Project managers and accounting staff may differ in personality, computer skills and the type of work they do... but opposites attract! The best builders integrate what's managed in the field with what's accounted for in the office.
Project managers need accurate, up-to-date job cost data, such as how much has been spent so far and how that matches the budget. However, they probably don't know what invoices have come in and what's been paid. Accounting takes care of that. What they do know is what's been done in the field, what's late and who's performing (or not).
Accounting has the job cost data, but can't put that information in the context of project status. How do costs-to-date match to our percent-complete? What is our cost-to-complete estimate? Has this sub performed or should payment be withheld?
Forward-thinking home builders are maximizing their profitability by implementing integrated project management and accounting systems. By deploying an integrated system to share data between accounting and the field, they know their profits at each point in time. Even better, they can correct course before it's too late to get a tough project back on track.
Here are five principal benefits of a single construction management software suite:
Accurate Revenue Recognition
Accountants play by the book (we hope), which in construction usually means recognizing revenue on a per cent completion basis. Though they are charged with recognizing revenue, they aren't the ones with the most up-to-date per cent completion data. Project managers have that information. Publicly traded builders, and even most private companies, will want to smoothly match their revenues to their expenses to avoid reporting losses.
By integrating project management and accounting, the office can understand exactly where each project stands and recognize revenue accordingly.
Accurate Cost-to-Complete Estimates
Managing a project to profit is critical, but too many builders find out in retrospect that they lost money on a home. They may already be halfway into the next project when they figure out why. To maintain profitability, home builders needs to identify cost over-runs on each home and at each phase of the project. What's over budget? Is it a sub, labour or materials? Did we blow the estimate?
The best home builders know their cost-to-complete on each house, every week or month. They identify cost over-runs immediately and have time to change course toward profitability. To do this, they need to integrate job costs with performance data from the field. An integrated system can identify what's left to be done with what it's going to cost.
Control Expenses and Avoid Errors
A sub may be behind schedule on pouring concrete, but that doesn't mean he's not up-to-date on invoicing. A payables clerk may not realize that a given material is $61 per yard, not the $67 deciphered from a scribbled invoice. Operations could have caught that mistake. Accounts payable needs operations' input on what invoices to pay, what to modify and what to withhold.
Leading builders are implementing a highly structured, electronic process for handling expenses. Within 24 hours of getting an invoice, it's keyed into the system with an accompanying electronic image of the paper invoice. It is then routed to the project manager to approve, disapprove, comment on or modify. Payments are made according to contract terms to improve accountability and carefully manage cash flow. This disciplined process provides easy access to up-to-date invoice data so that managers can generate accurate cost-to-complete estimates.
Maintain Profits on Change Orders
Change orders can be a great source of above-average profits on a job. However, too often they go unbilled or end up in dispute. Even if you end up negotiating a resolution, you'll probably end up making far less than you should have. It's therefore critical that any change that has a cost or procurement impact be tracked, approved and billed.
Integrating operations and accounting allows builders to manage a tight change order process. Change orders originating in the field are documented and tracked through a disciplined approval process that reaches back to the office, the client and any subs. In the end, builders can present a detailed cost impact analysis and the associated paper trail to their client... and bill in full for the change in work.
Measure Productivity
Productivity leads to profitability. The costs of labour and materials each day are fairly certain. What's less certain is how much progress you'll make by employing these resources. Hit your metrics for "zero defects" and you've got a profit. Smart builders realize that key productivity metrics are a leading indicator of job profitability. Where possible, they gather detailed metrics that measure their cost per unit of work.
To achieve this level of detailed measurement, the superintendent contributes the quantities of work completed each day. These quantities, combined with the related cost information, yield unit costs. An integrated home building system can provide the environment to collect, analyze and report this information. The resulting unit cost information is a powerful tool for gauging and improving productivity in the field.
Don Fornes is Founder & CEO of Construction Software Advice, a Web site that helps home builders find the right software for their businesses. E-mail Don at don@softwareadvice.com or visit www.softwareadvice.com/construction.
