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Do You Really Know What Your Data is Telling You?
Data, Data & More Data
It’s obvious, but still worth repeating: Technology has changed the way business is done. More contractors rely on software applications to run various aspects of their businesses (if not all of their operations), from bid to cash.
These software programs have helped automate processes and increase efficiency, and have put more information at contractors’ fingertips. However, as the use of IT increases, so does the amount of data that’s generated. Understanding what that data means and how to utilize it can be a major challenge for contractors.
Think about all the data you collect. Every day your business gathers information about bids (won and lost), profit margins and cash flow, employee performance, and much more. As a result, there are mounds of data that could be analyzed to help make important and timely decisions to engineer success. But, data alone won’t do the job.
Analyzing performance to make educated decisions can be overwhelming. But, when data is easy to access and understand, you’re better able to assess your company’s financial health and manage for long-term financial stability.
Using software that seamlessly brings together the data acquired from bidding, job costing, project management, AP and AR, payroll, etc., will provide a more accurate view of your numbers and allow you to manage based on fact – rather than assumptions, guesswork, or what’s always been done.
With wide and deep visibility of every project and every area of your company’s operations, your company can hone its business strategy, improve control of cash flow, and keep financials in the black.
Optimal Data Analysis
With multiple applications, it’s difficult to analyze data across the functional groups within a company in a truly efficient or reliable way. It’s hard to determine why a company – or even a specific job – has not produced the profits that were originally anticipated. Separate systems simply can’t support the level of analysis required to find out why. For a company to run in an optimal fashion, the groups must work together.
When information is presented in a summarized form, problems or areas that are outside of the norm (e.g., project costs that are significantly over budget or labor costs that don’t coincide with the original estimate) can be spotted early so that you can drill down to the details and find out why.
When estimating, project management, and other company data is in one place, questions about budget overages, scheduling conflicts, etc. can be answered quickly. Contractors can uncover lost opportunities, reduce waste, expose shortcomings, and maximize resources when data is easily accessible and presented in a concise format that is easy to understand.
The Value of Estimating Data after the Bid
For contractors, takeoff is where the initial data for any project is gathered. With digital takeoff technology, estimators can download or scan in plans and then perform a takeoff quickly and accurately – right from their computers. This eliminates the cost and hassle of using blueprints; processes are streamlined because the collected data is used to create an estimate – reducing data entry and improving accuracy. Then, software can track estimates and proposals by win/loss, type, estimator, and prospects to help provide insights for bidding on future projects.
Once the job is won, the data from the estimate can become even more valuable. For example, when a project is going over budget and estimating detail is not available, it’s difficult to know why.
Is it because the actual productivity for the activity is well below what the estimator thought it would be? Was a different crew or equipment used than originally planned that impacted the production and increased the costs? Or, was equipment not available because of a breakdown or was another job keeping it longer than anticipated? The answers to these questions are important to a contractor’s productivity and profitability. But, if the data is not easily accessible and simple to understand, decisions will continue to be based on guesswork.
When estimates are performed in separate systems, owners and PMs will rarely take the time to review proposal information. Not only do they have to log into a different system, but they also have to learn how to navigate and obtain information within that system.
Even if they are willing to do this, the information is often presented in multiple locations. So, when they want a combined report, they have to consolidate the data from different systems into a program (like Excel), which can be extremely time consuming.
By having all of this information in one system an owner can see which estimators have the highest win ratios, determine where a proposal stands without having to track down the estimator, and also see all activity that has taken place related to the proposal.
By having all information in one system, it’s easy to see which estimators have the highest win rations, determine where a proposal stands without having to track down the estimator, and see all activity that has taken place related to the proposal.
By leveraging estimating data, you can be kept up-to-date on all bids and proposals (not just those won), which helps to improve pipeline activity, understand which jobs are most profitable, find out which crews are best on certain types of projects, evaluate acceptable profit margins, and much more.
Understanding True Job Costs
With tighter bids and significant constraints on profits, contractors must execute jobs at an optimal level. Contractors must understand exactly how each project is performing in regards to costs, projected costs, and schedule; otherwise, they are poised for failure because they rarely (if ever) have a true picture of their job profitability.
Contractors who don’t understand true job costs will very rarely make the money originally anticipated when they won the bid. And, they likely repeat the same mistakes over and over (such as using the same price for materials from project to project even though prices fluctuate, or not tracking equipment usage and billing as costs to projects).
If contractors don’t track and manage jobs effectively, then they can’t identify problems and fix them in a timely fashion, and they will be stuck in a cycle of recurring costly mistakes. For example, they could continue to bid jobs under the same wrong assumptions. Or, they might underbid items, and therefore, win jobs they cannot execute profitably and/or lose out on profitable opportunities.
Improve Cash Flow
When takeoff, estimating, and project management work seamlessly with your accounting package, data entry time is reduced, processes are streamlined, and data accuracy increases significantly. In addition, detailed financial data can be easily converted into understandable reports that provide valuable insights to better control your company’s cash flow.
By having the tools available to provide graphic dashboards that offer snapshot insights into critical data, contractors compete more profitability, automate their reporting, and have an at-a-glance understanding of priority activities.
- Per Project Reporting - With the availability of detailed cash flow reports by project, contractors can quickly see which jobs are being funded by the owners vs. those funded by the contractor. By looking at per project data, it’s easy to see which PMs are making sure the cash is coming in fast enough to fund the job vs. which PMs always seem to lag behind.
The contractor can also see which estimators bid the job in such a way to ensure the job owner is doing his part to finance the project. This data is critical to controling cash flow.
- WIP Reporting - Work in Process (WIP) reporting is also essential to becoming more profitable. By combining data about current/active jobs with the sales funnel information (i.e., what jobs have been bid or will be estimated soon), contractors can better understand resource restraints or problems that can drastically affect cash flow and, ultimately, company profitability.
Being able to analyze data to answer such questions as, “Do you have enough labor to support anticipated work levels?” and, “Do you have enough work to support current labor?” can significantly impact a company’s bottom line.
- Better Resource Management - Whether it’s time to hire additional workers or reduce your workforce, not knowing how many employees to hire or let go puts your company in jeopardy. Likewise, proper equipment utilization is just as important, and knowing whether appropriate levels of resources are available (or not) is crucial.
Your system’s reports must pull together all the necessary figures and calculate the profit and progress based on those figures in order to provide a clear picture of current and future jobs.
- Keep Financials in the Black - Being able to easily access daily cash, AP, AR, and project cost reports so that you know your company’s financial standing in real time (and can pursue timely billings, inventories, liabilities, etc.) is vital to staying out of the red.
When costs begin to exceed budgeted amounts on projects in process, understanding why can be tricky. Is it because the PM isn’t properly executing the job? Is it because the estimator didn’t do a good job with the estimate? Are there other external factors contributing to the overage? These are very difficult questions, but they need to be answered.
- Identify Problems Early - The earlier in the project cycle that these problems are identified and addressed, the more likely that they can be corrected. Plus, the ability to know true costs of a job at any point in the project lifecycle will help you control costs, identify opportunities for change orders, and manage for optimal profitability. Having the right tools in place is crucial to understanding your data and uncovering the problem and then providing guidance to fix it.
Many software packages today provide daily job costing summaries where all cost and production data is available to view the next morning. This enables PMs to react and fix potential problems before they impact job profitability.
For example, let’s say a paving or excavation crew did not meet the daily production schedule. If the PM learns about this delay the next morning, he can then call the supervisor and find out what happened. Perhaps the paving crew was waiting on the trucks to deliver enough asphalt to keep the paver going. If this were the case, then the PM would know to call the asphalt plant to find out why the haulers didn’t deliver, and take the necessary steps to ensure the production is not impacted further.
- Change Orders - Change orders can also negatively impact any job; however, with the accurate data and the right tools, change orders can be managed effectively. Performing what-if scenarios, in addition to tracking and billing change orders as they are completed, allows up-to-the minute information so you can effectively compare job costs vs. estimate costs to complete – again, to prevent losing money in the process.
- Inventory & Equipment Asset Management - In addition, inventory and equipment asset management can directly impact your profitability. With a complete software package that provides applications to manage these areas, you can ensure your bottom remains positive.
When inventory is not tracked properly, companies are vulnerable to materials “walking away,” as well as having items in stock that go unused. Both issues negatively impact a contractor’s bottom line.
Equipment asset management applications can provide the necessary information to make decisions about rebuilding or replacing machines, balancing fleet average age, and adjusting fleet size and composition to meet changing company demands. This means getting as much production as possible from the equipment, at the lowest per hour cost, over the longest period of time, while obtaining the highest sales value at the end of life. For heavy/highway contractors, equipment assets are typically the largest expense in a construction project – more than labor and material costs. Effectively managing these assets is an even more critical factor for project profitability. Equipment must be at the right place at the right time; it must achieve stated levels of reliability and uptime; and total owning and operating costs must be kept to a minimum, thereby giving the contractor a competitive advantage.
Having the information on hand to continually track utilization of each piece of owned and rented equipment will enable you to measure the impact of idle time and down time and develop strategies to control and correct it.
Make Your Data Work for You
There are many contributors to a contractor’s financial solvency. It’s not one piece of information, but the combination of data from across the company that will help you identify and prevent potential financial losses, spot discrepancies and errors, and manage projects with accurate information in real time.
Most contractors have come a long way since managing their business based on a shoebox full of receipts and lots of guesswork. The data is now available, but it must be easy to access and understand to truly be meaningful.
With end-to-end business management solutions, you can leverage your data to achieve operational efficiencies and cost reductions, monitor and control productivity for jobs of any size, confidently increase profitability on every project, accomplish more in less time, take the guesswork out of reaching true profit potential, and improve financial stability for long-term benefit.
Having more visibility into your company’s business is much like going to the doctor – your doctor can’t fix what ails you if he doesn’t know where it hurts. Similarly, contractors need data to diagnose areas for improvement for a healthier business. Let your data work for you!
About the Author
Dave Bennett is Product Manager for Maxwell Systems, where he works with customers and consultants to identify trends, product requirements, and enhancements.
Dave Bennett is Product Manager for Maxwell Systems, where he works with customers and consultants to identify trends, product requirements, and enhancements.
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