As we’ve covered numerous times, this uncertain economy really poses many challenges for the construction industry as demand for new projects, cost of materials, and real estate interest rates continue to rise. In addition, contractors and developers face obstacles in keeping up with changing technologies and industry regulations as well as in hiring and securing the best talent in a highly competitive marketplace. While it’s impossible to predict every aspect of the market or economy, we hope this Q&A can help answer the questions to start ensuring resilience within your construction business by leveraging ERP technology.
What has been the impact of the COVID-19 pandemic on construction companies, and what is the 2021 outlook for the industry?
Most construction companies started 2020, coming off of a good 2019 with good projects, good backlog. When the shutdown occurred in most states, construction was deemed as an essential business. These workers went back to work pretty quickly and the PPP loans did help them maintain their labor force work through their backlog, but with social distancing and unemployment benefits, the construction companies had to change some of their work practices.
Looking at 2021, the industry is recovering from 2020 project delays and cancellations. With many companies now allowing employees to work at home, commercial real estate has also taken a hit. All of these have greatly impacted the construction industry for 2021.
Unfortunately, 2021 does not look great, but maybe by the year’s end, there will be some uptick in the industry.
How does ERP technology help construction companies with resilience?
If your company doesn’t have the right tools to execute good estimating, establishing a competitive margin, project management disciplines, along with keeping up with change orders, you’ll fail. There are a lot of different types of applications that can assist with estimating by doing takeoffs of plans, but that’s just the very beginning of it. Next comes needing to have an active database of your material prices, current material pricing that you’re going use, etc.
It’s important to understand labor costs and any additional overheads that you want to factor into your estimate, and then set that up as the budget for the job, with all the various activities. Then you must be able to track percentage of completion, comparing your run rates against budget line items to see how you’re doing. Construction companies need business management systems that do all of those things, so you can see on a daily or weekly basis where the project is against the budget.
And then, of course the system must be able to manage the change orders. It needs to be able to identify a change in the order and get it set up in the system again with the appropriate budgets. The system should also track the costs of materials or really anything that needs to be purchased for the project.
We already use disparate systems for all of this. Do we really need to consolidate?
Construction companies need a platform that includes financing and accounting, but they also need a system that can also handle that whole job cost component to be able to see the bottom line of your business based on an aggregate consolidation of all of your jobs in real time. It’s very difficult to get that with a lot of disparate systems. To be able to pull all information across all jobs, projects, budgets, etc. in real time, companies should consolidate to one ERP platform.
How important is it for the construction industry to focus on ERP technology?
Traditionally, ERP technology has not been as big of a focus as you see in other industries. The challenge that you have is once you’re a business of a certain size and scale, you get to a point where the only way to solve the business problems that you have is either by brute force, meaning add more people to the problem, or get smarter and leverage technology. The ROI on the second path certainly has been proven out at other industries, and construction industries are also starting to realize that as well.
Don’t let your construction company fall behind on this path.
How can Sikich help construction companies leverage ERP technology?
The Sikich HEADSTART program for construction is something we put together based on Microsoft Dynamics 365 Business Central, the most widely used ERP platform in the world. On top of that foundation, we layered in Project Pro software, which was built on the Business Central platform. Project Pro adds in a lot of the construction functionalities previously discussed, including project management, budget management progress, and progress billing to name a few. This core foundation will easily meet the needs of many different construction industries and companies within those industries.
Couple all of this with the industry knowledge and expertise that Sikich has, and we’re offering a first-class solution that can be a cornerstone for your business systems for years to come.