Knowledge is power. The well-known phrase was first coined in 1597 by Francis Bacon, who used it in Sacred Meditations. Today, the saying is more relevant than ever considering our reliance on the Internet, the modern-day fountain of knowledge.
When it comes to construction, Bacon’s maxim could be taken a step further to say “knowledge is money”. Contractors with multi-million-dollar budgets know that the more they understand the functions of their business and how they integrate with each other, the more profitable they will become.
It was this idea that spawned the creation of construction management software (CMS), an increasingly important subset of the construction industry. It is used particularly by heavily capitalized construction firms whose success depends to a large extent on the interoperability of their various functions, including accounting, estimating, purchasing, operations, inventory management and fleet management/ maintenance.
These days, for firms of a certain size, operating without a CMS is like motoring a boat at night without a light: disaster looms at every turn. It is the equivalent of fumbling around in the dark without any sense of where the business is going or what has been spent; in other words, operating in a silo or vacuum.
What is CMS?
It can be confusing, considering the array of information technology now available to construction firms, to pin down exactly what is construction management software. Large equipment manufacturers like Caterpillar and Case offer their own fleet tracking and maintenance systems through telematics. Software firms market building information modelling (BIM) products that help to design and construct buildings or infrastructure. And most construction firms have accounting programs like QuickBooks that keep track of invoicing, bookkeeping and billing.
The difference between these individual programs and CMS, is that CMS brings a number of business functions together under one rubric, enabling the construction firm utilizing it to collect and utilize multiple data points.
“Construction management software puts information into ‘piles’, categorizes it, and organizes it for you so you can find it where when you want it, number one. Number two, it gives it context. And we would argue that giving data context is what turns it into actionable information,” says Wayne Newitts, marketing director at Dexter + Chaney, LLC.
The Seattle-based firm was founded in 1981 by Mark Dexter and John Chaney, first operating out of a spare bedroom in Chaney’s apartment, and now delivers software systems to customers across North America. Offering a suite of construction software anchored by its Spectrum platform, the company claims to be the first to deliver CMS through cloud-based technology via a web browser interface.
Another way to differentiate CMS from other forms of business software is that CMS typically incorporates both financial and operational processes. Financial data includes profit and loss statements, payroll, etc. Operational information encompasses estimating, field tracking and scheduling work orders, as well as assets maintenance and repair. CMS takes the individual pieces and fits them together into one holistic package, in a common database with common rules, known in the software business as “logic layer programming”.
“You’re giving data categorization, context and correlation to see the bigger picture and be able to really find root cause problems in your business and solve them before they become real cash problems,” says Paul McKeon, CEO of B2W Software. Based in Portsmouth, New Hampshire, B2W refers to its CMS as “A platform of distinct but networked elements for estimating, scheduling, field tracking and maintenance.”
A market in the billions
While some companies claim to run CMS by offering a suite of individual software programs, the real value lies in the integration of those programs.
“All of the operational products need to have access to the same list of equipment, employees and jobs. When you have disparate systems that don’t adequately integrate or share the information, it becomes a management nightmare,” says McKeon, who values the CMS market in the billions.
“In the last few years there’s been a lot of money pouring into the space,” he says. “While B2W remains private and focused on operations, several other software providers have been bought by venture capitalists or larger, financial players focused on trying to consolidate and integrate a wide range of accounting and operational tools.”
Canadian contractors are an especially rich vein for CMS providers to mine. Newitts names Alberta and Ontario among Dexter + Chaney’s top 10 sales areas.
While the construction industry has had a reputation as an IT dinosaur, spending a lower percentage on computers and other high-tech line items than other industries, that is beginning to change, because companies are beginning to see the advantages of seamlessly weaving their business processes together, says McKeon.
“That’s the biggest change in the market in the last year or two, is this realization that you can’t deal with a whole series of disparate systems because you can’t effectively manage the information.”
Usually sold as a license to the user in perpetuity, rather than a software-as-a-service model (e.g. Salesforce), most CMS systems are marketed to large companies geared towards heavy civil construction, which have a number of moving parts that are ripe for integration.
McKeon says many of B2W’s customers are doing tens of millions of dollars in business, up into the billions. He says with software becoming easier to use, and available in multiple formats for laptops and mobile, CMS makes a lot of sense for big civil construction firms, especially those feeling the pressure to cut margins due to the challenging economic environment.
“Frankly, if you don’t use CMS technology to run the business, you can’t get the appropriate level of efficiency, real-time visibility into what’s going on with the work, and access to your data. Before you know it, the days of getting a financial statement at the end of the month will be gone,” he says. “People need to know real-time what’s going on with my equipment, what’s going on in the job, is there a part of the job that’s not going well, how am I going to address that. You need tools and technology to drive visibility and efficiency, and ultimately, profitability. There’s a real understanding of that.”
Newitts agrees. He says construction firms doing less than $10 million annually prefer to “keep it simple” with a few project managers and a basic bookkeeping system, maybe an outsourced accountant. But once a business grows beyond that $10 million mark, “What happens is they start to develop significant silos within them. And you don’t have people who run around and do a little of everything. You get people who are very focused in certain functional areas.
“That’s when these systems help these people talk and work together better. That’s when they become very valuable. Almost invaluable when you hit around $50 million or more. People are pulling their hair out at that point,” says Newitts.
ROI and benefits
If a large construction firm decides to take the plunge and invest in a CMS system, how much should they spend? And how can they expect to make their money back? Both sources quoted in this story say a firm should be looking to spend between one and four percent of their total revenues on a CMS. That means a $50 million a year contractor should invest at least $500,000 a year on a robust construction management software system, including estimating and operations software and accounting/ ERP software.
A company’s return on investment for CMS pays off chiefly in terms of enhanced operational efficiencies and loss reduction. Losses in a construction job can add up quickly. They could occur by overspending on vendors, lapsed accounts receivables that could be earning interest, or paying too much for subcontractors because they haven’t been sufficiently vetted. Work that hasn’t been properly documented could end up costing the company fines by health and safety regulators, or even legal fees if the violation has to be defended in court.
According to Newitts one of the best examples is change orders. When change orders get done without approvals, the contractor can’t charge for them, which ends up costing them money. A well-designed CMS system can help a contractor keep track of every change order and make sure it’s properly billed.
“They lose money because they don’t manage the very basic process of getting a change order created, validated, approved, and then worked on and rolled into your accounting system,” he says. “If you’re using the CMS system properly, you would know that. You would be able to see every change order that’s out there that’s been created and not approved, and realize that those are at-risk dollars for you.”
Another significant ROI is reducing inefficiencies in the flow of information.
“If you don’t have a system that can control that flow of information, send the right information to the right people, make sure it gets there, and give you an alert when things don’t get approved or done properly, then you are relying on an extraordinarily inefficient way of passing information between these different silo’d groups within construction,” says Newitts. He adds that large jobs could involve dozens of subcontractors whose information flow must all be managed.
The last quantifiable return on investment is pure cost savings. It could be something as simple as paper. In a multi-billion-dollar contract to upgrade the Dallas/Fort Worth International Airport, Balfour Beatty, a large infrastructure contractor, saved over $5 million on paper through software that organized all their documentation electronically.
Strength through integration
Other less tangible, though equally important, benefits of CMS become visible through the integration of business processes that were formerly distinct. McKeon gives the example of a foreman in the field using B2W’s Track software to log the equipment and labour used on a given day.
“Even though they’re not in a maintenance role, they’re able to actually say, ‘Wait a minute. I’m standing in front of a piece of equipment and it’s broken,’” he says. “The mechanic can say, ‘Show me everything that might need to be done to this piece of equipment. And by the way, I know it’s out on this job. Show me all the other pieces of equipment on that job and let me leverage the fact that I’m going to send someone an hour and a half away to do this repair,’” says McKeon.
“It’s the sharing of information across multiple aspects of the workflow and people that have a stakeholder role in the collective operation of the business, not just slivers of it.”
McKeon notes that fleet management is one of the most complex aspects of an operation that often drives companies into considering some kind of a CMS. For example, equipment is repaired without the realization it is under warranty, or preventative maintenance isn’t done just prior to warranty expiration.
“You have this enormous inefficiency of equipment that is not dependable, you don’t know when it’s going to break down, you are not keeping good records around when it was serviced. You run your equipment maintenance and management business much like a fire drill mode and it’s just enormously expensive.”
An often-quoted statistic: companies that don’t use CMS generally spend between 12 and 15 percent of revenues managing their fleet, versus 4 to 5 percent for those who do. The difference can amount to millions of dollars.
Pulling the trigger
Despite its benefits, moving to a CMS system could still be daunting for firms on the cusp of needing it, especially considering the inherently conservative nature of the construction sector. McKeon says the driver is very often a senior manager in a direct financial role, like a CFO, or an operations manager who struggles daily with the challenges of managing multiple business functions throughout the organization.
CMS is also a natural fit for the generation of students and new employees who have grown up and become educated on information technology that is increasingly web- or cloud-based, and mobile.
Says McKeon: “People coming out of engineering school and into these companies, they have an expectation around technology to do their job. They’re not going to come in and use an Excel spreadsheet or pencil and paper.”
