I speak with various users of construction software on a daily basis. Many are very disappointed with the software they now have and want to look for new options. In most cases, their reasons are legitimate and they do, indeed, need a functional richer and technologically more advanced solution. But users who change software will be just as disappointed in the new system as they are with what they have. The reason is very basic. The users of the software simply are not properly trained to get the most out of it. This is a fact regardless of industry or company size. This article will explore a true life case of why a new software installation can fail despite the best intentions of management. The company name is not revealed for reasons of privacy.

A few years ago I worked with a medium-sized print electrical contractor that had many jobs to complete in a short time frame. Their major challenges were managing scheduling, tracking all costs to the job and being able to respond to job status when customers called. They were using very old software that lacked any of the niceties of new Windows software even as basic as having multiple users access an application at the same time. Needless to say the software was a serious hindrance to office productivity.

Of course, the simple answer was to get new software. After months of research I came across a system which, while not state of the art, was adequate to the task. I sat in on several demos and everyone concluded it looked like a good possibility. The next step was to have the primary accounting person to try out the software herself and see if she really liked it. This, however, meant burning some midnight oil because she did not have the time to test it during regular work hours, a common situation with many companies who are bringing in new software.

No one in management volunteered to work with her, on that difficult assignment so after a year, absolutely no progress had been made in evaluating that solution . Finally after 2 years, they finally acquired the software, had some initial training and started to use it. The staff, not being very sophisticated, entered all the necessary data in the new system (job cost, work orders, and progress billings, etc.) but insisted in continuing to use the old system in parallel mode for an entire year because they were afraid to let go of it. Essentially, out of needless fear, they did double work for an entire year! Why? Because no one with experience was there to manage the process.

Several important lessons were learned as a result of this wasteful process. First, key managers should be brought in to initial meetings with the vendor trainers to give them an overview of the implementation process, all strategies involved and the expected time-frame.  Second, when the manager doesn’t fully buy into the process and understand the tasks and time-frame, they may not choose the employee most qualified to learn the system and to train other people, but the employee they can most do without for the ”train-the-trainer” sessions.  Without the supervising managers involvement, classes were routinely skipped by staff employees and the entire training process broke down.

What the company learned was that the direct managers must be involved in the initial training sessions as well as be active participants in managing the implementation. (In a small company this means the CEO or owner.) They need to know what resources will be required to get the system up and running successfully and be prepared to commit qualified people to learn the system and to train other staff as necessary. Everyone must be motivated so they are fully committed to the success of the new system.

Bottom line, construction project management software is only as good as the people who use it and that means proper training and motivation.

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.

When discussing software requirements issues for contractors, it is important to consider the size and scope of operations.

A small – medium sized contractor ($2M – 50M) may get along fine with a basic job cost program, and the essential financial accounting modules of accounts payable, accounts receivable, estimating, general ledger, purchase orders, inventory, basic service management, simple document management and payroll. But a larger contractor $50M+ often will need either more depth in their accounting applications (e.g. multicompany, complex consolidations) and/or require other applications such as Human Resources, Fixed Assets, Equipment Management, collaborative project management, document scanning and vaulting, etc.

A really large contractor ($250M+) may require any or all of the following:

• interfacing to corporation financial reporting systems
• portfolio management of several entities
• integrating with specific industry applications like Primavera P6 for scheduling and cost tracking
• integration with industry specific estimating programs (like Hard Dollar for heavy contractors)
• supply chain management for inventory control and ordering
• quality assurance tracking for materials
• engineering control for bills of material
• greater security features by entity user and application
• strong integration with Outlook for tracing emails and creating alerts
• document imaging and workflow features
• earned value computations
• contract management
• user definable workflows
• realtime key performance indicator dashboards for management

With more applications come more complications as to how each vendor handles all the requirements and what, if any, third party vendors must be brought in to provide everything necessary.

With applications like project management, it is typical that the project management vendor will need to spend time studying the precise requirements (and even help advise on industry best practices) and to then provide a time and cost estimate to modify their software to meet the specific company processes. A typical scenario for creating a custom interface for a project management system to a construction accounting system can involve several months of work and $25-50k or more of expense.

Data can be a two way street

Work Breakdown Structures (WBS) are a way of describing and tagging specific costs assigned to jobs. Depending on which application captures those cost transactions, data may need to be moved between two different systems. For example, if Primavera is used to capture transaction costs it may use an entirely different set ofcost codes than the codes used by the construction application program (Timberline, Viewpoint, Dexter Chaney,Maxwell, Computer Guidance, etc.) . It then becomes necessary to set up a mapping translation between the systems so that data reporting is consistent between the two systems. This is critical for things like earned value computations which companies with government contracts must comply with (as well as others where the contract requires it).

Working with WBS codes and earned value according to job cost schedule budgets requires a higher degree of competence than just performing simple job to complete reports in a typical job cost accounting system.

Summary

Given the scope of applications, more sophisticated accounting requirements and potential multiple points of integration, evaluating construction software for larger contractors can be exponentially more complex than evaluating the needs of smaller ones.

To do the job right often requires expertise in accounting, financial management, project management, supply chain/inventory control, engineering, HR, and risk management. To execute the evaluation and selection of construction software for this category requires a well led committee of experts in each area who have the absolute confidence of management and are fully committed to the project.

Once construction actually begins, they will monitor progress on the schedule and costs to date versus expected costs at completion based on the percentage of work that has been done. This may result in over or under billing the job to date which, of course, can have a major impact on working capital. If government work is involved they will have to keep tabs on “earned value” which is measured by comparing costs to date to the total contract amount to assure that they are not going to release funds that have not been “earned” by the contractor based on actual progress.

In addition to tracking actual costs to estimates by time, phase and cost type, phase, construction managers have to deal with documents such as change orders to the job, RFIs and submittals which must be routed for approval.  Ideally software should allow for a specific work-flow process that routes documents from one individual to another via email alerts or reports. Furthermore,  the software  will need to keep track of meeting minutes and comments from various stakeholders in the process as subcontractors, the GC, etc.

Collaborative project management involves more parties and is more complex. In this case, an owner may commission one or more construction projects and contracts with general contractors to deal with hiring subcontractors and taking full responsibility for actual construction.  Since owners are funding the project they are very concerned about things like job progress and tracking costs to date. They also want to provide a platform for end to end project management  where various stakeholders such as with design engineers, architects, mechanical contractors, etc.  will use one software solution  that supports  entering labor and materials cost  data, along with relevant documentation,  on a real time basis and tracking these costs  to budget. A construction software application that includes document vaulting is also desirable to allow scanning and storing documents associated with specific transactions with some kind of indexed subject lookup. This goes toward the paperless office concept that many people want.

An intelligent work-flow process will be needed in these situations such as tracking how many change order dollars were approved for a contract as well as how many are pending along with how many punch list items are unresolved to date and those responsible for it.

The owner will want to allow specific access rights to stakeholders based on their roles but not allow them to see data that is outside their area of responsibility. In this case the software has to support very sophisticated security configurations for various users.

Well designed construction project management software will continue to serve owners for  capital projects, maintenance and preventative maintenance well beyond the initial construction. Sometimes owners want to monitor multiple projects at multiple facilities (e.g. universities or multi-location retailers) and track post construction costs like maintenance or simple renovation costs.

After all, it’s something you think you need and that would help your office get organized, run more productively as well as provide needed management information on a timely basis.

All this is certainly achievable. The problem is most users are not seriously looking. They just don’t realize it until the time comes to write the check   and go through the inevitable pain that comes with converting their data and learning a  new system.

Yes, it is a major commitment even for a small company.

Here are the some of the signposts that companies should keep in mind to find out if they are truly serious about acquiring new construction software.

• When the search is initiated by an office crisis such as the old system crashing or executives raising hell about not being able to get the information they need at a particular time.  As soon as the crisis passes, everyone relaxes and drops the new software search.
• When management thinks their chaotic office processes will be straightened  out by getting a new system.  This common myth is simply untrue. Your office will remain chaotic because well understood procedures and disciplined staff must be in place to follow them.
• When records are out of date or inaccurate. Moving bad data from one system to another only complicates data conversion and guarantees you will start you new system  with a shaky foundation. The lesson is work on getting the information correct before you start looking for new software.
• The budget for new software is “as little as possible.” There is no such thing. Without some kind of expectation of what you need to spend depending on your needs and number of users, you will suffer sticker shock  at any amount the vendor quotes.
• Lack of staff support. The smartest manager in the world cannot be successful with new software without active support from his staff, whether that staff is a room full of people or a single bookkeeper. Qualified staff has  to be properly trained  in order to get value from  the new system.
• When everyone using the current system is unhappy and management fails to troubleshoot the problem.  What makes you think they will like a new one? Many a  “failed” software installation has been rescued  once the core problem is understood.

In summary,  while we are initially excited by  the prospect of a better way to manage our business, the fact is that  the vast majority of the companies who start a software selection search never complete it because they were never fully committed in the first place.

Not long ago, Computer Aided Design, or CAD became available.  However, only the most elite construction companies could use this technology.  Not only did the software itself cost thousands of dollars, but the computers necessary to run it could cost well over a hundred thousand dollars.

Eventually, though, the software became affordable to even the smallest companies. Today, CAD software can be purchased for as little as $50 and added to your construction software arsenal. And with computers being so cheap, an additional $500 is all that is needed to set everything up and start using computer software to design construction projects.

It’s not all about cost; it’s about productivity, portability and enhancing the abilities of a builder. CAD software can be considered building software because many companies produce CAD programs that are enhanced for builders. There are two relative classes of CAD programs, which we will generically call high end and low end.  As we will see, high applications tend to be focued on analytical tools. Low-end applications focus on basic blueprints and visual renderings.

High end CAD software is distinguished by its powerful analytic tools that make advanced structural analysis possible.  These features are used by engineers to calculate structural fatigue.  In addition, software models can often be paired with even more advanced data analysis systems to create dynamic structural analysis.  This sort of analysis is essential when building large buildings or bridges, or using any newer building medium.  Without this advanced software, it could take months to perform the same calculations.

Low end software is merely a reduced version of the high end software, meaning that is it the same software but it has limited ability. With this type of software, blueprints can be created. Some of the low-end versions even contain building feature libraries. These libraries help those with little training add accurate details. According to construction software reviews, the programs are user-friendly and easily learned by those with limited computer knowledge.

Most low-end CAD applications used in construction are graphics heavy. While they lack the structural analytical tools, many of the programs create realistic 3D renderings, allowing a builder to walk a client through a virtual building.  Feature libraries include furniture and accessories, allowing a builder to virtually “stage” a house or condo, or even a public building.

In some cases, CAD software is no longer optional.  It is becoming more common for municipalities to accept and review building permits online.  This requires the creation of CAD blue prints to be uploaded electronically in order to secure permits.

Another great feature of CAD is its mobility. Gone are the days of carrying around bulky blueprints that could become damaged at any step of the journey. Now, plans can be put directly on a jump drive and carried easily in a pocket or briefcase. You can even email your plans.

CAD as Building Software is just a natural extension of CAD programs and can enhance a business, large or small.

They usually have a laser like focus on how the software looks on the screen, what the salesman says about it, and what it costs. While those issues may be important, asking the right questions about technology will tell you an awful lot about the vendor and their commitment to their product and, ultimately, their long term commitment to you as a satisfied customer.

You might ask – does what’s under the hood really matter as long as the car gets me to where I want to go? That’s a legitimate question. Now lets do a little exploring.

Programming Languages
First, technology matters for the vendor in terms of maintaining and improving their system. For example, outdated programming language may require more machine horsepower to run and they are not as adaptable, or incompatible, with new operating platforms. Finding qualified programmers for those languages can also be a challenge.

Databases
Older databases are not as efficiently designed as newer ones (like MS SQL) for data queries and reporting. It may take much longer to run reports and be more difficult to access data due to outdated technology. File formats for importing and exporting may not even be available to work with office productivity products or estimating programs used by contractors. Furthermore, error recovery in case of power failures can be more difficult with older databases.

Project Management and Document Handling
More and more contractors are looking for robust platforms for managing projects. This means that functions like document scanning, storage and lookups need to be efficient, manageable and secure. It will easier to accomplish with modern programming and databases.

Financial Reporting, Drill Down and Auditing
The ease of creating financial reports, accessing specific transactions, and related documentation is enhanced with more current technology.

Vendor Commitment
Using more up to date technology is a statement by the vendor that they are serious about keeping up with improving their products and keeping their product competitive. There are a number of vendors who do not qualify on that front and it’s pretty easy to find out who by asking the technology questions.

Here are Some Questions you May Want to aAk:

• What database are you using?
• What office productivity programs can you export to and import from?
• What industry standard report writers do you work with?
• When was the last technology improvement you made to you program?

Of course, technology is not the only thing you want to ask about and newer technology can come with its own set of issues.

But when you are being asked to pay the typical annual maintenance fee of 18 – 22% a year of the current retail value of your software, you are entitled to know whether the vendor is earning it by improving their product and protecting you from software obsolescence.

Many contractors realize they need help with their office record keeping and paperwork so they start poking around for an upgrade to their office systems.

1. Web searching for the best solution
The first thing just about everyone does today to find information is do a web search for new construction software.

They will type in something like “compare construction software” or “construction accounting” or “project management software,” etc. This will result in pages and pages of links and they will select a couple that catch their eye, based on a slick marketing message or nice logo, and then contact those vendors or search services for information.

This may help them identify some vendors but it has little or nothing to do with qualifying them for their business based on their needs and budget. It’s strictly pot luck if you wind up looking at the right products.

2. Shopping based on price
Following the intial search prospects will then ask for pricing and a demo of the product. Various websites offers demos and pricing information but you will get neither. Instead you will receive a marketing CD extolling the product and hear from a salesman.

The salesman will never give you an initial quote over the phone until he finds out whether you are a serious candidate for his product and your specific application requirements. Vendors rarely have list prices for their products. Even if they do, prices are subject to change based on many different variables.

3. Web demos
Showing you a demo is a little like watching a magic show. The salesman, like the magician, will show you the most capable parts of the product and conveniently leave out what it does not do well.

At most a demo will show you only 3% of what the construction accounting software can do. You may not be overly thrilled with some of the other 97%.

4. Failure to consider requirements against business goals
Most companies are focused on solving immediate operational pain such as the difficulty in finding documents or staying on top of estimates to budget. But there may be many other opportunities for impact such as improving customer service or reducing inventory shrinkage that are also available. In order to execute this kind of analysis all major departments should be participate.

5. Top down buying decision
Many small contractors manage autocratically and fail to include their staff in evaluating vendors and participating in the decision of what to buy. This is a serious mistake as staff whose opinion is not solicited before the software is purchased are likely to be resentful and not fully support the new installation, or even sabotage it in subtle ways.

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.

Although it isn’t necessary to keep track of withholding for contract work, it is still good to generate 1099 forms.  Construction software makes this a simple process, allowing generation 1099 and W2 forms at the end of each year.  In the case of an audit, this software is a time-saver.  It keeps track of your tax information year after year.

Construction businesses must keep track of services in a separate category.  This need is reflected in most construction software.  Services differ from direct labor because workers performing the work are actually in the employ of another business.  For example, workers sent to repair rented equipment or refuel equipment might fall under service expenses.  These expenses are tracked separately and considered a direct expense.

Today it is becoming much more common to subcontract or sublet portions of a construction project.  Some construction business models rely heavily on contracted work and have very few payroll employees.  Some of this sublet work consists of both labor and supplies, while other work consists solely of labor.  Common sublet work consists of foundation work, grading, cabinetry, and even framing.  Construction management accounting software makes it possible to keep track of these expenditures.  The ability to review sublet work allows the construction company to keep tabs on sublet spending.

Some construction companies keep track of expenses in traditional accounting software.  However, this software doesn’t meet the needs of most builders.  Construction accounting software was designed with builders specifically in mind, and it allows them to keep accurate records of costs without devoting excess time to it.

In fact, most of them are probably are a pretty good solution for 97% of what you want to do. But it’s the last 3% that might just do you in. And that is where buyers can take a big hit.

When it comes to entering job cost transactions and running essential reports, most products are just fine. However, if you have to deal with any of the following, straighten-up and pay attention because these are items that separate the average vendors from the stronger ones. And these are areas that sales literature (or so called “Demo” CDs) will never call to your attention:

• Union reporting, especially multistate
• Multistate , multi-tier sales taxes reporting
• Equipment costing
• Fixed Asset tracking
• Purchase order creation, receipt and inventory control
• Custom report writing
• Multicompany consolidations and intercompany transactions
• Workflow for document alerts and approvals
• Project management and accounting integration
• Under the hood technology (database) and potential ramifications
• Posting and ability to access realtime information
• Field capture of labor and transmission to central database.

Vendor sales literature is deliberately vague – an actual case history

A few years back I spoke with a large heavy contractor, doing extensive excavation work with large, expensive machines. He was evaluating a number of programs to see which ones could best handle its need for fully burdened .job cost to include its high cost daily rate of internal machine rental costs in order to compare actual overhead to standard overhead rates.

Fully burden charges per day for his using the machines included wear and tear and salaries to make use of the equipment.

They also wanted to see journal entries with the related amounts. Despite the representations of the salesman that the program could meet this requirement, they found out after using it that it was severely lacking in this area. To get around the limitations they would up spending a lot of time gathering and tracking the information in Excel.

The product did the other 97% of their requirements fine but could not do this critical item and that made the system a major failure for them.

Why does this kind of thing happen?

The prospect was told by the vendor that they did do standard vs. actual costing with variances. Unfortunately the prospect did know not know enough to follow that up with further clarifying questions and made the assumption it would work for them.

Lesson learned:
Salesman demonstrate what their programs do well and try to leave out the hard stuff. If buying prospects don’t ask the right questions and demand to see a demonstration (better yet do it themselves) of the specific inputs and outputs of what they need done, chances are very high they won’t get what they expect.

When it comes to buying construction accounting software, never assume anything. Check it out for yourself.