Choosing Between Construction-Specific Accounting Software and Generic Accounting Software

Trading up from a small business bookkeeping package to a full construction accounting software system is going to ask a lot from you in terms of time and expense. The issue comes down to – do you want to go from simply recording job data into your accounting system or do you want to proactively manage jobs, deadlines, and costs using software specifically designed for your industry?

Here are some questions to ponder before you take the leap.

In addition to the capital expenditure required to purchase mid-market construction software, are you committed to providing the resources required to be properly trained on the new software? That means spending the money and having staff who have the right attitude and skills to learn the new system.

Furthermore, are you committed to getting all the requisite job information into the system to give you the output needed to better manage your jobs?

What is driving your initial interest in construction-specific software? Is just because you think you need it ?  Or do you have job experiences that went bad because you did not track your estimated costs to your committed costs? Or have you just been lucky so far ? Does your current job costing system not recognize costs at the time of commitment but only when you receive the bills or when you pay your labor?

How do you handle your Progress Billings? Do you create your Progress Billings separately from your accounting system?  Where do you maintain your schedule of values ? What system do you have in place to ensure that all costs incurred are actually billed?

What type of job purchasing controls are in place to ensure that committed costs do not deviate from your estimated costs? Is your purchase order and subcontract system allowing you to job cost at the time of commitment?

How does your estimating process work? Do you have dedicated construction estimating software or is it all spreadsheet based and very specialized? Do you have a handle on tracking estimating costs and revisions against your job ledger?

Where do you store all of your job file information and documents? Do you see any advantage in maintaining all of this in a construction software package? What is your litigation exposure for incomplete job files?

Has new management been added? One of the key drivers for seeking out new software is new management. A new CFO or Controller may recognize the need for better information systems and may even have been brought in for that purpose.

Is your company growing? Growing companies will stretch and eventually break the boundaries of a small business package in terms of transaction volumes and functionality. A classic example is the need for integrated project management and document control. What needs to be in place for you to manage the performance of your projects?

Finally, and perhaps most important for many, is the surety issue for performance bonds. Surety coverage demands detailed metrics for job costs and job progress. In many cases, this type of detail simply cannot be provided without a robust  industry package.

How much can you justify spending? Some metrics suggest that you can afford 2 – 3% of net revenues but if you are struggling to manage your business due to the lack of realtime information, you may be able to justify more.

How will you find the most appropriate options? If you surf the web you may identify dozens of products that look like they might work for you.  You now have a two step challenge; identifying who to put on your shortlist and then making a final choice between them. This is not a simple task. Often, users actually become more confused as they go through their research instead of less due to all the claims and counterclaims of competing vendors. That means you need someone on staff that has the time to invest and knows how to navigate the muddy waters.

Who is in charge of the search?  Sometimes the person(s) tasked to find the new system may be selected simply because they are the most convenient, least cost choice. A bookkeeper/accountant or office manager usually does not have the breath of experience to handle a major project like software evaluation and selection.

The best choice to lead the project is someone who understands all the operational and accounting aspects of the business, has strong communication skills and who has the full confidence of the decision makers.

Evaluating Construction Software? 10 Traps to Watch Our For

There are some pretty major differences in how software for contractors operates. Some of these differences are significant; others are not that critical to the methods of operation by the contractor. How does this net out for the contractor looking for software? What are the implications? One has to first of all know his/her particular business, i.e. what your requirements are for running the company, and to pay close attention to the details when looking at packages so that your business methods are not in conflict with the software you select. This sounds like a simple task but this is no small order when shopping for software.

Accounts Receivable

What kind of billing do you do? Do you issue time and materials or cost plus invoices? In either case, you’ll want to check how the system integrates job cost with billing and how much flexibility it provides in modifying your invoices. Do you issue draws in AIA format? Do you do service work and have a need for invoices to be issued from work orders?. Based on your key operational requirements you’ll want to concentrate on how the prospective package handles those requirements.

General Ledger/ Financial Reporting

Areas that distinguish systems are in the areas of budget tracking (multiple budgets and revisions), intercompany accounting for use with multiple entities (with automatic intercompany entries based on a single journal entry). You will also want to pay close attention to the report formatting capabilities. Does it handle basic column formats only or will it also let you do row formatting with calculations? Key issues for reporting are ease of use and power. Most of the time custom reports will have to built to meet all your reporting needs.

How easy is it to handle consolidations? Do you need to roll all entities together with automatic eliminations or is it a matter of combining specific companies? You should see how easy it is to accomplish this in the different packages.

Cash management can range from simple cash flow projections to full blown cash management capabilities including complete bank reconciliation, cash flow reports and float information on bank accounts. Some systems will even include cash flow projections based on outstanding AP, AR and PO’s. Some systems have separate cash management options while in others this function is within the general ledger or accounts payable modules.

Only a few packages can handle foreign currency requirements.

Payroll

Union payroll is a big item for contractors. Be sure to evaluate how the software computes union benefits and deduction calculations. Most systems are pretty flexible. Just be sure the construction software can handle the way the union does it (e.g. deduction percentages taken before or after taxes). Union reports are another potential stumbling block. Some system are very flexible, and can report to a specified union format, while others can be more challenging. If the vendor cannot perform the format you need out of the box, it may take a lot of work for you to create the necessary union reports!

Collecting payroll data from remote locations is another major differentiator. The first issue is how is PR data collected at the remote site (e.g. time card machines, computer entry, etc.)?  The next question is how to get the data from the field to the home office computer. Variations here can involve batch file transfers, direct entry from the field to the home computer via special server software and the like. Look at the need for real-time information and the amount of effort needed to make the transfer. Some packages may even offer a web interface for data entry/reporting from remote locations.

Similar to GL, making inter company payroll entries where one entity processes the payroll for other entities can be a major item for some companies. You’ll want the system to make all necessary inter company entries for you. Most systems can handle all the basic PR tax reports.

Accounts Payable

An important issue in AP is the early warning (also known as “alerts”) capabilities of software. For example, you may want the system to warn you on subcontractor insurance expiration dates or when an expense transaction causes you to go over budget. Different systems provide different levels of warnings during invoice entry.

Another area is how vendor invoices are selected for payment. Some contractors need a “pay when paid” capability where invoice payment is determined when the contractor is paid by the customer for a project, and not  just by  invoice due date.

Integration between Accounts Payable and Purchase Orders

What are your needs for updating purchase orders and creating AP vouchers? Systems handle receipts against PO’s and voucher creation differently. Some systems will automatically create a voucher based on a PO receipt and let you set tolerance levels for acceptance. Also, commitment accounting is important for most users who want to be able to track purchase orders against budgets and receive a warning when an AP entry causes them to exceed budget!

Another interesting variation is how the system handles unapproved invoices. Some will let you set a flag to indicate they have not yet been approved and will not post to job cost or GL until they are approved. Some systems will even offer “Compliance groups.” These are user defined parameters (e.g. receipt tolerances, cutoff amounts for subcontract, etc) set up for subcontracts and PO’s which will check to see that invoices entered meet compliance for that group. When compliance is exceeded, the system issues an alert to the operator.

Job Cost

The main issue for job costing is integration. You will want to carefully investigate integration between job cost and other modules such as scheduling, project management, and estimating. How easy is it to move data between these applications and to make changes? This is particularly important for larger contractors. Project management and document control is another major need for contractors. Users want to move to a paperless office.  Does the package support this? Some of the packages support web-based project tracking and updating.

Input and Uses of Percent Complete Reports.

How detailed do you want these to be? Some systems will project cost to complete by cost distribution based on different factors.

Job cost reporting is an area where major differences exist between systems. You’ll want to review the system’s standard job cost reports to understand the data source for the reports and how easy it is to develop new reports or modify existing ones. Some users want to be able to override the data fed into the job costs to complete based on one-time events that the system does not take into account.

Equipment

How do you want to handle tracking equipment costing and preventative maintenance? Do you want a visual maintenance tracking system? Do you need to charge equipment usage to jobs? Some systems will track tool usage through their equipment modules. How does the system handle depreciation costing? What are your needs for integration between PO and equipment for purchases of parts for maintenance?

Inventory

Systems vary in inventory costing capabilities. Some systems provide a variety of pricing mechanisms (i.e. LIFO and FIFO), while others are limited. Can you update inventory with an outside pricing service? It is also important to gain an understanding between the integration (or lack of it) of the inventory, purchasing and estimating databases.

Purchase Orders

Some systems can create PO’s based on estimates. This sophisticated capability is important for homebuilders. Another consideration is how the system handles PO backorders.

Summary

When choosing software, it is crucial that users focus on looking at product differentiators that match closely with user priorities. That is the only way you can be sure you are going to get what you need from a given vendor.

Test Your Construction Software Selection IQ

Think you’re well-prepared to launch your search and selection for new construction management software? Take our quick quiz to test your construction software selection IQ!

Question: Which references are more valid?

1. Companies who have used the construction software for many years
2. Companies who have installed the system within the last 12–1 8 months

Answer: 2. Recent references are best. The older ones have worked out any problems long, long ago.

Question: What one factor below has the best chance of guaranteeing your software selection success?

1. Buying at the right price
2. Getting good references
3. Past experience working with a system
4. The database it uses
5. Number of installations
6. None of the above

Answer: 6. A single factor cannot guarantee your success. Although this may seem like a trick question, you’d be surprised how many people think otherwise!

Question: You really can’t go wrong buying a recognized brand name with thousands of installations — True or False?

Answer: False. There are plenty of unhappy people using well known systems.

Question: The system’s database doesn’t matter as long as the software does what you need it to do — True or False?

Answer: False. Eventually, older databases stop being supported or become incompatible with more current operating systems (like Windows Vista). They may also lack full Windows conventions like opening multiple windows, performing searches, optimizing communication and navigating the screen.

Question: Who is the best person to lead an construction software selection project?

1. IT Manager
2. CFO or construction manager
3. CEO
4. Outside consultant
5. The person with the most time to work on the project
6. It depends

Answer: 6. The best person to lead your software search is the one who has relevant experience evaluating and implementing software and thoroughly understands your company’s needs. Choose that person wisely.

Question: What is the main reason why a software initiative fails?

1. Not enough time is allowed for proper training and installation
2. Bad fit for the business
3. Employee resistance to change
4. Staff turnover
5. Vendor misrepresents product capabilities
6. Lack of due diligence

Answer: 6. Although a failed construction software initiative is usually the result of a combination of all six factors, the most important reason is lack of due diligence on the part of the buyer.

Question: A Web demo of the construction software is the best way to begin your evaluation — True or False?

Answer: False. Requesting a Web demo is actually one of the last things you should do when evaluating construction software. Schedule demos only after defining your requirements, checking construction software reviews, and screening possible vendors using targeted questions.

Question: What is the most important criterion when selecting your software vendor?

1. A lot of installations
2. A large vendor with deep pockets so you know they’ll stay in business
3. Local support
4. A well-delivered demo presentation that answered your questions
5. A good recommendation from a reference
6. None of the above

Answer: 6. No single factor can guarantee satisfaction with your software vendor. Consider a variety of criteria when choosing a technology partner.

Question: A 30 or 60-day guarantee is adequate protection for your investment — True or False?

Answer: False. It is virtually impossible for any buyer to discover enough about the software within 30-60 days to know if it will be a satisfactory long term solution. But even if a vendor offered you a one-year guarantee, why would you want to invest 12 months of your time and resources without getting any return on your investment – even if you could return it? Do your homework up front and the 30-60 day guarantee won’t matter.

Is Your Construction Software a Profit Center or an Overhead Expense?

In the competitive world of construction, profit margins are tight. Jobs, service calls, employee productivity, and even your business tools must contribute to company profitability. This article highlights several critical capabilities that will help you determine whether your current construction software is a profit center or just another overhead expense.

Job Cost
The core of a profitable contracting business is job costing. The more accurate your cost in-formation is, the better you will be at managing your jobs for profitability.

Capabilities checklist:

* Job cost projections are easy to produce on a regular basis
* Provides early warning system for jobs that are off track
* Real-time access to actual costs is readily available

Project Management
Project management is all about detail tracking. Let a few RFIs or change requests slip through the cracks and you might find your crew working for free. Automated construction project management software will ensure that changes to the original contract are documented, approved, and invoiced for profit.

Capabilities checklist:

* Tracks job details in a single, easy to access database
* Change orders are tracked from initial RFI or directive to invoicing
* Forms provide turnkey production of submittals, RFIs, change requests, and more

Service Management
For contractors that perform service work, technology is readily available to support technician performance, enhance customer service, and automate billings. Taking advantage of this technology can produce a significant ROI while enhancing your company’s reputation as a cutting edge service provider.

Capabilities checklist:

* Dispatching allows for greater technician efficiency
* Streamlined billing for fast payment turn-around
* Advanced technology such as GPS tracking of service trucks or mobile communication with technicians that allows for real-time data exchange

Reporting
How well does your software deliver the information you need to make critical and timely business decisions? Catching problems such as cost over-runs early is imperative to maintain profit margins. Reporting should provide easy access to real-time information and offer the flexibility to customize delivery to meet your unique business objectives.

Capabilities checklist:

* Comprehensive standard reports and inquiries
* Custom reporting options to meet specific needs
* Owner/management overviews available for at-a-glance job assessment, with drill down to detail

Integration
Solid communication between your accounting, operations, and service staff is the glue that binds construction to profitability. Integrating your core technologies makes this communication possible.

Capabilities checklist:

* Single database equals single data entry, flexible reporting
* Allows for enterprise wide collaboration between accounting, service and operations by putting everyone on the same financial page
* Lowers administrative overhead

Profit or Expense: You Decide
Take time to evaluate how well your software streamlines work flow, automates processes, and provides real-time job information for informed decision making. If your program doesn’t provide you with many of the capabilities listed here, it may be time to consider whether your construction management software is a profit center or overhead expense.

5 Hidden Construction Software Costs

The cost for new construction software is not as obvious as you might think. While the price for the software itself is usually stated up front, there are a number of “hidden” costs associated with buying new software that aren’t always talked about. These costs, which can be hard dollar expenses or less tangible economic expenditures, should be factored in to arrive at your true cost for new software

1. Training and Implementation Costs
Construction software buyers are often naive about training and implementation costs, which are usually a 1:1 ratio to the software cost. (This means that a $10K system will probably cost about $20K by the time training and implementation expenses are added in.) The more complex the software system is, however, the higher the ratio will be. The ratio for these costs can go as high as 1:5 for systems on the highest end of the complexity scale. One of the biggest mistakes made, especially by smaller companies, is to try and save money by skimping on training and implementation assistance. Not planning for this cost almost always comes back to haunt you.

2. Staff Upgrades
Although existing employees are usually expected to operate new construction software, sometimes it’s necessary to hire people with greater skills to run the system. If this happens to you, expect increased payroll expenses. As part of the software evaluation process, you must evaluate your staff capabilities carefully if you wish to avoid this “hidden” cost. Who seems confident and ready to take on a new system and who is frightened or holding back? The competence of your staff and their willingness to learn the new system are every bit as important as the software itself.

3. Ongoing Maintenance Costs
Once you buy construction software, you will most likely incur an annual fee by your vendor for maintenance. Annual software maintenance fees usually cost between 18 and 24 percent of the software price. But there are other, “hidden” maintenance fees to be aware of such as paying to having custom reports written. Put money in your budget for these items so you’re not taken off guard when the bill comes in!

4. The Cost of Buying Wrong/Less-Than-Optimum Software
Although buying the wrong software, or a system that is less-than-optimum for your needs, is not a true out-of-pocket, measurable cost related to construction software, it is a real expense. Suppose, for example, that certain types of ongoing transactions are very cumbersome to perform in your new system and take an extra hour per week to do. This drags down staff efficiency and adds to their frustration. Another example would be running a project management system that’s not integrated with accounting. This will require duplicate data entry to keep both applications synchronized. Consider these “hidden” costs and avoid them if possible.

5. Spreadsheets
Another “hidden” cost of construction software relates to employees using special spreadsheets to manage data because they don’t like the way the new system performs. For example, if the equipment module lacks certain features for maintenance scheduling, your staff will be tempted to use a spreadsheet as a workaround instead of trying to make the software work. Another common example is using a custom spreadsheet for estimating rather than an industry-specific estimating program. Work toward eliminating spreadsheets.

No Cost Surprises
Taking a realistic look at the true costs associated with new construction project software will save you from surprises down the road. Training pays for itself very quickly and various maintenance costs protect your investment. Wean employees off their favorite spreadsheets and focus on using your new software to increase efficiencies throughout your organization.

Construction Management Software Strengthens Project Management

Things are hopping in the construction software industry. Mid market vendors (who address the $5M -100M market) are working hard to add and enhance project management features to their products. Why? Because it’s what contractors need to run their operations more efficiently.  Adopting “best practices” can improve paper work flow and provide better access to information to control jobs.

But the overall benefit of a robust project management solution is a lot more than just managing paper.  It’s also about monitoring data on a real-time basis. In computer parlance, real-time is about information being available at the time it is created. In past times paper time sheets were completed in the field to capture job labor.  This is still the case for many contractors.  These time sheets are sent to the office where the information is either keyed into the job costing ledger or into the payroll system, where the information sits until the payroll is run. With newer technology you can use a PC, a tablet PC, terminal services or a web-based system to capture the data from field offices where it can be immediately sent to the server computer and posted to job cost. The data is now available for more timely progress billing, up to date cost to complete reporting and accurate budget analysis. Bonding agents, who often push for more complete and up to date information systems, also appreciate this kind of capability!

Let’s take it a step further with project management that involves contracts and documents such as change orders, RFI’s and submittals. This paperwork can be created and tracked via a collaborative online project management system. Since these documents require approvals, project managers can route them to the staff for handling, note making, approvals, and so on.  Project managers can also have the documents appear in the “to do” queue for staff where they can be seen, annotated, or forwarded to other parties as necessary.

A construction project management software system can also be used to scan in documents such as changes, purchase orders, and vendor invoices and attach them to any associated transaction. The document is stored and becomes part of the transaction record for reference purposes if any questions come up. For example, let’s say an invoice is received with a price that does not match the original PO. You will be able to access the original PO, attach it to the vendor invoice transaction, and have supervisors view it before approval.  Furthermore if the document involves a change to the budget (e.g. a change order or pending change order) the project management system can be used, at the option of the user, to update the budget as soon as it is created.

Another current technology is the ability to monitor job schedules through Gantt charts with critical path information.  This technology also allows users to write notes about the schedule with a live link to job cost for transactions that affect job costs and forward them to project managers for action.  This capability was previously only available in very high end, expensive, solutions.

Other useful applications that can be found in some midmarket products include tracking small tools usage and costing; work order creation from the field; and invoicing and payment collection.  All these new areas can lead to a vastly more productive operation with a reduction of paperwork and more timely information for managing jobs.

* A conversation with President John Meibers of ComputerEase was very helpful in preparing this article

Identify Your Construction Software Champion

This construction software article has been removed.  Please see ‘How to Select your Construction Software Champion‘ at:

http://www.constructionsoftwareguides.com/2008/09/how-to-select-your-construction-software-champion/