Representing roughly 13% of the world’s GDP, construction is the world’s largest industry and a force to be reckoned with. However, margins in the industry are razor-thin. When construction firms bid on new projects, they must keep costs low or risk missing out on key opportunities. For companies bidding on commercial, industrial and large-scale residential projects like apartment buildings, the competition is especially fierce. Consequently, many construction firms have kept technology investments to a minimum, often resorting to a combination of basic software solutions and manual processes to run their operations.
This frugal approach is slowly catching up with construction companies. Their caution with regard to technology has limited their operational visibility and saddled them with poor financial management. And this has made it especially challenging to manage the complexities of a construction project, including resource allocation, coordinating contracts with subcontractors, ordering materials as prices fluctuate thanks to global demand, tariffs and more.
Where other industries have turned to technology to help reduce costs, automate processes and gain a competitive edge, construction has largely opted out. According to a KPMG report, just 23% of construction and engineering organizations have an enterprise-wide vision and strategy for technology in place—a number that’s 9% lower (on average) than other industries.
Lack of technology, increasing material costs, labor issues, new competition and thin profit margins are just some of the key challenges that today’s construction companies face on a daily basis. They’re also grappling with:
Complex projects with a lot of moving parts.
Today’s projects are extremely complicated endeavors that require many different professionals—from engineers to architects to general contractors to subcontractors (to name a few) and shifting timelines as projects wait on approvals, delays and permitting. The process can be overwhelming and is especially onerous for a company that still relies on paper, disconnected software systems and phone calls to run its business. For a construction firm, that underlying coordination coupled with subcontractor management has to be a well-orchestrated dance, with the frustration of having to coordinate a project with multiple entities that are always on the same page being the biggest pain point.
Understanding the difference between revenue and cashflow.
Many construction firms don’t discern between revenue (the money earned from the sale of products and services) and cash flow (the net amount of cash being transferred in and out of the firm). A lot of companies get tripped up on that particular point, because recognition of revenue in construction is based on the percentage of project completion. So, where a company may be killing it when it comes to project completion timeframes, it may be falling behind financially because of the complexities with the invoicing p
Long payment terms for subcontractors.
The HVAC or electrical contractor that’s working for a larger, general contractor on a particular project may have to wait a while to get paid. That’s because the general contractor is also waiting for its own bills to get paid before paying that HVAC or electrical contractor. By the time the invoice is submitted, that subcontractor has to wait 45 days (give or take) to get paid. In certain circumstances, cash can get pretty tight.
Poor materials management.
Making sure that all construction materials are accounted for, invoiced and paid for is an ongoing challenge for contractors that are working on a jobsite. This is a complex piece of the puzzle to organize. Along with managing the construction project, for example, contractors also have to coordinate material deliveries to the site, position equipment at that site and monitor their own assets throughout the life of the project. NetSuite does a great job with materials management and accounting for projects. This functionality includes industry-specific nuances of vendor provided materials, prefabrication, warehousing, storage and consumables with different types of units of measure.
Inability to do AIA™ invoicing.
AIA billing is a system created by the American Institute of Architects to standardize how contractors submit work-related invoices to architects. The formatting is complex and requires contractors to use the AIA invoice template or some other version that meets the organization’s standards. Many software packages that construction firms have in place don’t even do AIA invoicing, so it has to be done offline or by hand. When companies get to a certain level of volume invoicing, those offline processes get cumbersome and expensive to maintain.
Retainage, the money earned by a contractor or subcontractor for satisfactory work, but then held until the contract (or a specific milestone within that contract) is complete, is an assurance for the timely completion and quality of a contractor or subcontractor’s work. From the contractor’s perspective, the money has been billed, but is not yet collectible revenue. Tracking retainage is difficult from an accounting standpoint and requires a robust financial platform that integrates with the company’s project management system.
Thankfully, there’s a solution to these problems. ScaleNorth’s ScaleApp Construction for NetSuite solution helps organizations drive successful projects, collaborate in real time, estimate project profitability and create revenue and cost estimates. It also allows companies to easily set up projects using project templates, track all financial metrics, and automate their subcontractor, work-in-progress and documentation management processes.
Once in place, ScaleNorth’s ScaleApp Construction for NetSuite solution helps construction companies take the various components of their construction businesses, put those components into a single system and achieve visibility across projects, inventory, materials and subcontractor negotiations (or any other desired dimension). Armed with a single view of their operations, contractors can stop playing “spreadsheet wars” across the enterprise, eliminate manual data re-entry and replace their disparate software systems.
This consolidated view helps companies determine whether a project will be profitable (or not), identify financial challenges (i.e. clients that aren’t paying on time) and better manage their own assets.
As the construction industry continues to evolve and become more complex, the companies that make the move now to replace their aging, disparate systems will be best positioned to win profitable projects in the future. Those that opt out will find themselves behind the curve and struggling to catch up.
NetSuite gives companies a platform that they’ll be able to layer and integrate different pieces of technology into, including building information systems (BIMs), sensors and monitoring capabilities. To get there, construction companies will need this base platform in place before technology fundamentally changes construction as we know it.
To read more on how construction firms can manage their increasing complexity by utilizing NetSuite and ScaleNorth’s ScaleApp, click here.