The "Nuts and Bolts" of Construction Software
April 2006There are some pretty major differences in how software for contractors operates. Some of these differences are significant; others are not that critical to the methods of operation by the contractor. How does this net out for the contractor looking for software? What are the implications? You first have to know your particular business, such as your requirements for running the company. You must also pay close attention to the details when looking at packages so that your business methods are not in conflict with the software you select. This sounds like a simple task, but this is no small order when shopping for software.
What kind of billing do you do? Do you issue time-and-materials invoices or cost plus invoices? In either case, you’ll want to check how the system integrates job cost with billing and how much flexibility it provides in modifying your invoices.
Do you issue draws in the format established by the American Institute of Architects? Do you have a need for invoices to be issued from work orders? Based on your key operational requirements you’ll want to concentrate on how the prospective package handles those requirements.
General Ledger/ Financial Reporting
Areas that distinguish systems are in the areas of budget tracking (multiple budgets and revisions), intercompany accounting for use with multiple entities (with automatic intercompany entries based on a single journal entry). You will also want to pay close attention to the report formatting capabilities. Does it handle basic column formats only, or will it also let you do row formatting with calculations? Key issues for reporting are ease of use and power. Most of the time, custom reports will have to be built to meet all your reporting needs.
How easy is it to handle consolidations? Do you need to roll all entities together with automatic eliminations, or is it a matter of combining specific companies? You should see how easy it is to accomplish this in the different packages.
Cash management can range from simple cash flow projections to full blown cash management capabilities, including complete bank reconciliation, cash flow reports and float information on bank accounts. Some systems will even include cash flow projections based on outstanding Accounts Payable, Accounts Receivable and purchase orders. Some systems have separate cash management options while in others this function is within the general ledger or accounts payable modules.
Only a few packages can handle foreign currency requirements.
Union payroll is a big item for contractors. Be sure to evaluate how the software computes union benefits and deduction calculations. Most systems are pretty flexible. Just be sure the software can handle the equations the way the union does it—for example, are deduction percentages taken before or after taxes? Union reports are another potential stumbling block. Some systems are very flexible and can report to a specified union format. But others can be more challenging. If the vendor cannot provide you with the format you need right out of the box, it may take a lot of work for you to create the necessary union reports.
Collecting payroll data from remote locations is another major differentiator. The first issue is how payroll data (time card machines, computer entry, etc.) are collected at the remote site. The next question is how to get the data from the field to the home office computer. Variations here can involve batch file transfers, direct entry from the field to the home computer via special server software and the like.
Look at the need for real-time information and the amount of effort needed to make the transfer. Some packages may even offer a Web interface for data entry/reporting from remote locations.
Similar to the general ledger, making intercompany payroll entries where one entity processes the payroll for other entities can be a major item for some companies. You’ll want the system to make all necessary intercompany entries for you. Most systems can handle all the basic payroll tax reports.
An important issue in AP is the early warning (also known as "alerts”) capabilities of software.
For example, you may want the system to warn you on subcontractor insurance expiration dates, or when an expense transaction causes you to go over budget.
Different systems provide different levels of warnings during invoice entry. You’ll have to find the one that meets your company’s needs.
Integration Between Accounts Payable and Purchase Orders
What are your needs for updating purchase orders and creating AP vouchers?
Systems handle receipts against POs and voucher creation differently. Some systems will automatically create a voucher based on a PO receipt and let you set tolerance levels for acceptance. Also, commitment accounting is important for many users who want to be able to track purchase orders against budgets and receive a warning when an AP entry causes them to exceed budget.
Another interesting variation is how the system handles unapproved invoices. Some will let you set a flag to indicate they have not yet been approved and will not post to job cost or the general ledger until they are approved.
Some systems will even offer "compliance groups.” These are user defined parameters (such as receipt tolerances, cutoff amounts for subcontract, etc.) set up for subcontracts and POs that will check to see that invoices entered meet compliance for that group. When compliance is exceeded, the system issues an alert to the operator.
The main issue for job cost is integration. You will want to carefully investigate integration between job cost and other modules such as scheduling, project management and estimating. How easy is it to move data between these applications and to make changes? This is particularly important for larger contractors.
Project management and document control is another major need for contractors. Users want to move to a paperless office. Does the package support this? Some of the packages support Web-based project tracking and updating.
Input and uses of percent complete reports: How detailed do you want these reports to be? Some systems will project cost to complete by cost distribution based on different factors.
Job cost reporting is an area where major differences exist between systems. You’ll want to review the system’s standard job cost reports to understand the data source for the reports. You’ll also need to determine how easy it is to develop new reports or modify existing ones.
Regarding equipment, you’ll need to ask yourself these questions to select the right construction software: How do you want to handle tracking equipment costing and preventative maintenance?
Do you want a visual maintenance tracking system?
Do you need to charge equipment usage to jobs? (Some systems will track tool usage through their equipment modules.)
How does the system handle depreciation costing? What are your needs for integration between PO and equipment for purchases of parts for maintenance?
Systems vary in inventory costing capabilities. Some systems provide a variety of pricing mechanisms (such as Last In, First Out and First In, First Out), while others are limited.
Can you update inventory with an outside pricing service?
It is also important to gain an understanding between the integration (or lack of it) of the inventory, purchasing and estimating databases.
Some systems can create POs based on estimates. This sophisticated capability is important for homebuilders. Another consideration is how the system handles PO backorders.
When choosing software, it is crucial that users focus on looking at product differentiators that match closely with user priorities. That is the only way you can be sure you are going to get what you need from a given vendor.
About the Author
Sheldon Needle is president of CTSGuides.com. For more than 20 years, CTS has been helping construction company owners and managers make smart technology decisions. CTS offers a free Construction Software Selection Kit, which includes detailed software reviews and ratings, product pricing and other tools to make software selection easier.
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