Construction : The Good, Bad and Ugly

I recently met the CEO of a construction company and he told me that he was
never able to pay attention to the implementation of an ERP system in his
company because when times were good he was too busy pouring cement, and when
times are bad, like now, he has no money.

He can barely keep the banks off his back and so he does not have the luxury
of thinking about the future. I am sure many of you will smile wryly and say, I
can feel this mans pain. Unfortunately, what separates the long-term winners
and losers is the difference in preparedness for the future in good times and
bad times.

As the CEO of a rapidly growing ERP solutions company, focused on the
construction and real estate verticals, you dont expect me to tell you: Stop!
This is a bad time to invest in IT.

Let me review the promises of a well-designed and executed ERP system for the
construction industry:

The Good

  • It gives you visibility into the totality of your business, including
    accounting, estimation, construction management, progress on project
    completion and schedules, property sales and management, human resources,
    profitability by product lines, cost structure, etc.
  • It helps you manage your cash flow, liquidity and banking relationships.
    Remember that banks, private equity and other stakeholders want to invest in
    companies that have robust systems to control their financial risks.
  • Standard ERP platforms only automate the four Ms of any business, namely
    men, machines, material and money. However, industry-ready ERP systems which
    are the latest trend, will bring you the industry best practices so that you
    are not reinventing the wheel at every turn.
  • Specific to construction, industry-ready ERP solutions help with accurate
    estimation, digital archive of the schedule of rates, access to historic
    prices, automated bid tabulation, contract management, change orders and
    digital inspections including capture of site photographs.
  • Industry-ready ERP solutions for the construction and real estate
    industries also help seamlessly integrate core construction management
    processes with accounting and scheduling systems. This streamlines the
    computation of running account bills in an error-free mode and also produces
    earned value reports.
    It helps comply with government regulations; AS 7 Project accounting standards
    and owners documentation requirements.
  • With built-in business intelligence, it helps you mine the data for
    information critical to your business. It gives you the valuable information
    in real time when it will be of most use to you.
  • Properly implemented and managed, an effective ERP system can improve your
    competitive position tremendously by driving business efficiency.

The Bad, and the Ugly
Unfortunately, many installations of ERP do not meet their promise or are
outright failures. Most of the reasons are now well understood and many are
specific to the nature of the Indian construction and real estate industries.
The most common ones are as follows:

  • ERPs are seen as something for the IT department, not as a critical
    management tool. If the senior management is not involved in specifying what
    results they are looking for, the potential will never be realized.
  • Hiring an incompetent IT manager to run your ERP system is another
    concern. The biggest expense in a construction company is not its people,
    unlike the IT Industry. Therefore, while the construction firm may believe the
    IT manager is fairly well paid compared to other employees, it may be far
    below what a good IT manager deserves. This attitude of after all, he has
    been looking after my PCs, he has been stringing wires, he can run anything
    is a disaster. ERP systems are critical to a businesss success and a
    qualified IT manager is equally important.
  • ERP is a check mark purchase. My accountant told me we need an ERP system
    so I will go out and buy the cheapest from a fly by night local vendor as the
    offerings from Microsoft, Oracle, and SAP are expensive. Let me deal with a
    smaller vendor who lives around the corner. All ERP systems are the same. When
    the system fails to meet the sales promises, it is because all IT systems are
    useless and just a pain in the neck.

Gearing Up
How then can you achieve a successful ERP deployment in the construction

  • The CEO and CFO must be involved in what they want the ERP system to do
    for their business and not leave it up to the IT manager. As management, your
    involvement is just not to allocate the capital for purchase. Rather, you have
    to make sure that the system gives you what you want in order to make your
    business efficient. You are not buying it for your IT manager.
  • Buy a reputable system from one of the top international vendors.
    Remember, from their worldwide experience and thousands of deployments, they
    have developed the best practices. Microsoft, SAP, and Oracle are the leading
    business software providers and they spend hundreds of millions of dollars
    each year enhancing their ERP systems, and bringing very substantial
    innovation to this domain.
    If your IT manager recommends a homegrown system or from one of those little
    local vendors, change your IT manager. This is not a small guys game. In
    India, you have a lot of small players peddling their toy systems. Keep away,
    they have no future and their total cost of ownership (TCO) will kill you.
  • Staff up properly or outsource the operations part to a knowledgeable
    service vendor. IT may not be your strong suite, so why not focus on your
    primary business, which is construction, and leave the operations to
    professionals who are expert in their field? This will not only be
    cost-effective, but will avoid a lot of headaches.
  • The ERP platforms mentioned above are generic. As the CEO or CFO of a
    construction firm looking to leverage technology for competitive advantage,
    you need to buy a complete industry-ready ERP system, which has built on it a
    comprehensive construction and real estate industry specific solution. You do
    not want to do custom development on a generic platform. It is too expensive
    to build and a nightmare to support.

Whats New

  • You may have heard that ERP systems, especially from the world-class
    global players, are expensive, take very long to deploy and need very
    time-consuming and expensive customization to make them specific for your
    industry and your company. All this was true a few years back, but like every
    other domain in IT, the progress made in ERP solutions has been mind-blowing.
    Costs have come down by a factor of five times, industry-specific solutions
    are now available on all three of the major platforms, and customization
    required is minimal.
  • Very strong mobile solutions are now available where your ERP is now
    extended to the field for data entry, retrieval and you can monitor the
    progress of the project while you are on the beach in Goa or even traveling
    out of the country.
  • The best ERP solutions now come with industry-specific add-ons, bringing
    in best practices to the table, along with significantly reducing
    customization efforts and the time to deploy.

So, are you ready to make the right decision now?

Balaji Sreenivasan
The author is the founder and CEO of Aurigo Software Technologies. (The
opinions expressed here are those of the author and do not necessarily reflect
the views of Dataquest)

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