In construction, the only constant is change. From drawings and contractors, to people, processes, and scopes, every change has the potential to negatively impact budgets and schedules. All this adds up to increased project risk. And these are just the changes you may know about. Additional unseen changes could be increasing risk right under your nose.
Every project carries risk, but because of their complexity, large projects are particularly susceptible to its effects. That’s why across asset classes, such projects typically take 20% longer to finish than scheduled and are up to 80% over budget.
In a discussion with Procore, David Luker, Director of Risk Consulting at RSM US LLP, explained how contractors can reduce risk with an integrated cost management solution. What is an integrated construction management solution, you might ask? Simply put, the technology you use to manage the project and the technology you’re using to manage the money cannot be strangers; to be truly effective, they must communicate in meaningful ways.
According to Luker, leveraging an integrated construction management solution can help you increase team alignment, control costs from preconstruction to closeout, and ultimately lead to better decision making, all of which will drive greater profitability.
Here are three ways using integrated construction management software can help an organization reduce risk.
1. Improve Team Performance
The disconnect between construction and accounting teams does nobody any favors when it comes to performance. This so-called “great divide” between office and field can have a disastrous effect on schedules and budgets, increasing inefficiencies and even fostering intercompany conflict.
None of us want to be in that situation. Our goal as professionals is to deliver projects on time and on budget. If there are going to be changes that impact the budget, we want to know about them right away. This can be achieved through greater transparency into those issues across all teams and all stakeholders so we can make the best decisions for our projects.
A close relationship between project management and accounting can help avoid these cost overruns. The more in tune these teams are, the easier it is to plug the holes so we can track, forecast, and mitigate any upcoming risk.
But how do you connect people, projects, and data to build in a better way? An integrated construction management platform allows office and field teams to get on the same page. Project managers are able to see the real-time data they need and get back to managing the job in mere minutes instead of days spent waiting on an answer, and accounting teams can seamlessly monitor cost and other financial data.
Essentially, an integrated solution allows both field and accounting teams to focus on their job without having to worry about whether they have the right data or whether it’s accurate. It also ensures any communication between teams is centered around advancing the project’s goals, and not simply reacting to inquiries or double-checking information. It builds trust between the two teams because everybody’s looking at the same information — and that clears the way for collaboration and productivity.
“Our interactions between accounting and ops are more focused on high-value conversations; moving the project forward, being more innovative, and finding solutions to fix other areas of risk,” explains Luker.
Working from the most up-to-date project data means fewer surprises at the end of a project (or along the way), and as a general rule, the more eyes on a project, the greater chance of catching a potential issue early on.
2. Control Costs
Key to reducing project risk is keeping costs under control at every project phase. The best way to do that is with consistent, real-time visibility and connected workflows of cost data on an integrated platform.
Consider the journey of a cost, which can typically be broken out into four major buckets: the estimate, the proposal, the schedule of values, and the payment. If you can connect all four of these items, it gives you the ability to have all stakeholders rowing in the same direction. This helps us all focus on true risk to the project. We are not arguing about which buckets these costs go into or what the original basis of the estimate was and how that converted to the schedule of values.
For example, if the individual or team who set up the estimate doesn’t know the limitations of the cost accounting system, they may not set it up in a way that can later be matched directly to the cost code. This means you can’t effectively track costs through your ERP because they aren’t speaking the same language.
Take a step back and consider the entire project financial management lifecycle. We start with an estimate that connects to the cost proposal that is presented to the owner. Then we connect that cost proposal to the schedule of values to help manage the financial aspects of the job on a monthly basis. All of these disconnected outputs have to tie into the code and subcode structure that is established in the accounting system. Otherwise, we won’t have these separate project teams on the same page.
Good technology works to automate this cycle. Investing in that automation technology gives the field the flexibility to focus on the job and not on translating accounting data between separate systems and stakeholders.
3. Make Better Decisions
One of the more frustrating recurring challenges for PMs or field engineers is not being able to trust the data. Quality data and accurate projections go hand in hand. Projections are of critical importance to any project. That’s where construction companies earn their money and it’s why the best project managers are the best at projecting costs.
An effective projection process is transparent, and allows stakeholders to communicate throughout a project to iron out any issues as a cohesive team, and do so quickly.
“Even with your owners, [you want] to be able to say ‘we have this issue and it presents a substantial risk to the project, how do we address this together?’” says Luker.
A big value proposition of good, integrated construction management technology is that it helps standardize projections, establishing processes that are repeatable and auditable. It also provides transparency, exposing the nuts and bolts of how these projections are being calculated. When the construction management and accounting teams review this information, they’ll have greater insights into how projections were determined.
This transparency also engenders greater trust between teams. Luker points out that most projections lack calculations or supporting documentation, which can result in those awkward meetings where you’re forced to convince your colleagues why your projection is accurate.
“Having great examples of how you did that throughout the process often opens up a conversation where they don’t need to poke into every single detail because there’s a level of trust and confidence that you’re handling this with care all the way together,” Luker says.
Integrated Construction Management is the Key
At the end of the day, if your construction management platforms and ERP systems aren’t synchronized, your company is exposed to risks and unnecessary headaches. But when these systems are tightly integrated, it adds enormous value for project stakeholders, while reducing the risk of cost overruns. When all teams are working from the same information, everyone delivers a better project together.
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