By Sheldon Needle

Defining Earned Value

It may be defined as follows:

The process of considering scope, schedule, and resources, measured against a project’s actual performance. It compares the planned amount of work to the completed tasks, to the project’s cost, to determine if the cost, schedule, and work completed (thus far) are all in sync with the plan. This analysis will show past performance and will estimate future efforts to complete the project.

Earned value may be also considered what you are entitled to progress bill the customer for work performed to date. The report which most closely provides earned value data is the cost to complete report offered by any mid-market construction software solution.

Most contractors will simply compare the dollar cost to date, including labor and materials, to see if the estimated percentage of work  completed is in line with the estimate. For example, if the total estimate for finishing work is $20K and they think they have completed 40% of the work, the earned value for the job is $8K.  But suppose the man hour units expended are already 50% of the total estimated.  They are now running a schedule variance of -$2K.  They have identified a work efficiency problem.

To get the best handle on managing earned value and schedule variances you will need construction software that measures both dollar variance, using estimated cost to complete, and a schedule variance metric based on units or hours that tells you if work production is ahead of or behind the estimate. A resource management component can also help to see if adequate manpower is available to meet the schedule.

These comparisons can be done at a summary job level or by cost type/phase and reviewed at intervals appropriate to the size and scope of the job. Of course, the sooner disparities are discovered, the easier it is to correct and minimize negative actual cost to estimate variances and avoid negative cash flow for the job.

There are many construction project management programs that will track costs at various levels of detail but very few (Primavera P6 is a notable exception) that tracks cost variances to schedule in detail.

Most of the mid-market vendors will offer a Gantt chart capability for scheduling that show timelines for various job phases. Other tools like Microsoft Project will do critical path scheduling. Neither really deals with cost tracking.

Advanced Management Reports
To keep senior management, owners and other stakeholders informed, reports can consider other factors such as specific variances for labor, material, subcontracts, equipment and overhead. Overall job performance with forecasts and adjusted budget of completed costs and variances per division may also be useful for larger jobs.

Summary
Effective management of construction projects requires real time data for cost and productivity to schedule so that construction managers can proactively insure the best possible outcome for the job.

Introduction:

When I started my business evaluating PC-based accounting software in 1983, side-by-side checklists with vendor ratings was a common way to evaluate and even select construction software. Millions of dollars of software have been purchased based on a vendor which has 94% of a feature list as opposed to another vendor who only shows they can do 91%! This approach is still sometimes used but does it really make sense anymore?

To be fair, in a macro sense, the checklists still have value, but only if the criteria is distinguishable, meaning that the items are not all functions that every system can do in one way or another. This is becoming more and more of an issue since, over the years, vendors have added missing features or simply copied other program’s capabilities. In other words from 20,000 feet off the ground, a lot of construction software programs are starting to look alike.

Using RFPs, RFIs:

There are numerous issues with using RFIs or RFPs to gather vendor capabilities. Depending on who is doing the ratings and how well they understand their software and how they interpret the question, you can wind up with a lot of misleading information. In point of fact, vendors hate filling out RFPs of any length and often will not even bother doing it unless the prospect is a large company that represents a significant revenue opportunity.

There is a difference in asking a salesman or technical person a question about whether his/her software has a certain capability. You have a chance, but not necessarily a good chance, of getting an accurate answer.  Some software company salesman are notorious for  not really explaining how the software can do it, but might say something like “Yes, the software can do that.” And they say it with such sincerity you are reluctant to question them any further.

RFIs are a much better way of doing initial screening when you use high level questions that require some kind of qualitative rather than quantitative response.

New Paradigm:

Smart consultants don’t invest a lot in vendor representations anymore. They understand that business processes and qualitative information is far more informative than simple yes, no’s and scores.  The really important part of evaluating capabilities is in the demonstrations where they have to show clients how the software really works both with sample data and, in round 2 of demos, with client data.  Experienced consultants have gotten to the point where they place very little reliance on what the vendor says the software does.  They have to show the client it works and, for really important functionality, references would be provided.

Software Buyer’s Challenge:

The hardest thing for the software buyer to do is to sit down and really focus on exactly how his/her company operates and whether there might be an opportunity to improve processes so that steps are either combined or eliminated and still achieve the necessary result. This is often not possible without outside help since company staff is simply too invested in current ways of doing things.

Evolving Evaluation Criteria:  

With proper focus, and sometimes coaching, users can see clearly what software they want and what they prefer to work with day in and day out.  Software selections are not about counting up scores and rankings anymore. There are too many qualitative factors such as user comfort with the software interface and functional operation. There is no way to establish this comfort level without extensive testing of the software.

Unfortunately, most smaller contractors don’t really understand this and most vendors won’t cooperate by allowing them to test the software. Therefore, purchase decisions can be hit or miss. Larger construction companies who are making six and seven figure bets on construction software cannot be as casual. They must apply the time and have the proper expertise to screen their options and arrive at the optimum solution based on business goals and how the software supports those goals.  It’s definitely not about counting feature rankings anymore!

Summary
While feature ratings chart may still have some value, they are no longer the essential factor in evaluating construction software options as they once were.

I recently spoke to the user of a heavy construction solution how have had it  for several years.  Product has not had any significant enhancements in years but annual maintenance has  increased 5% per year, and is now  on the order of 19K .

When I asked why  they continue paying it?  They said the software is  is buggy and they have to call support several times a year to keep it running. The bugs are not even fixed!  So average cost per support call works out to about $4-5K.

Tip: this is what can happen  if you are using legacy software by a vendor who is running it as a cash cow, that is spending nothing on enhancements, just mining it for maintenance revenues. In  fact it’s the maintenance revenues that keeps many vendors with archaic systems in business.

Large Canadian  mechanical contractor is finding that their job accounting system is severely lacking needed project management capabilities for managing changes, RFI’s, submittals, as well as document storage and retrieval. While they are ok with the accounting, they are going to look at entire new systems that offer strong integrated accounting with project management to meet their overall priorities. They also want dashboards with alerts so that management can see exception conditions which require immediate attention.  Many of these situations involve documents like change orders which are overdue.

They were looking at Prolog and Procore which are stand-alone project management solutions.

Tip: Before you choose to  pursue a stand-alone project management solution,  be sure to check out the vendors who offer both job accounting along with an integrated project management application.

Until the past few years, feature checklist ratings were heavily relied on to develop shortlist vendors to consider for a new construction accounting system.  And it made sense to do that when the differences between vendors were clear and easy to spell out.

As software vendors have copied each other’s capabilities over the years, this is no longer the case. Furthermore with Microsoft Windows being the defacto standard for vendors to follow, many of the universal system wide functions are available to vendors who write their software compliant with dot net.  This includes capabilities like dot net report services,  workflow features, outlook integration  and integration with MS Office applications.

If this is so, how does one differentiate between vendors?

There are some simple, but effective ways to distinguish between various construction software solutions.

• What database is used? MS SQL is the standard. If it an older, non standard database, the vendor probably isn’t keeping up with the times.
• Are there a number of happy  user references  similar to your size and business model?
• What is the industry focus for the vendor?   In the construction industry you have design-build, construction management, general contracting, service oriented contractors, highway heavy and government contractors among others. Most vendors can be identified by a dominant customer profile.

Beyond that self ratings by vendors are not really reliable. There is simply too much subjectivity and too much pressure on sales people to stretch the truth, often to the breaking point.

Tip: Feature function ratings and comparisons of construction management software no longer count the way they once did. Qualifying vendors today requires drilling further into the actual depth of capabilities through hands on testing and carefully managed demos,  not just totaling up ratings scores from vendor supplied checklists.

There are several under the radar screen issues that are important but often overlook when screening contractor software solutions.

Online user documentation – Users rarely check out the qualify of user documentation. They just assume it’s probably all right. The fact is that the quality of user documentation will tell you a lot about the vendor you may be working with.  To validate, search for certain functional terms and see if you can find it,whether was is said is clear and understandable and whether there are any supporting graphics. Use Microsoft Office as a standard to see if what you are buying is up to snuff when staff needs help.

 Support Staff Turnover – ask for statistics on support staff. How many man the phones, what is average length of employment, what is educational level?  Some companies who may appear as substantial operations actually only have tiny support departments and may only really have one person who can answer questions of any complexity.

The same screening  issues are relevant to project managers who will be helping with setting up your system as well as  sales personnel who may in one door and out the other before you know it.

Up to date references – some vendors use the same  references, usually long term users,  over and over again. These kinds of references are far less valuable than more recent users who have just been through setup and training.  Furthermore,  some vendors offer financial incentives, like free maintenance,  to users who agree to be references.  An onsite visit to references is far more effective than a phone call because people are more likely to open up in face to face conversations.

Competent leadership is the is the single most important criteria in selecting and using construction software successfully. Look for these qualities.

1.Experience in Software Implementation

Learning the ins and outs of software evaluation and implementation on-the-fly will jeopardize your initiative. That’s why your construction software champion must have prior experience evaluating and implementing software. Keep in mind that the scope of previous experience needed to make a sound decision increases with company size and complexity of operations.

2.Knowledge of Company Operations

Your construction software champion must understand how your company operates.

If he/she doesn’t, taking the time to learn the processes and operations well enugh to know what questions to ask vendors during demos is crucial.

3.Full Support from Management

Choose a construction software champion you can trust. Committing time and money to  a complex evaluation, selection, implementation and training process is not a place for wishy-washy management that doesn’t fully trust their champion to complete the project successfully. When full support is provided to the champion, you won’t be tempted to pull the plug when the going gets rough (which almost always happens at some point in the project).

4.Respect of Peers

Without the respect and confidence of his/her peers, the construction software champion won’t get the cooperation needed to gather information and data to move to a new system. Choose a well-respected individual to lead your search and implementation.

5.An Advocate for Change

Most people don’t like change and implementing new software is about as traumatic as it gets for the company’s accounting, project managers and IT departments. Your construction software champion should have the skills to properly prepare and motivate personnel for change, while helping them feel less threatened by the new system. This requires sensitivity to people’s needs within the new software environment, as well as the ability to make the evaluation, selection and implementation of new software a team effort. Without a sense of participation, many employees will not “buy into” the new software and may even try, in subtle ways, to sabotage the initiative.

Tip:  Your construction software champion is critical to a successful software implementation. He/she is the person with the most software experience and, once chosen, deserves full management support while leading to a final decision.

We occasionally speak with Australian contractors who need a better software solution.

Viewpoint, Timberline and Dexter Chaney can all work with Australian contractors.

Tip: Be sure to check on how  each vendor  delivers training and support services as some Australian contractors in remote areas have been burned by not having access to onsite support when needed.

Amenities service  provider using  an out of date ERP   program from one of the major vendors, wants  to go to a  “cloud solution.”

Since he already has a product from this vendor he is inclined to stay with one of their products. The problem is the vendor isn’t selling  a real cloud product which was developed to run over the web and incorporates the latest technology but a legacy product which  is simply being hosted.

Can they be considered “cloud?”  Technically, yes since it runs over the  web.  However the downside is that the product still looks like 20 year old software and they will be constrained by its dated workflows, like batch posting, and its tired interface. In other words, they’ll  be running obsolete software over the web.

Tip:  Be careful about defining cloud.  All cloud solutions are not created equal and won’t work the same.

Change Orders can affect as much as 10% of of the value of contracts.  Taking that kind of hit can obviously have a major impact on job profits and schedule.  Close to half of all changes result from “errors and omissions” in planning the job , reviewing  drawings, etc.  (Other major  factors are  unknown job site issues that arise.) Construction managers shudder when they see requested changes come through because of the  complications it can create as well as the potential  cost impact.

So the question is,  how does a construction manager get on top of changes before they make a dent on job profit and schedule?

First,  as with any software based system, it is important to know the specific workflows on how changes will be processed throughout both the company and any outside stakeholders (e..g owner, GC, subs, architects, etc.). This process should be based on an “as is” and “to be” process study that involves all key department people. Once the company understands  what and how they want things to be done, they are in a much better position to evaluate software options.

There are several ways to categorize change orders that range from requested  to pending  to approved. Contract costs  and contingency reserves can be affected at  either the pending or approved stage depending on company policy.  Companies  may want to limit  change order categories whenever practical in order to minimize tracking and data entry issues.

Approval processes should be minimized to avoid bottlenecks.  If it is necessary to have several approval steps due to the size of the changes , users have to be made aware of how important it is to follow proper procedure  for up the line approvals.  All parties should be notified immediately when changes are requested for followup on outstanding items.

Running a manual collaborative project management system, is very laborious and paper intensive and is subject to  many missteps along the way.   Users say it is also much more difficult to train users to operate a manual system as opposed to being trained on a fully automated, web-based system. In spite of these shortcomings, many project managers are resistant to let go of their antiquated paper-based systems.

Many  construction managers today want to make all the documentation involved with changes transparent to all stakeholders because of the sensitivity in dealing with them as well as the potential financial impact.

Tip: Having a robust  real-time change order management system in place is one of the most important factors in achieving job profitability.