We all know that construction projects can be subject to a number of delays and unseen costs. But one cost that is at the forefront of everyone’s mind today is the impact of inflation. Inflation can have a significant impact on the bottom line of any construction project, so it’s important to keep an eye on inflationary trends in order to stay ahead of the curve.
What is Inflation?
Simply put, inflation is the rate at which prices for goods and services rise over time. There are a number of factors that can contribute to inflation, such as supply and demand imbalances, government regulation, and natural disasters, all of which are out of your control.
How Inflation Impacts Commercial Construction
Now that we know what inflation is and some of its potential causes, let’s take a look at how it can impact commercial construction companies. As the cost of goods and services increase, so does the cost of your construction project. Unfortunately, that increase is not trickling down to the bottom line. You are more likely to experience a decrease in profit margin during high inflationary cycles. You may also find it more difficult to obtain project financing. This happens because lenders often base loan terms on Prime Rate which rises along with inflation.
How to Stay Ahead of Inflationary Pressures
There is no cure to inflation, it will correct over time. Your best bet to help ease the pain is to be aware, save, and constantly review your budget and expenses.
- Monitor changes in material prices and labor rates, be in the know before it is too late.
- Constantly review your monthly and annual expenses. For example, are you paying for project management software that is priced based on your contract value? If you are, guess what, you are going to pay more during a high inflationary cycle. Remember how inflation can increase the overall cost of your job? Higher Job Cost = Higher Contract Value = Higher Cost of your Software
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The fine print: we are not financial analysists, this is not intended to be a political article, we’re all in this together, let’s help each other out