If there’s one truth in construction, expect the unexpected. With weather delays, permitting issues, and other potential problems, construction companies have their work cut out to deliver quality projects on time and on budget.
The finance team plays a crucial role in staying on top of projects. They monitor each project's financial health and must be prepared to make adjustments as situations change. Without being on the job sites themselves, the finance team replies to field reports to paint an accurate and complete picture of the status of each project. These reports help keep the back office informed on the status and health of each project and the company.
Here are six field reports that construction finance teams need:
1. Time and Material Costs
Perhaps the most basic (but most crucial) report for finance teams is an updated list of time and material costs. This is the bulk of the expenses of a project, and finance teams need to keep a close eye on how much money is being spent and how much time the project is taking (which affects wages, the ability to take on more projects, and any potential overtime or bonuses).
Even small amounts of wasteful spending on unnecessary materials or inaccurate timekeeping can add up. A recent survey found that 5% of construction companies lose more than $5,000 quarterly due to wasteful spending. Keeping a watchful eye on time and material costs in real-time can help reign in wasteful spending and provide a more accurate view of where the money is going.
2. Constructive Changes
Before a construction team starts a project, they likely sign a contract and statement of work that clearly outlines what work is going to be done, plus details around the timeline and budget.
But sometimes, activity or inactivity can lead to constructive changes or unauthorized contract changes in a project. This happens when a team does more than was included in the statement of work or when a client or partner doesn’t provide the required information and stalls progress, among other situations.
Constructive changes matter for the finance department because it changes the cost and outline of the work. If a construction company budgeted a certain amount of time and money to complete a project, constructive changes will impact those calculations. The team may need to spend more time on the project to complete the work, or the additional work may require the purchase of extra materials. No matter the change, the finance team needs to be aware, especially if they were unauthorized and unplanned.
3. Delays or Accelerations
Similarly, the finance team needs a regular field report about delays or accelerations. Because each project is carefully scheduled, a delay or acceleration in one project can have ripple effects on other projects. If a team has to put in extra hours to catch up on a project, the finance team needs to budget for overtime pay. If a project is suddenly ahead of schedule, the finance team will need to adjust payment and billing schedules.
In both instances, the finance team also needs to know who is responsible for the delay or acceleration because that may impact who is financially accountable. For example, the contract may include language that the client is responsible for making late payments if they delay a project past a certain point. In that case, the finance team may not need to adjust the budget but will have to plan for additional funds to cover the costs.
4. Work Suspensions, Disruptions, or Terminations
Work can be suspended, disrupted, or terminated for any number of issues, ranging from a materials shortage to injury or creative differences. No matter the reason or situation, the finance team needs to be made aware with regular field reports.
Any disruption to work has a widespread financial impact, both in the short term and in the long term. The finance team may need to adjust and find liquid assets to cover a change in costs and schedules. In the long term, they may evaluate a client or team's financial reliability.
5. Force Majeure (Acts of God)
Construction often includes the unexpected. Some delays are caused by humans, such as delays for missed materials, human accidents, or miscalculations. However, other delays are considered “acts of God” or force majeure. These include natural and man-made events like fires, floods, storms, war, and labor disputes. Some areas have different legal definitions for force majeure, and the likelihood of many of these events occurring depends on where the company is located geographically.
Force majeure is unforeseeable events that prevent a company or its client from fulfilling contractual obligations. Many contacts include a force majeure clause that excuses either side from performing their contractual obligations in such situations. For example, a construction company won’t be held to the contracted timeline and budget if a project is struck by lightning and catches fire or if war breaks out.
Because force majeure changes the scope of work and many of a project's details, the finance team needs to be kept in the loop. They must be aware of any issues and potential changes, including extra time or costs.
6. Out-of-Sequence Work
Construction projects typically follow a strict series of events to maximize efficiency and keep the project on time and within budget. The finance team needs regular updates about any work that is performed out of sequence or out of the already agreed-up process or timeline. These changes tend to cause other changes and can affect the budget. If the electrical work is done out of sequence on a project, for example, it could cause other steps to take longer to work around the electrical setup or delay other workers from doing their jobs. Out-of-sequence work changes the plan for the project and can lead to changes in the cost of a project.
7. Next Level Field Reports
The finance team may not be on the ground on a job site, but their role in tracking and planning for finances and measuring the company’s financial health is crucial to its long-term growth and success. To take your field reports to the next level, turn to hh2, a leader in cloud-based construction management software. Click here to learn more and schedule a free demo.