It's accepted practice in the construction industry to measure the return on investment (ROI) for equipment.
A new truck, for example, will go through a plus-and-minus checklist before the purchase is made, and this examination will continue throughout the life of the truck in the organization. If it becomes too expensive to maintain, it is replaced. The same holds true for tools.
A common mistake in the industry, however, is not to apply the same practice to the information technology (IT) systems that power the business. Your IT system is just like any other tool that your organization uses to complete the project. The excuses are many and varied, but the standard excuse for not measuring the ROI of systems is that it's too difficult and time-consuming. To help simplify the process, executives should run through the following checklist to see if their IT system is providing a measurable ROI.
1) Is the System Integrated?
This is the first and most important question, but it can be the most difficult to answer. Integration is a catch-word in the industry, and it's easy to be fooled by systems that provide the illusion of integration through data bridges and work-arounds. However, the system that will provide the best ROI is one that runs all applications on a single, scalable database. Information should be able to flow freely to all project stakeholders in time to make crucial business decisions. Non-integrated systems, or ones that say they are integrated yet rely on more than one database, have trouble with access and visibility to information.
The value of integration can be further broken down into seven processes that will yield the most ROI. In short, those processes are:
- Job initiation
- Estimate to job cost budget
- Estimate to subcontract/purchase order
- Payment management compliance
- Contract billing
- Posted owner change order
- Job forecast to work in place (WIP)
If your organization is using more than one system to perform any of these tasks, it's time to take a step back and see if some improvements can be made.
2) Is the System Web-based?
This is a fairly easy question to check off the list. The bane of all projects, especially from an accounting point of view, is crucial information stored in a laptop that can't be accessed from the head office. Even worse is information that isn't entered into the system but instead is recorded on a piece of paper that sits in a locked drawer in a trailer on a jobsite. Anyone who has spent time in the construction industry knows that not having the right information at the right time can lead to bad business decisions, which can ultimately lead to a bad project and a negative effect on profits.
Having a system that is web-based means that information can be accessed in real time and visible to key project stakeholders. Accessible by any web-ready device, such as a handheld PDA, information can be entered by a project manager (PM) at the jobsite and viewed by project executives miles away.
A common reservation to this approach is the fear that PMs will be turned into data entry clerks, or the interface will be too complex and be unusable by those lacking in technical skills. However, PMs are entering this data, even if it's into a spreadsheet. A system that delivers true ROI should employ an easy-to-use approach, such as e-mail, to ensure that the data is easily entered into the system.
3) Is the System Designed for the Construction Industry?
A cursory glance at the software market will reveal the multitude of choices that executives can choose from, but what should cause a moment of hesitation is the consideration of whether the software is designed for the construction industry. Every industry considers itself unique, and though there are some commonalities in regards to financials and project management, the construction industry is different from other industries, such as manufacturing. Sure, a software solution can talk the talk, but when it comes to understanding what a construction company needs, very few can walk the walk.
Having a solution designed for the specific needs of the construction industry is a crucial element in getting the most ROI out of your system.
4) Does the System Reduce Data Entry Points?
It's common sense to conclude that the more times data is entered, the more times there are chances for mistakes. A system that reduces the re-keying of data by enabling data to be entered once and then made accessible across the enterprise will reduce chances for errors and increase the ROI for the system.
5) Does the System Increase Data Integrity and Confidence in Data?
This point is closely related to the fourth point in the checklist. By reducing the data entry points and the number of times data is touched, the integrity of the data increases. It's an all-too-common scenario in the industry to have executives relying on data to produce a forecast when they know the data can't be trusted. Perhaps the PM entered it incorrectly in the field, or the project administrators at the accounting office made some mistakes compiling the information. Being able to drill down into that information and view it at a granular level is an essential function, and an IT system that provides valuable ROI is one that instills a sense of confidence in the decision makers that the data they are working with is reliable and accurate.
6) Does the System Approve the Timeliness of the Data?
Having reliable data and accurate information is one thing, but timely delivery of information is also needed. Construction companies don't stop building for anything, and decisions need to be made quickly, or the project suffers. Very often, decisions are made in minutes, especially in the field, and every moment the company isn't building is a moment the company is losing money.
7) Does the System Keep the Data Secure?
A weak point for an enterprise resource planning (ERP) solution is that there are numerous stakeholders involved in a project. The larger the project, the greater number of people involved and, therefore, the greater the need for security. An advanced ERP solution provides a collaborative environment where information can be accessed and shared, but the information needs to be controlled so only those who need to see certain pieces of information can access it. Any IT system that is worth its weight is going to have a security matrix that can intelligently determine access levels for the various players involved.
8) Is the System Easy to Deploy in the Field?
For any solution to be valuable to a construction company, it needs to be easy to use in the field. Unlike other industries that rely on ERP solutions, such as manufacturing, most construction processes are done on the jobsite rather than in the comfort of an office. A system that can be easily used on laptop computers as well as mobile, web-ready devices would provide the strongest ROI by being easy to use in the field.
9) Does the System Provide Standardization?
All construction companies have PMs who work better than others. These PMs deliver projects on time and on budget, and executives trust that they can get the job done. Then there are other PMs who are adequate but could use some improvement, and unfortunately, there are those who need improvement in all areas. A system that provides tangible ROI is one that can standardize processes so that all PMs are doing the same actions with the same methods, raising the level of every PM to fit the needs of an organization.
A software solution that standardizes processes, such as payment management or job forecast to WIP, and makes it easy to use will have a positive impact on the bottom line.
10) Does the System Increase Productivity and Enhance Efficiency?
This is the most important question that needs to be answered. Implementing a software solution is a time-consuming process that eats up resources and can lead to frustration. The light at the end of the tunnel is the immediate results that end-users experience when using a system that is easy-to-use and requires less data entry. These intangible benefits shouldn't be overlooked in terms of ROI. Sure, they don't provide hard numbers to support ROI, but very often they can increase morale among staff and provide the feeling that things are working better.
In terms of more tangible ROI, following this checklist will lead construction executives to a system that will increase productivity and enhance efficiency. By eliminating multiple data entry and other less value added tasks, employees can be reassigned to activities that capitalize on their abilities and talents that in turn help drive the business forward.
Construction Business Owner, August 2008
