Bids for construction projects are rife with intricacies. From bid solicitation to contract formation to labor management, battling for the brass ring can be tough. So, in the midst of a competitive bidding process, how do you determine the steps you must take to stay ahead of your competitors? How can you be sure your strategy is unique enough to capture the opportunity? Objectively speaking – you can’t.
However, success does bear a close relationship with intelligence. A proposal based on accurate estimates, clear (and believable) timelines, and optimal resource projections will likely be more refined, less “buffered”, and more likely to catch the attention.
And all of that begins with the adoption of a robust enterprise resource planning (ERP) system.
An ERP can be the cornerstone of modern construction contracts and bids. Its possibilities are endless – from document management to bill consolidation, scheduling to asset distribution, and project accounting, it provides the infrastructure for administering an efficient and transparent construction endeavor.
Let’s look at what makes a construction ERP invaluable.
Accounting functions in construction firms are often relegated to the back office. Managers don’t always appreciate their role in creating accurate financial reports, and their primary focus is on getting projects finished on time and on budget, and rightly so.
As a result, too often, the reporting and accounting functions are not up to the mark. And to make matters worse, there are no easy solutions. To be successful, contractors must find ways to strike the right balance between their day-to-day operations and their accounting needs.
Here’s how construction ERP helps:
1. Holistic Estimation of Capital Requirements
The articulation of a holistic estimate of capital requirements is an ERP system’s key strength. It’s a powerful tool that enables the integration of property, plant, and equipment (PP&E) information with the demand for working capital, revenue, and other financial data.
Once the system’s ability to capture detailed data within a building project is verified, managers can use it to create a comprehensive capital plan that includes critical information on the scope of work and cost estimates for ongoing and future projects.
2. Granular Understanding of Operational Costs
From labor to raw material and everything in between, an ERP system can capture granular data on a project’s cost structure. During project execution, an ERP system can be used to obtain real-time information about actual costs and variances. This helps contractors and financial managers make informed decisions about overtime, slow-down rates, and other costs associated with each job. This creates more complete and accurate insights for future projects and bids as well.
3. Unity Between Estimated and Actual Costs
After a project’s completion, the ERP system can be used to reconcile estimated and actual costs. In addition to catching any type of errors, variances that are unaccounted for can help pinpoint areas of potential savings on the next project.
4. Accounting Automation
A construction ERP solution features a full suite of automated accounting functions. These include accounting for basic payroll, project timesheet management, and vendor management. This ensures that all the necessary information is available for financial managers to produce accurate, complete, and relevant reports quickly.
Simplification of Accounting Processes
Billing, payroll, purchasing, and invoicing are all automated, along with cost and expense tracking, which makes processes more efficient, repeatable, transparent, and trackable.
Accuracy of Financial Statements:
The system can generate complex financial statements, such as detailed balance sheets and income statements. It can also link data from multiple systems with a single report. Since the software does all the number crunching, the financial statements are accurate, easily readable, and ready to be sent in a timely fashion.
Greater confidence in the financial data and the processes that generate that data can translate into more credible information flowing into project bids, qualification documents, and tender information.
Compliance with Applicable Laws and Regulations
Automation is integral to managing construction compliance with location-specific regulations and laws. Being transparently compliant with all the prevailing rules and regulations is a useful “tick mark” to have against your bid when evaluation time comes around.
Better Asset Tracking
ERPs can help contractors perform more detailed tracking of all their equipment, which translates to increased investment efficiency and better inventory control. Considering the volume of assets (both fixed and current) found on any construction site, a well-managed inventory is crucial.
Here’s how construction ERP makes this possible:
1. Fixed Asset Tracking
Calculating depreciation and tracking asset values over time is integral to construction accounting. Better yet, the construction ERP tracks equipment from purchase all the way to disposal, in accordance with company policy. Asset information can then be collected and used for future budgeting and capital planning.
2. Current Asset Tracking
Construction ERP captures data on the location and condition of assets at all times. This includes machinery, tools, materials, and other items used in the day-to-day operations of various sub-contractors, suppliers, and vendors. It also tracks equipment usage, including assets ready for repair and replacement.
3. Reduced Inventory Costs
By capturing data on the location and usage of various assets, the ERP system can pinpoint items that are unneeded and improve inventory control by reducing the amount of physical inventory needed on hand. This helps contractors reduce their administrative costs and, in turn, boost profitability.
Knowing what assets are available, usable, and productive can help resource planning for new projects and bids and substantially reduce the risk of over-provisioning (or under-provisioning).
Thorough Performance Tracking
The sheer number of sub-contractors, suppliers, and vendors that a construction firm utilizes makes it imperative to have an up-to-date record of performance. An ERP system helps contractors build comprehensive performance management systems that are easy to navigate, providing:
1. Speed and Flexibility
Construction ERP allows for the quick creation of detailed performance reports that can be tailored to specific groups and individuals. It also supports different levels of reporting, including those for managing variables such as quality, productivity, and safety.
2. Integrity in Collection of Data
The accuracy of the performance data is paramount. From time and attendance to employee performance evaluations, the system ensures that all information collected on employees is accurate and all the systems are integrated.
In short, a construction ERP paves the way for:
- A better understanding of financial data
- Reduced costs, overheads, and greater profits
- Improved staff productivity and labor cost control
- Streamlined communication and management processes
- Improved compliance with regulations and laws
- Greater bottom-line accountability
- A higher level of customer focus and service
- Greater capacity for innovation and creativity
This helps construction companies define the specific requirements for each project much more accurately, transparently, and completely. That confidence will spill over into estimates being put together for future bids. Your bids can reflect much more accurately the most likely timelines, resource requirements, and project definitions. That will allow them to be more accurate and eliminate the need for unnecessary padding with factors of safety. In essence, a robust and functional construction ERP will help your bids become more accurate, refined, credible, and complete.
So, the next time you bid for a construction contract, you’d be wise to consider the information available from the ERP as part of your proposal. By examining its benefits, you could make this system a critical component of your overall business plan and stay well ahead of the curve.