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.

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/

Construction Software Integration Issues – Contractors who Manufacture

It is not uncommon to find contractors who manufacture the products they install for customers. Some examples include structural steel, custom cabinetry and furniture, and various kinds of low voltage products. Prospective buyers of software with this profile will often have fabrication and assembly job shops that design the products to the customer’s specifications and then have an installation department to install it at the customer’s site. Providing professional design services and providing estimates and quotes are something that contractors and manufacturers often have in common.

Having one piece of construction accounting software that will cover both ends of the business seems like a sensible way to approach a new software solution. After all, both involve job cost, only one is job cost for manufacturing and the other is job cost for construction. Unfortunately, even though both have job cost tracking needs there are many other issues that make it very unlikely that a single software solution can run both aspects of the business successfully.

First, scheduling manufacturing jobs involves a different set of constraints than construction. You are usually dealing with machines and work centers as well as individuals.  Jobs shops often have rush jobs that have to be inserted into the job queue.  In turn, the software has to show how other jobs are affected by the change in priorities. This is not something that is feasible for most construction jobs which involve much longer lead times and many more variables (such as using subcontractors).

Second the cost accounting is different. Manufacturing job costs include direct labor, direct materials, and some kind of overhead allocation.  In manufacturing, work in process costs should be accumulated as the job moves from one work center to another.  These costs are assets on the balance sheet until the job is completed and shipped. Thus, inventory costs change as the job progresses. Furthermore, manufacturers need to know job progress and be able to project a promise date to the customer.

In construction, revenue and costs can be recognized on a percentage complete or completed job basis.  A general contractor often will not record costs until he is invoiced by the subcontractor.  He will be most concerned that costs to date on the job are in line with the total projected costs to complete the job, as well as over or under billings on the job based on total projected estimates and actual costs to date.  This kind of cost breakdown is not practical in a manufacturing operation.

Construction software records jobs, phases, and cost types in a linear fashion as jobs progress.  It is possible to capture costs on a real-time basis as they occur with the right software and processes.

The construction side of the business usually has to deal with project management issues like change orders, RFIs and submittals, which are not relevant for manufacturing.  Construction management software may also record retainage for jobs and do progress billing, which manufacturers don’t do.

Finally, manufacturing quoting will often involve a multilevel bill of materials which is not normally done for a construction job.  Engineer to order manufacturers want to keep track of engineering change orders, revision history, and associated drawings which is not covered by construction software.

In conclusion, although  the term jobs and job costs are used in both manufacturing and construction, the fact remains that the nature of the businesses is different.  We recommend that each aspect of the business use software specific to its specific needs and pass any transactional information between the  two as though they were completely independent businesses. Any intercompany transactions would be eliminated upon consolidation.