versa. The volatility of the COST CERTAINTY IN TURBULENT TIMES Richard Winson - Director at Naismiths Analytics DATA Equals DELIVERY Finance Monthly. Business 51
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