Comparative evaluation of strategic construction-market forecasting methodologies

The relative historical stability of the U.S. economy and its strong influence on the construction industry have allowed large U.S. design and construction firms to naturally grow and adapt to the slow changes of the construction-market. But business changed suddenly for many large firms in 2001. The economic recession, combined with the market fallout from the events of September 11, 2001, delayed or cancelled many design and construction projects. Despite these historic events, investor expectations prevailed, sending these firms searching to find new and alternative markets. This research sought to examine many of the challenges a marketing professional is confronted with when searching for new competitive markets. These challenges generally include questions regarding the key predictive indicators of construction activity, the methods of market forecasting, and the classification and selection of new potential markets. This research was also intended to initiate decisions regarding the spatial structure of a large design and construction firm. A review of the literature provided many different management approaches to strategic construction-market forecasting. Over 250 different indicators (in over 56 categories) were identified that could potentially influence construction activity within a given market. The literature review also provides an overview of the variety of forecasting methodologies that can be used to forecast and classify construction activity. Historical data were collected for all of Florida's 67 counties for the period 1990 through 2002. A new momentum forecasting methodology is presented that was derived from Sir Isaac Newton's three laws of motion. This unique forecasting approach (along with five other existing approaches) is used to forecast construction-market activity at the county level. The best key indicators of future nonresidential construction activity at the county level were found to be the total annual tax collections, the total annual assessed value of commercial land, and the total annual number of wage and salary jobs in a county. The current industry practice of using housing starts as a key indicator was found to be one of the least accurate indicators of nonresidential construction activity in the State of Florida relative to the other methods tested. A direct forecasting methodology (using a single variable) was found to be the most accurate predictor of future nonresidential construction activity. This was the simplest of all the forecasting methodologies used, and consistently outperformed the more complex statistical multivariate-regression techniques. The new momentum methodology was found to be a highly accurate alternative forecasting methodology that is less complex but more meaningful than the traditional statistical regression approaches.