Each year, the Construction Financial Management Association (CFMA) holds its premier conference that explores and addresses the ever-changing challenges that construction financial managers face everyday. Jobsite was at the CFMA 2018 Annual Conference & Exhibition in Miami this week to bring you expert insights and valuable ways to ensure your success.
Jobsite recently sat down with Brian Cooney, former Executive VP of Finance and Administration of Barriere Construction at the CFMA 2018 Annual Conference & Exhibition this week in Miami. Cooney, who led the “Driving Profits Using WIP Throughout the Construction Cycle,” shared his insights about best practices for the WIP process, KPIs, and strategies for using project data to drive profits.
Jobsite: Let’s start with the basics. Why do you think WIP is so important?
Cooney: WIP stands for Work In Progress. Or, what I was talking about in the session, Work In Process, because we feel that the backlog and projections are as important as what work is being worked on and what work is in progress. So WIP is important because it proves that your job cost system is consistent, accurate, and timely.
Jobsite: You touched on some best practices in the presentation. Can you summarize what those best practices were?
Cooney: I think the best way to talk about the best practices is also to talk about a journey to excellence in utilization of WIP. And it's like any journey or any tracking method: you have to have a great base. So you have to make sure that your systems are accurate, that the data is accurate and consistent, and that your approach is a team approach including all of the people that are engaged in reviewing the job cost and the Work In Process schedules.
Jobsite: How often do you think companies should have a formal WIP review?
Cooney: A formal WIP review is, at a minimum, quarterly. But the best practice, as we discussed in the session, is when you review daily how you did the day before. Your weekly (the accumulative of those five, six, seven days) and how you were doing—that’s when you get to the formal review of the WIP. You've got the best practices, and you've seen if there's going to be any issues or positive impacts, and you should minimize any surprises by doing that. That’s what you've got to make sure of—that your daily review and your weekly reviews are consistent with your enterprise systems' accounting financials.
A formal WIP review is, at a minimum, quarterly. But the best practice, as we discussed in the session, is when you review daily how you did the day before.
Jobsite: What are some KPIs that CFMs can utilize?
Cooney: Some of the most critical ones, I would say, are the trailing indicators—plan to actual. What are your variances? So if a job was bid with a gross profit of 8%, you obviously want to track whether it came in at 8%, or what was the impact? Was it because of the estimate? Was it because of unforeseen conditions? What was the difference between the 8% and what actually occurred, or is occurring throughout the job, or is it trended with the variances tracked? That is tracked by all of the projects that the project team manages, and it comes into a consolidated report.
Jobsite: How can technology help these CFMs measure and track various trends throughout the process?
Cooney: Technology is an integral part, and that was one of the topics we talked about in the presentation: if you don't have a strategic technology plan to go in conjunction with your construction review of the impact of WIP, you're going to miss the boat. There's too many pieces of the puzzle where we're not communicating and the systems aren't integrated. So, in order to have a daily profit and loss statement and weekly actionable reporting, technology is an integral part. It's using mobile timesheets to gather the data, and it's using tablets or other items in order to present that in both a graphical and numerical fashion.
If you don't have a strategic technology plan to go in conjunction with your construction review of the impact of WIP, you're going to miss the boat.
Jobsite: How do you think having such technology factors into having the field and the office team communicate in real time so that they can react appropriately in an efficient manner?
Cooney: Having alerts and having a business intelligence system that gives you the ability to cut across all of your reporting lines means that all of your separate business units, all of your project managers, down to the foreman level, are seeing the same information. So that what the field is seeing is the same information that the CFM is seeing. And they're able to communicate looking at the same information in a timely, accurate manner.
Jobsite: What are some key takeaways from your presentation?
Cooney: The first one is that the WIP is not just an accounting tool for the banks and the bonding companies. I would suggest that you utilize this as an informational tool to help drive your throughput and accuracy to help people, equipment, and all of your resources, which will drive profits to the bottom line which is the whole point of the session. Another piece that is so critical is having a vision for your construction cycle and looking at it with a vision of, "Where do I want to be?"
Another piece that is so critical is having a vision for your construction cycle and looking at it with a vision of, "Where do I want to be?"
None of us are where we want to be in a world-class operation. But being able to understand, "These are the steps in order to grow and become more successful, and here's how you can measure yourself." To me, looking at that, getting your company on board with a consistent approach, is probably as important as understanding that this is management information. The other part that is most critical is that once you've set the vision and moved forward, you've got to be able to measure it which is why we have many KPIs. But more importantly, once you have that in process, how are you going to audit to see that you continue to stay on path?
Jobsite: Do you have any final thoughts you would like to close with?
Cooney: I just think that the technology is moving forward and is getting better, where the business intelligence systems—or potentially artificial intelligence as well—will allow better and more timely metrics and information and continue to eliminate paper so that these systems and processes are better communicated. It helps the field and the financials look at the same thing so they're looking at information that is consistent and will be the same information on the bottom line.