External forces Affecting Construction Companies
Most construction companies have started (if not completed) working on their strategic plans for 2014. These plans typically include different types of forecasts. A common practice is to include a contingency plan in order to be prepared if results fall below projections. Project forecasts are also a staple of the planning process. Construction companies live and die by their ability to forecast and manage their project portfolio.
There is a third area of strategic planning and forecasting that is all too often overlooked by construction companies. That area has to do with planning for the impact external forces.
Forecasting External Forces
As we all know, there are also things that happen outside of our business, outside of our control, that can have significant impact on our business. While these forces are outside of your control, it’s still important to consider how external factors will impact your organization.
Many construction business owners find it helpful to group external forces into 5 buckets, or categories, during their strategic planning and forecasting process. The common buckets we see are:
- Economic factors – Is the current economic climate expected to change? If in a recession, do we expect it to continue throughout the year? If we are in growth mode, do we expect that growth to continue, increase, or slow down?
- Political / regulatory factors - What new regulations are on the horizon? Are taxes expected to increase or decrease? Is there new legislation (i.e. the Affordable Care Act) that will impact our business? Will new work be available due to government programs?
- Social factors – Is our business affected by the aging of the population? Are there social trends that will increase or decrease demand for the services we offer?
- Technological factors – Will changes in technology influence our ability to compete? What are the risks and rewards of adopting new technologies like cloud computing and mobile devices?
- Environmental facts – What are the global and local environmental issues that will impact the industry (or your customers’ industry)? What is the next “green” movement on the horizon?
As part of the process of reviewing these external factors, you will want to create plans to help you prepare for what might happen. After reviewing the types of external factors that can have an impact on your business. This is often referred to as scenario planning. According to the Journal of Accountancy, scenario planning is focused on answering three questions:
- What could happen?
- What would be the impact on our strategies, plans, and budgets if it did happen?
- How should we respond if it does happen?
You may not be able to create a detailed plan for each of these external forces, but by identifying the threats and opportunities that exist and regularly discussing them with your staff, you are more likely to identify them sooner and be better prepared to avoid, or take advantage of them when they arise.