It’s one of the main concerns of businesses in the UK at the moment – rising costs due to the uncertainty in the global supply chain following the Covid-19 pandemic and the fall out from the Brexit negotiations.
This uncertainty puts added pressure on the economy because the financial markets like stability! As a result, we’ve seen costs of materials and costs of shipping soar exponentially over the last year.
Companies that are planning major constructions could be very caught out if they’ve not factored in some contingency for the rise in costs of their project. Failing to build in some contingency for your project could be the difference between a highly successful outcome or a total disaster, going £millions over budget or having to stop construction half way through the project.
It’s common in the construction market for material costs to fluctuate regularly, but in this uncertain age, the fluctuation could become much greater than usual. They say that unpredictability is the enemy of business but it doesn’t mean that it doesn’t exist! A smart business will make a contingency plan to ensure that they can manage whatever the markets decide to do!
A contingency plan is devised to respond to any negative event that puts pressure on the business – be it reputation, financial or data management. It’s a proactive plan to cope with the unpredictability of market forces. A contingency plan is different from a crisis management plan in so much as the latter tends to be more reactive than proactive.
One of the best ways that businesses can help themselves when planning and implementing construction works is to initially have extensive talks with their Contractors. Construction companies will know what the market is doing – whether prices are expected to increase and they’ll know where the pressure points are.
By forward planning your project, you’ll be able to fix prices in advance of any rise in costs and ring fence your supply chain costs. This in turn, will ensure that your construction company can manage your project better because they’ll have planned to have the right materials and the right number of staff on site at the right time.
Governments use contingency planning to prepare for disaster recovery. We’ve seen this in play when the Covid-19 pandemic hit us. The Government stepped up to the plate with financial support for businesses who had to furlough their employees, stamp duty was put on hold in order to stimulate the housing market and interest rates were kept low by the Bank of England to help keep the economy stable.
Businesses should all have a contingency plan that will identify and prioritise their resources and identify the key risks to the project. If rising material and shipping costs are a key risk, then it’s prudent to consider the risk in depth and create a plan of action to reduce it.
Examples such as allowing for a percentage increase in the project budget, or looking at ways to reduce the costs of materials should all form part of the contingency plan.
Many construction projects are completed in stages, sometimes over a few years, so the more material and labour costs you can get ‘locked in’ at the start of the project, the less room for uncertainty you’ll have.
We are King Builders of Gloucestershire. We work within the commercial, education, healthcare, retail and housing sectors. If you’re in need some advice about making financial contingencies for your construction project in this uncertain economic climate, then call us on 01452 526 631 or take a look at our website www.kingbuildersglosltd.co.uk