Anaplan for housebuilder and construction forecasting
Author: Jonathan Cushing is a Certified Master Anaplanner and Senior Consultant at Vuealta Consulting.
The labor government is aiming to deliver 1.5 million new homes by 2029; this could create an additional 350,000 jobs and a further £100 billion in economic activity compared with the last five years. Clearly this increase in activity will need careful and robust financial planning and forecasting by the UK’s housebuilders.
Anaplan is an ideal tool for modeling housebuilder forecasts — this is demonstrated by the number of UK housebuilders that are already Anaplan customers. Housebuilder companies generally have a hierarchical reporting structured with a build-phase of a site aggregating to a whole site aggregating to a geographic region, aggregating into a larger geographic region aggregating to a company, which suites Anaplan’s design ideally. This can be illustrated below using Anaplan’s Hierarchy card feature.
The housebuilding industry relies heavily upon local knowledge, professional experience, and trusted contacts within the planning and supply chains. This regional autonomy which benefits the commercial side of the industry can be the Achilles' heel of its financial reporting leading to inconsistency across the geography of the business. The solution is robust financial reporting that cannot be delivered via excel, again making Anaplan the perfect solution.
Full site life reporting
The concept of full site life reporting is crucial within housebuilding and the wider construction industry. This is where monthly and yearly profits are based on the full site outcome of the site, which may not be known until years into the future. A contract valuation report (CVR) is produced during build that can be compared to the initial land appraisal done during a planning application. Anaplan allows for the full site expectation to be captured at each stage from land appraisal, through the various planning cycles through to completion, this can be shown graphically below:
The height of the bars represents the total profit on a site, which each bar representing either the site’s planning application or a reforecast part way through the build.
The calculation of monthly/quarterly or annual profit in the construction industry can be complex as it relies on knowing the margin outcome of the site and rebasing the forecast when costs change, for example due to inflation as has been seen in recent years. Anaplan can provide a consistent approach where the same calculation can be applied across all sites within a company.
The forecasting cycle — land appraisal
A house builder financial model will include many varied stages in the land appraisal process, a business plan will be made up of future sites without planning permission right through to live sites nearing completion. A few high-level inputs to Anaplan can quickly produce a summary land appraisal to quickly identify whether a piece of land is viable, this can generate outputs such as those below, with very little inputting time from a company’s land teams.
Anaplan can be used to perform complex land appraisal logic and algorithms that are difficult to model in Excel, especially when moving to a live land/site stage. Anaplan enables multiple land appraisal rules to be incorporated in a single template, meaning new land appraisals can be done with the click of a button. Assumption selections enable a consistent approach throughout a business and give clear sight on the profitability and viability of a new plot of land. Anaplan also makes it easy to move from the land appraisal stage to a live site within the same model.
The above is an example of an automated checklist that could be used to validate a minimum criteria set for a land purchase. A calculation can be done and easily re-done within the Anaplan environment. A corollary of using Anaplan for site appraisal forecasting is that it generates a powerful what-if analysis tool. Assumptions can easily be changed to show that cashflow impact of delaying sites, similarly future sites can easily be toggled in and out of a forecast with the effects being quickly seen on company level KPIs.
Forecasting cycle: Reconciliation from CVR to site accounts
The initial revenues and build costs estimated at the start of a project set a site budget, which determines the release of costs to an organization’s profit and loss accounts for the lifecycle of the project.
The Cost Value Reconciliation (CVR) process is an ongoing activity to review costs incurred to-date against estimated costs to completion, compared to the original site budget. This process is typically carried out by the Quantity Surveyor responsible for the site and is often a manual process based on spreadsheets, which can lead to inconsistencies and errors.
Anaplan can be used to create a tailored and controlled mechanism for the CVR process, which provides certainty and timely notification of over- and underspend. Anaplan also removes the risk associated with offline spreadsheets of inconsistent or missing data.
This CVR process can then be reconciled each month by the Group Finance Function to the site’s forecast. This provides an additional check that un-expected costs to complete a site are identified as early as possible. The above is an example of a visual reconciliation that could be used centrally to flag sites with reconciliation differences that require further investigation.
Cash reporting
Housebuilding and construction more generally can be a cash intensive activity with significant capital expenditure at the outset of a lengthy build scheme, often taking several years to reach breakeven point and then becoming cash rich as the site reaches maturity. Once a site by site forecast has been input to Anaplan a cash forecast can easily be aggregated that shows the cashflows over time broken out by site.
The above shows the implied cash balance of a site, the breakeven point and the key categories of expenditure across the life of the site. Aggregation a geographical region or the total company in this way would quickly show any potential cash low points.
The aggregation and drill-down capabilities of Anaplan allow for a profit and loss account and balance sheet to be built on a bottom up basis that can easily be pivoted to show for example build work in progress by site, this allows for quick and detailed variance analysis.
Conclusion
In summary, Anaplan provides housebuilders and construction companies with an essential toolkit for detailed forecasting, financial planning, and data consistency. By streamlining forecasting cycles for land appraisals and CVRs, Anaplan supports finance teams to manage operations more effectively and proactively address risks. The platform’s scalability and adaptability make it particularly well-suited for the specifics of the housebuilding industry, supporting better decision-making and ultimately contributing to sustainable growth for the business.
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