26 Feb 2015
Job site productivity in construction is not the easiest Key Performance Indicator (‘KPI’) to calculate and monitor, yet it is a critical factor in construction project profitability. Do you remember the old saying – ‘If you do not measure it you cannot improve it’? By using Enterprise Resource Planning, a company can calculate these measures.
Low productivity in construction is an issue that is costing Millions of dollars and the Government has recognized this with its incentive scheme under which construction companies can make an IRAS PIC claim. One of the categories under this scheme is ERP software, and there are very good reasons for this – it can be a powerful lever with which to improve productivity in a construction business. Machines can only do so much – the rest depends on the project management, construction workers and site logistics – and on effective ERP software.
Let’s look at the basics first.
What is ERP Software?
Simply, ERP software enables the planning and management of a company’s resources – plant, materials and people. Ultimately it links sales and marketing through to the finished product – in this case linking a construction project and financial plan through to final handover (and even a maintenance contract):
• Plant and machinery is hired
• Workers are hired, costed and scheduled
• Material requirements automatically drive supplier purchase orders
• Onsite and offsite material stock is managed
• Stage payments are invoiced
• Cash is tracked and managed
• Overheads are apportioned
• Project accounts are produced
• KPI are calculated and monitored
With ERP software, all these aspects are integrated into a continuous information flow. Its power is in the functional integration, the single source of data behind the flow and the immediate availability of useful information.
Integrated Processing and Single Database
Forget the technical terms – the key is getting to the data and turning it into information that can be used to inform decisions and improve productivity. It is often the case that marginal differences in material costs are far less significant than the impact of late deliveries. Poor materials delivery performance results in under-utilized workers and slipped schedules needing expensive overtime and good project management to pull the project back on track.
Really Useful Management Information
Here are some typical questions that get asked regularly:
• What’s the daily burn rate on labour on site x?
• Which firm is the most reliable of our concrete suppliers?
• How many days stock of 10mm rebar do we have for site y?
These are all matters that can affect job site productivity, and that’s why it is so important to have a unified view of the critical information from ERP software. But that’s not all. When that information is pulled together into management reports, the critical measure of productivity on a construction site can be calculated. It becomes possible to answer questions such as:
• Why is performance lower on site x than on site y?
Project management is enhanced and project productivity can be monitored and therefore improved – for example through tighter supplier contracts, more efficient stocking strategies for materials and more efficient use of labour. It can also help with cost control. For example, knowing what the cost of delay by a supplier was could provide clear support for a penalty claim.
Choosing an ERP System
Modern ERP software is much more functional and easier to implement than it was 20 years ago, and is now well within the financial reach of small to medium enterprises. There is a wide range of such systems, but when choosing a system it is important to recognize that the project management experience of your implementation partner is critical to success. A poorly implemented system can be a big step backwards.
So, choose your partner carefully and ensure that they have plenty of project management experience in the sector.
ERP Software is here to stay in Construction
Although project management is at the leading edge, the construction industry has lagged well behind other sectors such as Manufacturing and Logistics in the implementation of ERP software,. There has been much research undertaken worldwide which has shown that ERP offers significant ability to improve the effectiveness of construction supply chain management, financial management and e-procurement.
The outcome of a wisely chosen and properly implemented system is, of course, more efficient projects and higher profitability.
That is why the Government is providing IRAS PIC Claim and BCA PIP Grant incentive support for ERP systems in construction.
