Construction is a good place to be these days. The population continues to grow, there are major developments in the cities and towns across New Zealand and there is no shortage of new builds or renovations to keep everyone in business. But here’s the rub. Unless you have great business systems which provide highly detailed visibility across all projects, even the boom times are treacherous.
In recent times we’ve seen high-profile failures of some major construction companies like Ebert, Arrow and others. This isn’t even a new thing, as a 2014 report from McDonald Vague makes clear. That article might be several years old, but it’s well worth reading because the challenges faced by construction companies then are the same as those faced by construction companies now.
Among the reasons for failure McDonald Vague notes, is over-trading. Undercapitalisation. Poor management. High overheads and slim margins leaving little room for error.
There’s a good piece from an American outfit, Construct Connect, which further underlines the challenges of construction. Capital and cash flow are, unsurprisingly, top of the list, followed by poor project performance, inadequate planning, and growing too fast.
These challenges aren’t the preserve of the big companies which have failed, they are the same even for those operators running five or ten projects at any given time.
You’ll recognise the story (and the potential for costly mistakes that can easily creep in): a ton of paperwork for each build, from tender documents to specifications and consents, lists of labour and equipment requirements, a bill of materials (BOM), schedules and more.
The multiple tasks involved in creating a completed building depends on various tradies and subbies, all of whom must be managed and paid, while materials and equipment usage must be recorded and accounted for if the delivery of each project is to hit budget.
When there are several projects on the go at the same time, it becomes a bit of a quagmire, particularly if you’re operating with a few spreadsheets; the back of a ciggie packet most certainly doesn’t cut it today.
A good ERP system like MYOB Greentree will go a long way in eliminating manual paperwork and processing. It will also remove a ton of overhead in terms of providing rapid insight into project progress and profitability, and the visibility to see where your attention should be focused, before a project becomes unprofitable. It will also give you the ability to plan better
Now, while we’re obviously going to suggest that you need to consider better business systems which can deliver things like Job Costing (which allows closely managing multiple projects as distinct entities within a portfolio), that’s only part of the solution.
But it can be a very big part. Combined with better human capital – that is, people who know how to run complex businesses – suitable software that helps manage every aspect of your construction company soon becomes essential.
If your company is growing rapidly, and if it feels like things are starting to spiral out of control because you don’t have enough information on every project available at your fingertips, this could be a good time to look into a ‘software advantage’.