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CFMA’s Construction Economic Outlook Webcast

CFMA’s Construction Economic Outlook Webcast. Thursday, Dec. 4, 2008 11 am ET. Helping you build bigger profits. The way it was not long before …. Survey background and timing Perceived conditions Expectations for 2009 Primary approach to market conditions

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CFMA’s Construction Economic Outlook Webcast

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  1. CFMA’s Construction Economic Outlook Webcast Thursday, Dec. 4, 2008 11 am ET Helping you build bigger profits

  2. The way it was not long before … • Survey background and timing • Perceived conditions • Expectations for 2009 • Primary approach to market conditions • Availability of bank and bonding credit • Backlog stats • Expected margins • Workforce expectations • New project expectations

  3. What a difference 6 months makes … • Demand side of the equation • New expectations • Impacts on contractor responses to new market conditions • Availability of credit • New backlog stats and construction starts • Expected margins and workforce now lower

  4. Change in Construction Spending

  5. Growth Categories • Power (power plants, transmission lines, wind and other renewable) • Energy (refineries, pipelines, terminals, oil and gas fields) • Base realignment, military housing • Federal infrastructure “stimulus”

  6. Change in Material & Labor Cost

  7. Construction Starts, Quarterly (SAAR), Through 2008 Q3. Commercial Bldgs. – Heading Down

  8. Institutional Bldgs. – More at Risk Construction Starts, Quarterly (SAAR), Through 2008 Q3.

  9. Public Works – will stimulus bill help? Construction Starts, Annual, Through 2008 (Estimated).

  10. Architecture Billings IndexOctober 2007-October 2008 Source: The American Institute of Architectures

  11. Commercial Real Estate Loans Sept. 2002 – Oct. 2008, SA Source: Federal Reserve Board

  12. Commercial Delinquency Rates among Major Investor Groups Source: Mortgage Bankers Association

  13. What Should You Do? • Examine External Data • Look past your backlog report • Challenge your business planning assumptions and strategies • Do Contingency Planning for the Next 6 - 12 Months • Key Metrics – Incremental Economics of your business • If the Recession Lasts Longer • Develop a long-range plan with critical actions • Cost-cutting hierarchy

  14. Revise Your Business Plan • Undertake Scenario Plan-Based Business Planning • Gather information from all senior management and from outside perspectives for a “reality check” • Senior management holds a planning session to discuss the possible best-case, expected-case and worst-case scenarios for the company • Each major function or department presents a best-case, expected-case and worst-case budget based upon guidelines that have been set by senior management

  15. Where to From Here? • House Prices will bottom out – 2009 • The banks will begin to lend…Slowly • Taxes will have to wait or the recession will be deep and even longer • The FDIC and the Obama administration will delay foreclosures and help defaulting homeowners • This will cost the US taxpayers between $3 to $4 trillion • New regulations and clearing mechanisms for derivatives will be necessary to restore confidence • US savings will increase while debt will be more expensive

  16. OPERATIONAL STRATEGIES Open up communications with creditors Main objective is no surprises Consider preparing rolling 12 month forecast Know the contract owners’ financing situation Know your contract rights for ceasing work and implement zero-tolerance policies Qualify your subs very carefully

  17. OPERATIONAL STRATEGIES Closely analyze and tighten internal controls Manage overhead costs tightly Manage equity carefully Safeguard precious working capital Dump excess equipment (if you can!) Tighten receivables management and develop zero-tolerance practices for lien filings

  18. CFMA Confindex™ • What does it measure? - Expectations regarding • Construction business industry conditions • Availability of bank credit • Availability of bonding credit • Total backlog • Availability of working capital

  19. Confindex™ Readings for 2008 June97 20% Decline in 6 months December 79

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