The Key to Contractor Profit in the 21st Century

Integrating Project Management and Accounting In Construction Software to Improve Productivity and Profitability

By Guest Blogger - William Klein

What does it take to maintain a competitive edge? Customers are becoming increasingly cost conscious and competition is getting tougher. It is becoming harder to stay profitable. Contractors must deliver more for less. Margins are more important more than ever.

Competition forces contractors to focus on lower costs and higher efficiency to bring a job in under budget and ahead of schedule. Traditionally job cost reports produced at the end of the monthly accounting cycle were sufficient to manage job performance. But these reports, by their nature, are reactive rather than proactive, showing what has already happened up to thirty days ago Fast response time in recognizing variances and reacting to changing conditions is critical in order to control costs. This requires real time information, which in turn requires greater efficiency in managing that information.

In construction companies using self performing project management, project and accounting staffs have traditionally operated as independent disciplines. This was based on the belief that information was used differently by each discipline and, therefore, it was appropriate to permit each to record and store its information as it saw fit. However, information in different formats and systems cannot be easily shared. This causes information to flow too slowly and at different rates in different systems reducing efficiency and productivity. In order to achieve effective cost control project management and accounting must work together seamlessly to exchange accurate real time information.

Project Manager Responsibilities
Project managers typically are responsible for overseeing an installation from the time of sale until final delivery so that cost and delivery targets are met together with insuring the job remains profitable. To do this, they must be able to react to unexpected overruns, which means they must have easy and quick access to accurate and timely labor and material cost distribution reports. Organization and documentation are critical. ¹

Construction accounting staff is expected to know the status of work in process and change orders. Accounting must know whether the contract amount has changed so the billing department can prepare accurate invoices to the customer. Job cost information must be accessible within the accounting system so accounting can provide management and auditors with complete financial reporting.

As a natural step toward improving effective decision-making and controlling growth, almost all contractors use some form of construction accounting software, and most use project management software.² But, in these multi-system environments all information isn’t entered into the same system if it is entered at all. In many cases it is entered separately into both systems.

Emerging Applications
Project management information logs, spreadsheets, notes and correspondence are a good reflection of job performance because they are created at or near the time of an event and contain the thoughts and impressions of the PM and others working on the project. PMs must communicate critical information to engineers, subcontractors, installers, salespeople, the customer and the customer’s representatives. To meet these needs, they should have a system rich in communication and document control, such as a CRM or Extended CRM (XRM) System.

The concept of using a customer service solution as the backbone of construction project management is relatively new. Construction software have not offered CRM because the emphasis has been on scheduling, procurement and job costs, not so much on communication and customer service, and few project management systems have had meaningful accounting functionality. Although many higher end products will track costs to date by cost type that is all the accounting they do.

While many single source accounting applications appear to have project management functionality, they have historically fallen short of providing a satisfactory management system that a PM will actually use. Given that PMs generally will stay away from anything that looks like accounting, a key element of any integrated system is that it has to look, feel and behave like it is made for the user, whoever the user is. If users cannot see their own productivity improve by using the system, they are less likely to use it to its potential.

With a wide variety of software solutions available that perform different parts of the project management function including CRM, it is difficult to select the best solution for any particular business.³ Meridian and Oracle offer good project management solutions. Meridian’s Prolog comes in two different versions: Manager has in-depth construction project management features including document management, collaboration, and communication; and web-based Proliance is designed for large capital projects and facilities, has fully integrated project portfolio management, facility management and business intelligence.

Oracle's Primavera P6 Enterprise Project Portfolio Management is a robust scalable solution for managing large construction projects, although it has to be separately integrated with financial management and accounting software, even with Oracle products such as JD Edwards and E-Business Suite.

Traditionally strong accounting systems (Timberline, Viewpoint, Dexter Chaney, Maxwell, etc.) have improved ERP/XRM integration features. All are constantly improving their project management functionality and user friendliness for PMs but remain essentially accounting systems.

The ultimate solution is a system that fully integrates the best of both worlds – one that does complete accounting and project costing along with full project management and customer relations tasks. A fully integrated system, on the order of what is needed by most $100M+ plus operations, has all job data in one place easily accessible by everyone. Full integration would include project management, CRM, scheduling, imaging, estimating, job costing, change order tracking, procurement, inventory and fixed assets, payroll, HR and all core accounting functions from general ledger to corporate level financial reporting. Such a solution combines the flexibility of a main stream ERP system with the rich environment of an XRM solution. The ERP system does the accounting and project costing and XRM does the project management. Examples are IPM by IPM Global, which uses the Microsoft XRM Development platform and has a powerful project management module that integrates with most estimating applications. In addition to all the core accounting features, it incorporates document control, has a powerful report writer and is compatible with Microsoft applications.

Other mid-market products which have come out with extensive enhancements to their integrated project management-accounting solutions include Viewpoint, Dexter & Chaney (Spectrum), Penta and Computer Guidance.⁴

Also, many companies that have deep pockets and strong internal IT resources start with a good ERP system like Microsoft Dynamics GP and modify it to handle all their PM needs. Other companies elect to start with a PM system like Primavera P6 and connect it to their accounting system using a BI (business intelligence) application.

The list goes on. There are good PM systems that have expanded to include job cost accounting. There are accounting systems that have expanded to include some project management functions and there are a few that appear to have successfully bridged the gap and provide it all. Once you are ready to make the move to full integration you have to define the business requirements for each discipline then do a side by side comparison of software features that are compatible with your internal processes. This is where vendor reps who have a deep understanding of both project management and construction cost accounting can recognize how your particular internal processes will interact with their software. Since no one system will work the same for everyone you have to select the features that are most closely compatible with your internal processes. A source such as CTS Guides (www.ctsguides.com) offers free side by side comparison of different ERP/XRM features of many popular construction software packages.

Summary
Finance and project teams tend to see things from different points of view, but it has never been more important for construction companies that expect to increase profit and gain market share in an ever more demanding environment, to recognize the importance of fully integrating project management and accounting functions. With a properly implemented system you can expect a smoother operating and more profitable company.

About the Author
Bill Klein, JD/MBA, has over 25 years experience in construction and is an accounting and finance consultant in the San Francisco Bay Area. He can be reached at bill@kleinbusinesstools.com.

Notes
1 Best Practices in Project Management by Joan Engebretson, April 1, 2008, www.sdmmag.com/archives.
2 According to the CFMA's 2010 Information Technology Survey for the Construction Industry 82% of contractors report using construction project management software and the 2008 survey reported more than 99% of contractors are using some type of job costing, accounting or payroll software.
3 While new products seem to hit the market weekly (CRM for small business, business social networking, customer database management with streaming video capability), these do not approach the real time integration of accounting and project management that is required for efficient construction management. Aside from lacking high level robust features, fundamentally absent in every one of these new products is the accounting connection
4 According to the CFMA’s 2010 Information Technology Survey for the Construction Industry, CMiC Project Management ranked first among large companies for project collaboration, CRM, imaging and project management, and tied with Viewpoint Construction Software for accounting and fixed assets. CMiC, with its fully integrated approach, was the only software company to place in all of the survey’s major product categories.

While 82% of survey respondents in the construction industry use project management software, the use is highest among general contractors at 93%. The most utilized software by respondents was Sage Timberline Office (16%), Viewpoint Construction Software (11%), and Prolog by Meridian Systems (8%). Across industry groups the relative ratio of users by program type is similar except for large general contractors with revenue in excess of $250 million. Twenty-one percent of these large general contractors are using CMiC Project Management and another 21% are using Viewpoint Construction Software. The survey does not measure user satisfaction with the programs.

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