The Key to Contractor Profit in the 21st Century

Integrating Project Management and Accounting In Construction Software to Improve Productivity and Profitability

By William Klein

What does it take to maintain a competitive edge? Customers are becoming increasingly cost conscious and competition is getting tougher. It is becoming harder to stay profitable. Contractors must deliver more for less. Margins are more important more than ever.

Competition forces contractors to focus on lower costs and higher efficiency to bring a job in under budget and ahead of schedule. Traditionally job cost reports produced at the end of the monthly accounting cycle were sufficient to manage job performance. But these reports, by their nature, are reactive rather than proactive, showing what has already happened up to thirty days ago Fast response time in recognizing variances and reacting to changing conditions is critical in order to control costs. This requires real time information, which in turn requires greater efficiency in managing that information.

In construction companies using self performing project management, project and accounting staffs have traditionally operated as independent disciplines. This was based on the belief that information was used differently by each discipline and, therefore, it was appropriate to permit each to record and store its information as it saw fit. However, information in different formats and systems cannot be easily shared. This causes information to flow too slowly and at different rates in different systems reducing efficiency and productivity. In order to achieve effective cost control project management and accounting must work together seamlessly to exchange accurate real time information.

Project Manager Responsibilities

Project managers typically are responsible for overseeing an installation from the time of sale until final delivery so that cost and delivery targets are met together with insuring the job remains profitable. To do this, they must be able to react to unexpected overruns, which means they must have easy and quick access to accurate and timely labor and material cost distribution reports. Organization and documentation are critical. ¹

Construction accounting staff is expected to know the status of work in process and change orders. Accounting must know whether the contract amount has changed so the billing department can prepare accurate invoices to the customer. Job cost information must be accessible within the accounting system so accounting can provide management and auditors with complete financial reporting.

As a natural step toward improving effective decision-making and controlling growth, almost all contractors use some form of construction accounting software, and most use project management software.² But, in these multi-system environments all information isn’t entered into the same system if it is entered at all. In many cases it is entered separately into both systems.

Emerging Applications

Project management information logs, spreadsheets, notes and correspondence are a good reflection of job performance because they are created at or near the time of an event and contain the thoughts and impressions of the PM and others working on the project. PMs must communicate critical information to engineers, subcontractors, installers, salespeople, the customer and the customer’s representatives. To meet these needs, they should have a system rich in communication and document control, such as a CRM or Extended CRM (XRM) System.

The concept of using a customer service solution as the backbone of construction project management is relatively new. Construction software have not offered CRM because the emphasis has been on scheduling, procurement and job costs, not so much on communication and customer service, and few project management systems have had meaningful accounting functionality. Although many higher end products will track costs to date by cost type that is all the accounting they do.

While many single source accounting applications appear to have project management functionality, they have historically fallen short of providing a satisfactory management system that a PM will actually use. Given that PMs generally will stay away from anything that looks like accounting, a key element of any integrated system is that it has to look, feel and behave like it is made for the user, whoever the user is. If users cannot see their own productivity improve by using the system, they are less likely to use it to its potential.

With a wide variety of software solutions available that perform different parts of the project management function including CRM, it is difficult to select the best solution for any particular business.³ Meridian and Oracle offer good project management solutions. Meridian’s Prolog comes in two different versions: Manager has in-depth construction project management features including document management, collaboration, and communication; and web-based Proliance is designed for large capital projects and facilities, has fully integrated project portfolio management, facility management and business intelligence.

Oracle’s Primavera P6 Enterprise Project Portfolio Management is a robust scalable solution for managing large construction projects, although it has to be separately integrated with financial management and accounting software, even with Oracle products such as JD Edwards and E-Business Suite.

Traditionally strong accounting systems (Timberline, Viewpoint, Dexter Chaney, Maxwell, etc.) have improved ERP/XRM integration features. All are constantly improving their project management functionality and user friendliness for PMs but remain essentially accounting systems.

The ultimate solution is a system that fully integrates the best of both worlds – one that does complete accounting and project costing along with full project management and customer relations tasks. A fully integrated system, on the order of what is needed by most $100M+ plus operations, has all job data in one place easily accessible by everyone. Full integration would include project management, CRM, scheduling, imaging, estimating, job costing, change order tracking, procurement, inventory and fixed assets, payroll, HR and all core accounting functions from general ledger to corporate level financial reporting. Such a solution combines the flexibility of a main stream ERP system with the rich environment of an XRM solution. The ERP system does the accounting and project costing and XRM does the project management. Examples are IPM by IPM Global, which uses the Microsoft XRM Development platform and has a powerful project management module that integrates with most estimating applications. In addition to all the core accounting features, it incorporates document control, has a powerful report writer and is compatible with Microsoft applications.

Other mid-market products which have come out with extensive enhancements to their integrated project management-accounting solutions include Viewpoint, Dexter & Chaney (Spectrum), Penta and Computer Guidance.⁴

Also, many companies that have deep pockets and strong internal IT resources start with a good ERP system like Microsoft Dynamics GP and modify it to handle all their PM needs. Other companies elect to start with a PM system like Primavera P6 and connect it to their accounting system using a BI (business intelligence) application.

The list goes on. There are good PM systems that have expanded to include job cost accounting. There are accounting systems that have expanded to include some project management functions and there are a few that appear to have successfully bridged the gap and provide it all. Once you are ready to make the move to full integration you have to define the business requirements for each discipline then do a side by side comparison of software features that are compatible with your internal processes. This is where vendor reps who have a deep understanding of both project management and construction cost accounting can recognize how your particular internal processes will interact with their software. Since no one system will work the same for everyone you have to select the features that are most closely compatible with your internal processes. A source such as CTS Guides (www.ctsguides.com) offers free side by side comparison of different ERP/XRM features of many popular construction software packages.

Summary

Finance and project teams tend to see things from different points of view, but it has never been more important for construction companies that expect to increase profit and gain market share in an ever more demanding environment, to recognize the importance of fully integrating project management and accounting functions. With a properly implemented system you can expect a smoother operating and more profitable company.

About the Author

Bill Klein, JD/MBA, has over 25 years experience in construction and is an accounting and finance consultant in the San Francisco Bay Area. He can be reached at bill@kleinbusinesstools.com.

Notes

Software Choices, When Less is More

By Sheldon Needle

A well known axiom in the construction software industry is that users often only utilize a small percentage of software capabilities. Other issues aside, you are much better off utilizing software that only has a limited number of features as long as it does the ones you need well. In other words, using 80% of a system that only does 100 things is far better than using 20% of a system that does 300 things.

Unfortunately buyers often get suckered into thinking they need more than they can really handle when vendors show off all their slick features on demos. That’s to be expected but does it make sense for a user to make a choice on those pop and sizzle items or do they need think a little more about what’s really important to them?

An example might be seeing fancy workflow functions for project management when that is not a particular concern for the contractor.

Cost of ownership issues:

Complex software requires more training and more training means greater implementation costs. More complex systems requires more competent employees so there is greater payroll expense. When there is staff turnover, you will need to spend more on training new employees. When there are new releases, changes are greater there will be more bugs and a break in period.

More applications mean more points of integration:

Let’s say you are -medium – large sized contractor and have a need for integrated estimating, project management, CRM, Human Resources and Bid Management. Indeed having a system with all these functions integrated is a great concept. Unfortunately, in many cases, the promise exceeds the results.

This is because the software vendor rarely covers all these applications and if they offer or claim to offer them, with some custom interfaces or 3rd party products, you are going to be responsible to make sure the integration points are appropriate to your business and that they work as advertised. For example some users may think tracking prospects with CRM and having it integrated with their construction system would really be cool.

But think about it. How big a deal is it to enter a prospect who turns into a customer to the job record? CRM is valuable when you are doing extensive sales pipeline analysis or have continuous contacts and transactions going back and forth between the main system and CRM. This is just not something that contractors often do.

Human resource accounting is another example. A true HR system is going to add considerable cost to a system and only very large contractors can justify the expense and complexities of managing a full blown HR application.

Summary

There are many potential applications a contractor may need including: estimating, job cost, document management, scheduling, purchasing, inventory control, payroll fixed assets, equipment and HR. Knowing precisely which are most important to your organization and how and when data is moved between each application is essential to both successful software selection as well as minimizing long term costs of ownership.

Construction Accounting Software Meets Builder Needs

Today’s construction projects often involve a multitude of expenditures to a variety of different sources.  There is the cost of labor, supplies, and subcontractors to consider.  Keeping track of costs and being careful not to exceed the project budget is necessary to ensure a profitable outcome.  Construction Management Software makes it possible to keep track of the many expenses, and allows you to successfully complete even a large project without exceeding your bid.

Construction accounting software makes it easier to keep track of direct material purchases.  Direct materials consist of basic building supplies like drywall, wire, pipes, and wood.  Essentially, direct materials are everything purchased for a project.  Sometimes these materials are purchased tax-free or with a builder’s discount.  These items are generally recorded separate of labor costs to ensure accurate profit and loss statements.

Direct labor is another variable that must be kept track of separately.  Labor comes in different forms, each requiring special treatment with regard to taxes.  Some employees are on the payroll while others may be hired on a contractual basis.  Other work might be performed by subcontractors.  Construction software really comes in handy when keeping track of direct labor spending.  Often this software integrates with payroll software to streamline wage calculation and tax withholding.

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What Matters When Selecting Construction Management Software

When used properly, dedicated construction management software is capable of handling a number of tasks that may currently be bogging down your company’s resources, time, and money.  Many companies can benefit immensly from not only the software, but the associated improvements in processes and practices that are commonly associated with acquiring and implementing new software.

So what should you look for when you’re investigating possible solutions?  What really matters?  In the end, the software must be able to deliver on all the promises that the advertisements, promotions, and salespeople tell you.  Beyond that, what really matters the most in making the software work is ensuring that your company knows how to use it properly and that it “fits” your organization.

One factor that will go in to determining what size and level of functionality you need in construction software is the size and organizational structure of your company.  This is a fine line of balancing your need to streamline operations with the help of software without getting in over your head.  Plan carefully to ensure that all the functionality that you want is realized in your new construction software package.

Since most construction companies operate, at least on some level, in similar manners, most construction software is designed with ways to cover the most common denominators and industry best-practices.  This makes most systems relatively adaptable to most applications, but that is not to say the all software will work for all companies.

Examples of these common denominators are things like job costing, estimating, planning, payroll, project tracking, and so on.  Since just about every company needs these types of modules, they are pretty standard in most software packages.

The real trick, therefore, is to find the software that works best with the processes and activities that are unique to your company.

For example, if you operate a compnay that has a pretty unique way of handling project change-orders and believe that your current system is the best solution for your company, you’re going to need to find a software package that is customizable in a way that it can be made to work with what you do.

In this situation, you essentially have two options.  The first option is to buy a software package that is way more powerful and over the top (and expensive) than you really need.  The alternative is to find some sort of plugin that will allow a more basic software package to operate using your procedures.

The above example speaks to the need to thoroughly investigate and audit your internal processes before selecting new software.  If you select software that is incompatible with the way you operate, you’ll be forced to make drastic changes to your company processes or find another piece of software – neither of which is ideal.

Selecting new construction accounting software is certainly no easy task and the process of evaluating, integrating, customizing, implementing, training, and managing a new construction management software system should not be taken lightly.  In fact, it can be so difficult that some companies jump ship before they reach the end, which essentially turns the entire operation in to a waste of time and money.

Improve Communication With Customers with Construction Mangement Software

Having a robust and versatile account management module to track customer accounts is one of the most important features of a good construction management software package.  The software that your company uses should be able to automatically and effectively communicate with your customers about any number of project-related issues in real-time to ensure the best customer experience and service level.

These days, people are not satisfied with “old” information.  They want to know what is happening at the instant that it happens.  Information that is days or weeks old is no longer good enough.  If your company has the ability to provide customers with real time updates, this will not only provide them with the most satisfying customer service possible, but will also give you an advantage over your competition that may not be able to provide the same real time data.

Further, the tools that people use to get their information are constantly changing.  Most companies use the internet and its associated capabilities as much as possible, allowing them to access information from cell phones or PDAs while they are away from a computer, but do so in real time.  Having a construction management software application that supports these devices and functionality will improve your internal communication by allowing people to access information from job sites or while stuck in traffic.  It will also enhance the experience that your customers have as they will take comfort in knowing that they can view the progress of their projects at any time from any place.

Along with having the ability to access the construction software on the go comes increased needs for security measures.  While it is important that your software have these abilities, make sure that you invest in the proper security measures for your construction software package so as to not compromise the security of your organization or your clients.

If your construction company is in the market for a new software package or enterprise system, you would do yourself a huge disservice by purchasing a solution that does not include a user friendly account management module that operates in real time.  Check out construction software comparisons for more information to help you find the solution that is right for you and within your budget.

People often blame communication for a number of problems in the business world.  The truth is that communication isn’t the problem – a lack of proper communication is.  Purchasing a construction software package with the account management features discussed here will help you ensure that you stay ahead of the pack as communication methods continue to evolve and become more connected.

Executive Dashboards in Construction Software

Most construction software systems are designed to be used in “Enterprise” configurations, meaning they usually include executive dashboard modules aimed at giving executives a quick view of every area of operations.  Typically, this can be done in real time.

These dashboards serve a very specific purpose – top level execs do not have the time to spend looking at reports full of numerous confusing details.  Instead, they need a report or module that can be their “one stop shop” for all primary business indicators.  If they notice any problems with the key indicators (which can be customized for each business or kept at software presets) they will then have the ability to “drill down” to the real data and identify the problem if they feel the need.

For example, C-Level executives may only need to see the basics of the P&L and other reports – things like sales figures, monthly comparisons, current market data, and maybe even competitor positions.  In other words, the things most pertinent towards making the most effective high level decisions.

Moving down the chain of command, executives and managers at mid levels may need to see the data in a bit more detail, such as which projects are impacting the particular indicators.  They may also benefit from dashboards that break the data down to each business segment that reports to them so they can choose where their time and expertise is best spent.

Suffice it to say, different levels of management will want different sets of reports.  In each case, the report should have the indicators that each manager is most concerned about without having so much information that the crucial data is difficult to discern.

Just because a construction company makes money by digging in the dirt, they should not be limited in their ability to have a clear overview of their entire business operations at all time.  This is the benefit of the customizable, real-time executive dashboards available in many construction management software packages.

If the software that you are currently using does not have a dashboard feature, rest assured that there are numerous third party applications that will interface with most construction accounting software packages on the market.  In fact, some can be so seamlessly integrated that they appear to be standard equipment.

Finally, it is worth noting that these dashboards and the decision making that they facilitate are only as good as the data that is put in to the system by the end users.  If garbage is put in to the system, garbage will come out.  Therefore, as always, I stress the importance of thorough and frequent end-user training for all companies that use industry-specific construction software.

New Construction Software Success Depends Largely on Training

Success with software depends, of course, on what the  software can potentially do for your business. Notice I said potentially because the truth is that construction software is only as good as the people who use it and the people who use it are only good as the training they have received from the software vendor.

Whether you are talking about job cost, project management or financial accounting or more specialized applications like purchase and inventory control, there are literally  hundreds of ways of entering, editing and processing transactions in  most construction management software systems.

I don’t think it’s an exaggeration to say that the quality of training and implementation may actually be more important than the software itself!

So once users understand the critical function that training plays in software successes, the next question is how is that training going to be  delivered?

There are three primary models that vendors offer for training:
* On site
* At vendor headquarters
* On-line  or a blend of the first two

On-site (user location)

The main argument for on-site is simply that your company location is where the software is going to be used and it makes most sense to train people in their home environment. You can also “read” people better as to how they are catching on to the new software as well as their openness to new software.   There is total focus on you and communications between staff is optimal when questions come up as they always do. You can also have hands on access to old reports, information, etc that is needed for setup and training.    If you are away at a vendor’s location and only certain staff is there for training, it’s a lot more difficult to get answers from executive management on how certain things must be done, for example.

It is during software setup that key decisions must be made on how to go about configuring the software to accomplish certain tasks.  Examples might be how configure job and phase codes, the way purchase orders and inventory transactions will be accepted, and deciding how to handle month-end payroll accruals. When specific information is required, it is much easier to access when staff is on-site.

One major  disadvantage of on-site training is that, due to travel time and cost, on-site training usually needs to cover several consecutive days.   This can be overwhelming and when the session is done the employee(s) may not have time to do their “assigned tasks” since they just lost a day or two working on the new software.  They can also suffer from “burn out” and not absorb everything over multi-day intensive sessions.

Vendor headquarters

There are some vendors who do not offer the option for on-site training and  require that you go to their headquarters for training. This can be successful if all key personnel are involved in the training and the company can afford to pay for all their travel expenses.  The vendor’s technical staff will be available if and when difficult questions come up.

It may  also be helpful in terms of avoiding distractions by being away from their regular work place.

On-line Training

The major advantage of on-line training is the flexibility of scheduling training sessions – both in terms of when they are scheduled and for how long.   For example, it could just take an  hour or two to show a client how to enter customer, vendor, and general ledger accounts in new construction accounting software.   Trainees could then complete their assigned task of entering this information and then schedule another on-line session.   A strong  argument  can be made for numerous, shorter training sessions in implementing new software for smaller, less formal companies.

Summary

There are a number of approaches to training, all of which can be useful ways of preparing company personnel for software success. They key to making it all work is employee and management commitment based on realistic expectations of what has to be done and allocating the necessary resources to do it.

Reasons to Consider Changing Your Construction Management Software

Probably the most significant influence on a construction company’s decisions for changing its software is because they think they can find something better; something that will take away all the “glitches” they have been experiencing with their current systems.

Unfortunately, it is often more a case of an inadequate current system, inappropriate user input and interface, or changes in company practices, procedures and protocols which the current construction software is incapable of handling effectively.

Construction Management Software, like any software, becomes out of date and even obsolete, sometimes within just a few years.  In addition, business practices change frequently, whether through continuous improvement measures or outside influences like Federal, State or local regulations.   Consequently, construction management systems and construction companies alike need to keep abreast of all of the above.

In order for software development companies to keep up with the construction industry, they must stay in touch with construction companies and their needs.  Likewise, construction companies need to stay in touch with system providers, in an effort to help with improvements to construction management system functionality going forward.

The Importance of Scrubbing Old Data in Construction Management Software Systems

Construction management system databases are wonderful and necessary adjuncts in today’s construction industry.  Without software databases, we would still be keeping track of all business activities in paper form; files, fiches, microfilms, and other hard-copy records.  Construction software databases virtually eliminate the need for all that paperwork, and help keep records up to date and accurate; providing the original data input is such.

Construction software can only provide so much in the area of data accuracy and usefulness; especially if software solutions are not carefully and thoughtfully evaluated, selected, customized, and implemented.  If a construction company’s current data is somehow flawed, no new software package will fix all the mistakes of the past.

It becomes imperative for construction companies looking to implement different software to ensure that their data to be interfaced with the new software is as accurate and up to date as possible.  That way, the new software program will be starting with a “clean slate” baseline without a lot of excess baggage and erroneous information.

The team that is responsible for evaluating and ultimately implementing the construction management software must also ensure there are resources available who can study and scrub current data, to eliminate, rework, revise and otherwise clean up anything that does not belong or does not add value to the construction company’s business plans, going forward.

Positioning Yourself to Implement New Construction Software

When construction companies begin to entertain the thought of implementing new construction management software, it is critical that they take a long, hard look at their current business processes, procedures, management controls, data protocols, and other related construction company functions, in order to be solidly positioned to institute software solutions.

Some construction companies, depending mostly on overall size and budget, will make feeble attempts at selecting and implementing new construction software without even thinking about their current “state of affairs.”  That is, they tend to think the software will fill any voids and make up for any lack of perfection in current business processes and procedures.

Unfortunately, construction management system software cannot fix all the imperfections; it’s that simple.  Thus, it is imperative that construction companies thoroughly examine, evaluate, redesign and improve upon current processes and protocols; in an effort to bring those up to date and into alignment with current best practices and construction management system software design parameters.

Rather than try to make the construction software fit old and outdated processes and procedures, Construction companies should always be looking to keep their business practices current with the latest Construction industry benchmarking and best practice philosophies.  That way, construction companies can keep their competitiveness keenly honed, and their proposals and project management endeavors will represent their attention and desire to being the best they can be.