RubinBrown (formerly KnowledgePath Consulting)

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Construction Industry to Bounce Back in 2024: What it Means for You

After a slight slowdown in 2023 following a sharp decline in 2022, the construction industry is predicted to rebound in 2024.

This presents both challenges and opportunities for businesses in the sector – with those embracing an enterprise resource planning (ERP) system more likely to navigate the market complexities and position themselves for success, including potential merger and acquisition (M&A) scenarios.

“A construction industry rebound in 2024 presents both exciting prospects and demanding challenges,” says David A. Warford Sr., partner in RubinBrown’s Business Advisory Group. “Remember, an ERP is an investment and can be the foundation for growth and resilience in the coming years of potential industry resurgence.”

Report: Construction Industry to Grow by 2.6 percent in 2024

A United States Construction Industry Report released in the fall showed a predicted contraction of 2.5 percent in 2023 in real terms after a decline of 8.2 percent in 2022. The report says “The industry’s output is expected to grow by 2.6 percent in 2024 and pick up to an annual average growth rate of 5.3 percent between 2025 and 2027."

Some industry analysts have cautioned that some of the construction industry growth is being driven more by inflation than by increased volume.

Some of the challenges facing the construction industry heading into 2024 include:

  • Higher interest rates
  • Tighter lending standards
  • Increased labor costs
  • Skilled labor shortages
  • Material price volatility

The good news is that, according to the construction industry report, building will be fueled in 2024 by investment in the energy, transportation, housing, and manufacturing sectors.

“Major fiscal stimulus packages such as the Infrastructure Investment and Jobs Act (IIJA), the Inflation Reduction Act (IRA), and the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act, will be a key driver of construction activity across these sectors,” said the report, noting that the Biden administration had announced over $220 billion in funding under the IIJA, including over 32,000 specific projects and awards, and that over $491 billion in projects had been announced by private companies under the Manufacturing the Future program with another $255 billion announced by the government under the Rebuilding Infrastructure program.

Construction Industry Challenges and Opportunities

The construction industry's forecasted rebound presents both challenges and opportunities for businesses.

The challenges include:

  • Increased competition: As project volume picks up, businesses will face stiffer competition for skilled labor, materials, and contracts.

  • Evolving market trends: Rising interest rates and changing consumer preferences may necessitate adapting project types and strategies.

  • Managing complexity: Increased workload requires efficient processes and data management to avoid costly delays and overruns.

The opportunities, enhanced by the right construction ERP software, include:

  • New project pipeline: Growing demand unlocks promising avenues in warehousing, logistics, and infrastructure sectors.
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  • Efficiency and cost-savings: Embracing technology like an enterprise resource planning (ERP) system can streamline operations, reduce waste, and boost profitability.

  • Merger and acquisition readiness: A unified and transparent data platform provided by an ERP system makes due diligence easier and boosts negotiating power during potential M&A talks.

Why an ERP System Makes a Difference

Beyond simply improving data accessibility, an ERP system empowers your construction business to operate with greater agility and foresight in these dynamic times.

Selecting the right construction ERP system can lead to:

  • Real-time insights: Gone are the days of chasing outdated spreadsheets. An ERP system provides real-time visibility into construction project costs, resource allocation, and material availability. This allows you to make crucial decisions quickly, adapt to changing circumstances, and avoid costly mistakes.

  • Predictive analytics: Powerful data analysis tools let you forecast future trends, anticipate risks, and optimize resource allocation. You can identify potential project delays, proactively manage material procurement, and ensure efficient deployment of your workforce.

  • Enhanced collaboration: Breaking down siloed information between departments fosters seamless communication and teamwork. Construction project managers, finance teams, and field crews can collaborate in real time, ensuring everyone is on the same page and working towards shared goals.

  • Automated workflows: Repetitive tasks like change orders, purchase orders, invoicing, and inventory management can be automated, freeing up valuable time and resources for higher-level strategic planning and execution.

  • Mobile accessibility: Access critical data and manage essential tasks from anywhere, anytime, with mobile-friendly ERP solutions. This allows for agility and responsiveness, especially in a geographically dispersed industry like construction.

Merger and Acquisition Readiness: An ERP Strategic Advantage

Preparing for potential M&A activity starts long before the negotiation table. By investing in an ERP system, you're not just streamlining your present operations, but also laying the groundwork for a smooth and successful future.

Selecting the right construction ERP system can help by offering:

  • Unified data platform: An ERP system creates a single, centralized repository for all your financial, operational, and project data. This eliminates inconsistencies and provides a clear picture of your business' health, attracting potential acquirers.

  • Streamlined reporting: Generating accurate and transparent financial reports becomes effortless with an ERP system. Investors gain quick insights into your financial performance, profitability, and project track record, building trust and confidence.

  • Standardized processes: Implementing consistent work practices and workflows across your organization makes due diligence faster and more efficient. Potential acquirers can easily understand your operations and identify synergies.

When it comes to the specifics of M&A activity, the right ERP system can unlock the following powers:

  • Enhanced valuation: A well-organized, data-driven business commands a higher market value during M&A negotiations. An ERP system proves your operational maturity and future potential, strengthening your negotiating position.

  • Faster integration: Merging two businesses with overlapping functions becomes seamless with a shared data platform provided by an ERP system. This minimizes disruption and accelerates the realization of synergies.

  • Sustainable growth: By laying the foundation for efficient post-merger operations, an ERP system paves the way for long-term success and value creation for both companies and their stakeholders.

Investing in an ERP system is not just about managing the present; it's about strategically positioning your business for a prosperous future.

Looking towards a construction industry rebound and increasing sector M&A activity, implementing an ERP is no longer a luxury, but a critical step towards ensuring your competitive edge and maximizing success.