By Frank Hogg & Ken Van Bree
More competitive bids… Less backlog… Increasing costs of construction… Lower profit margins…
For every contractor in the construction industry, these terms have resonated since 2009. And with economic pundits continually pushing back the projected full economic recovery period for construction, the prospect of maintaining acceptable levels of profitability remains challenging for the foreseeable future.
Many companies have focused on cost-cutting measures, which include targeting overhead expenses or attempting to lower their costs of construction.
Contractors also should consider investing in technologies and process improvements that can assist them in being more competitive in the marketplace.
Companies focused on making tough, economical decisions before writing checks have a tendency to place priorities related to investing in technology and process improvements toward the bottom of management’s plans. That may not be the wisest choice.
Contractors should carefully evaluate the potential benefits that can be derived and whether these benefits exceed the costs involved. The “intangible” costs of lost productivity, lower customer satisfaction, and inability to properly execute project work should be an important part of the decision.
When considering an investment in technology, management typically has a few standard questions:
• Can we enhance the efficiencies of our operations?
• Can we improve the productivity of our employees?
• Can we improve the level of service to our customers?
• What will the technology cost and do the benefits outweigh the costs?
• What level of effort is required to implement the technology in terms of employees’ time and resources?
The most common concern is the upfront capital required (both in terms of time and money) in order to purchase these technologies. What many companies have found is significant capital outlays are not necessary for many construction technologies and process improvements.
Contractors should consider the following after evaluating each application’s costs and benefits:
A majority of employee time is spent out of the office performing construction services at job sites and various other service calls for maintenance. Mobile technologies allow remote employees to communicate with the office.
Important information such as customer inquiries, work orders, change orders, service calls, etc. can be communicated in real time back and forth between the remote location and the office. This improved communication allows everyone involved with a job to make quality decisions based on the most accurate and up-to-date information available.
Equipment Tracking Applications
Equipment is obviously a significant investment for most contractors. The efficient use of any purchased asset is critical. Certain equipment tracking applications track the location of assets through the use of GPS technology, providing for greater control of that equipment and helping to prevent theft or loss.
These applications can also track maintenance records as well as utilization data by job and employee. These applications can minimize downtime for equipment by proactively preventing significant future repairs. They also can help management determine where the equipment can best be utilized within the company.
Integrated Project Management Solutions
On a daily basis, project managers balance delivering a quality construction product, serving customers, meeting schedules and deadlines, and managing cost budgets. Integrating a project management system with a company’s accounting system is critical for any contractor that strives to manage costs of construction and drive efficiency higher.
Many project managers still do not have immediate access to accounting and project cost information while they are in the field. By giving project managers the tools they need to access real-time data and communicate with financial management personnel, decisions can be made that can improve overall project efficiency and profitability.
Business Intelligence Tools Driving Process Improvement
Do project managers ever mention that the reports they are given are difficult to understand, contain too much or too little data, or are not representative of their job’s status? Business intelligence tools aim to clarify the data accumulated within a company’s accounting system in order to improve management’s decision-making ability.
While applications such as Microsoft Excel represent the most basic business intelligence tools, many contractors have found significant added benefits in implementing more advanced business intelligence tools to their financial management systems. Such tools can be integrated with a company’s existing accounting system in order to:
• Query existing data and generate more meaningful reports for project management
• Generate alerts to users when certain triggering events occur (e.g. jobs going over their predetermined cost budgets)
• Conduct on-line analytical processing (OLAP) for large quantities of data
• Perform analysis to create graphical representations of underlying data or “dashboards”
Many providers of software and database solutions, such as SAP, Oracle, and IBM, have recognized the importance of such business intelligence tools and have created advanced applications that are designed to be integrated with a company’s current accounting system. They have done this in response to the growing demand for companies to better analyze and understand the information accumulated within their own accounting systems.
In today’s challenging environment of excess capacity, it is critical that contractors remain competitive within the marketplace. In addition to cutting costs, companies should consider the potential benefits of certain technologies and process improvements. They have the potential to help a contractor gain an important competitive edge now while also building for future gains when the market fully recovers.
Frank Hogg, CPA, is partner-in-charge, and Ken Van Bree, CPA, is a partner & vice-chair of RubinBrown’s Construction Services Group.
Contacts: 314.290.3413; 314.290.3429.