3 ways ERP can help you maintain sound margins and perform profitable construction projects
Maintaining already tiny profit margins in construction projects is a never-ending challenge for construction companies. Modern technology and efficient process and relationship management can help you solidify your margins. Let’s take a look at three process improvements and corresponding capabilities in ERP solutions optimized for the needs of architecture, engineering, and construction (AEC) companies that can make a difference.
- #1: Implement controlled, transparent change order management
Construction bids are not static. They evolve as construction companies and their clients negotiate. When your estimate features the slim margins that are typical in the construction industry, there may be very little room to revise costs unless you can control the changes in what will eventually be built.
- Sometimes, clients may challenge your assumptions or question the cost of project elements such as elevator installation in a new building. In the public sector, they may have the right to review your margins and make them part of the negotiation.
- You want to maintain healthy margins as much as you can and also give clients what they want. When you adjust time and materials in your estimate, doing so should be part of a documented, structured change order process. You need to remain in control of the resulting versions of your bid and never lose sight of the work breakdown structure (WBS). Without efficient change order management, negotiations can easily become contentious and fragmented. You then run the risk of incurring client dissatisfaction, committing to an unprofitable project, or diluting team efforts with rework and recovery caused by lacking change control.
- Today’s AEC-optimized ERP systems can greatly simplify the steps of managing your estimates through several iterations and making sure they remain financially sound. They help you calculate the financials of project changes quickly and accurately, and keep the data evidence for the WBS within reach. When your construction software and ERP are in the cloud, it becomes easier yet to let project leads and business stakeholders collaborate on bids or to share information with clients and suppliers in secure, dedicated workspaces.
- #2: Track and manage all important relationships
Construction companies often have to satisfy multiple clients on a single project. In public-sector projects, you may need to justify your costs and negotiate project deliverables and schedules for the same project with, for instance, the port authority, the city, the county, and the state’s environmental regulator. Commercial projects may involve partnerships of developers, investors, and anchor tenants.
- All these stakeholders have their own accountabilities and objectives, and each of them needs to approve the final bid and sign off on the resulting contract. You need to document their agreements and commitments. Even better if you can also keep a record of their communications and processes. Margins are one of the first things to become endangered if you deliver a bid that meets the diffused requirements of multiple clients.
- The customer relationship management (CRM) component in today’s leading ERP solutions lets you document and track all client stakeholders involved with a bid and project, along with any pertinent information and files. Modern cloud ERP also transcends the traditional segmentation of ERP and CRM functionality. No need for an integration project – you can simply configure them to suit your workflows.
- #3: Enable data-driven project management and accounting
Construction project leads can’t maintain sound margins and manage subcontractors, suppliers, labor, equipment, and materials if they can’t see project financials. Too often, they are only aware of the contract, but not the current project performance. They are thus underserved by the processes and technologies in many construction companies, but they’re not the only ones.
- Executives and business managers juggle the project portfolio and make decisions about an organization’s goals and investments. They also maintain the relationships with their counterparts at the subcontractors and suppliers without which the company could not function. Each project requires agreements with these business partners on the scope, cost, margins, schedule, and other details. Construction executives also need to be able to evaluate the value of these intercompany relationships for the business in various shared-value contexts.
- The data and decision-making requirements of these roles are often partly met by spreadsheets and other documents. In-depth business or project financial reporting can be difficult to perform and may require IT to help locate and analyze information. These tasks along with the associated negotiations and contracts can become more efficient when an ERP system with the right AEC capabilities provides a centralized, complete reference and enables reliable project accounting.
- To learn more improving your project finance and construction margins, download our whitepaper