Software-as-a-Service job costing systems are an inevitable development as construction businesses overcome the disconnections involved with running multiple, geographically dispersed projects. However, creating real time, data-driven analytics to drive better decision-making is only the first step: future digital disruption could see “blockchain” approaches accelerating cash flows between construction clients and their suppliers.
It is not surprising that the construction sector has developed its own approaches to managing costs.
In many other industries, organizations are engaged in predictable, often repetitive activities, in fixed locations, with stable supply chains. A non-construction organization can therefore establish a financial management regime that will change little over time, and which can efficiently deliver information to the finance director when it is required.
Managing Construction Cost Complexity
In construction, by contrast, we are often designing and constructing what amount to made-to-order assets, so there is immediately less certainty. We may be dealing with multiple projects, for different people, with different schedules, and run by different project managers.
Each will be in a different location, with different site footprints, different ground conditions, different access routes etc. And, partly influenced by their locations, we are often dealing with different suppliers––we might select local designers, subcontractors, plant, materials, and product suppliers based on their proximity to the site.
Field financial management will therefore need to be adapted for each project to reflect its nature, its timespan, location, supply chain, and personnel. And timely, consistent, and reliable reporting to the finance director will be even more of a challenge when a company is undertaking a diverse range of projects simultaneously.
When it comes to construction financial management, it may feel like we have to start with a clean (spread)sheet of paper. But, of course, the industry has been able to develop standardized approaches to cost control and financial reporting. While reflecting commercial accounting norms, our most widely used accounting or enterprise resource planning (ERP) tools are often construction-specific: they reflect the transient, complex and project-based nature of our work, the diversity of suppliers that we work with, and the inevitability of change.
Bodies such as the US’s Construction Standards Institute (CSI) have created industry standard classification systems so that we can break work down and use consistent terminology and codes across budgets, estimates, contracts, change orders, invoices, etc. As a result, project managers can get a very granular view on a line item by line item basis at cost code / cost category levels of detail––we can build financial “islands of truth” at the individual project level.
The Field Office Gap
However, for a company finance director, getting a pan-project view of the financial position can be more difficult. Traditional construction accounting/ERP applications are often back-office systems, installed on-premise, with little to no direct connection to field operations.
As a result, project reporting from individual projects will often involve monthly submissions of spreadsheets summarizing changes and resulting impacts on the projects’ budgets––occasionally, major cost changes and/or delays may not be notified until 3-4 weeks after they occurred. Such retrospective reporting, repeated across multiple projects, can mean major impacts on the business’s cash flow and profit/loss may not be visible for some weeks, particularly if historic reports also need to be aggregated and re-entered (maybe with a little human error!) to give an accurate, consolidated view of the company’s position at a board meeting.
In much the same way that mobile and web-based construction collaboration platforms have helped create single shared versions of the truth across our “island” projects, Software-as-a-Service job costing applications can help close, even eliminate, the field-to-back-office divide and the financial management gaps––both geographic and time-related––between individual sites and the boardroom.
Real Time Reporting
By capturing daily cost changes in a SaaS platform instead of spreadsheets and emails, project managers can quickly generate up-to-the-minute dashboard views of the financial health of their jobs. They can monitor the impacts of change against the budget and program (maybe also allowing action to be taken to improve the forecast position), and, importantly, share that information securely and in real time with their finance director and other authorized colleagues.
At head office, we are no longer summarizing past performance. Instead, real time reporting across multiple jobs gives instant visibility of current project performance. It identifies unexpected variances (users can also “drill down” to examine the underlying details from the field), eliminates the data-entry and reporting time-lags and errors, provides better forecasts across all projects, and provides a basis for confident decision-making with respect to any “problem” jobs.
And SaaS job-costing tools can also be used to make more strategic decisions––for example, the aggregated data can yield business intelligence about the customers or the supply chain partners who contribute to our most profitable jobs (and the ones who don’t).
Looking Forward to a 21st Century Solution
Technology is helping us improve construction, but we are currently mainly digitizing previously analog processes. “The cloud,” mobile technologies, and building information modeling (BIM), are already shifting the focus away from documents towards management of data: 3D design and 4D scheduling data is now being augmented by digital 5D cost information. Faster flows of design and construction data will be matched by faster flows of financial information, with emerging financial technologies such as “blockchain” creating future digital disruption.
In the UK, for example, a group of innovators are looking at potential “blockchain” applications. Their ideas include “ConstructCoin,” a method of commoditizing construction information so that creators are rewarded when their construction information is used, and a project banking app, “TraderTransferTrust,” which uses blockchain to drive a digital pay-as-you-deliver system and optimize cash flow for construction buyers and suppliers.
This may sound a bit utopian today, but in a low-margin industry renowned for its slow and opaque processes, such digital disruption could accelerate mobile, real time transfer of data within and between organizations, opening up new and more profitable alternatives for those able to build close, collaborative trading relationships with their customers and their key strategic suppliers.