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Seminar unveils key cost management solutions

01 April 2013

THE risks of dealing with ‘two sources of truth’ in project accounting was the theme of a presentation and seminar held by award-winning software specialist Computer Construction Software (CCS) in Dubai, UAE, last month (March 4).

Hosted by CCS Gulf’s general manager Ian Hauptfleisch and delivered by its international sales manager, Kevin Dick, the seminar entitled ‘Managing the biggest risk in construction’ drew an audience of over 100 construction industry professionals who heard a lively presentation of the perils of running different ledgers dealing with the costs and payments incurred on projects.

According to Dick, it is all too common for construction companies in the region to run a dual ledger system whereby orders and daily deliveries are recorded on a database on site and at the end of the month all other site-related costs are sent to the site for capture.

Meanwhile, back at head office, the same costs are entered separately into a proprietary accounting system or perhaps an enterprise resource planning (ERP) system, which handles the company’s overall accounting functions. Not only does this represent a doubling up of work and therefore cost, but also management and site administrators are then tasked with reconciling the two ledgers – the ‘two sources of truth’ that Dick alluded – which is difficult and time consuming and the ledgers are rarely balanced.

However, these irritations and costs pale into insignificance when compared to the very real risk of losing significant amounts of money on the project itself. As Dick pointed out, with the average margins for the contractor on a major project running as low as 10 per cent overall, a one per cent overrun in costs represents a 10 per cent drop in margin. Yet how many contractors can even identify such a relatively small overrun in time?

Dick points out that for information to be useful it has to be both timely and accurate, noting that the costs of even basic commodities can vary quite dramatically over time and learning of a significant cost overrun versus the budget days or even weeks after the event can be catastrophic. Likewise, savings versus budget go straight to the bottom line and have a similar effect on the project’s margins, he said, citing the example of a large Abu Dhabi-based contractor that made $80 million on cost savings last year on only one of its many projects.

The answer to the dual ledger conundrum is the integrated cost management solution (ICMS) offered by CCS, Dick asserted.

The ICMS is an integration of CCS’ popular estimating and planning software Candy and its construction enterprise accounting system BuildSmart.

Many local and regional contractors are familiar with and even users of Candy construction project modelling and project budget control software, which has more than 8,000 users in 50 different countries worldwide.

Candy is a project budget control system designed by construction professionals specifically for the construction industry. The estimating, valuations, planning, cash flow and forecasting components produce an integrated model of a project’s anticipated construction process and financial performance.

The software provides a variety of inter-related modules such as material costing, drawing register, sub-contract database, allowable cost reconciliation, information schedules and time-location charts to provide a wide range of analytic tools.

“Candy is, therefore, much more than an estimating and planning package and one of its most powerful features is the dynamic link between money and time – the interactive link between the bill of quantities or estimate, and the program or schedule of work. This interactive link, between these two most prominent factors of a construction project, provides a wealth of information at the finger-tips of both management and client,” Dick explained.

Candy allows the estimator to work from basic resources in building up the cost model for the project and this information can be fed to the procurement system to integrate purchasing with the assumptions made in the estimate. Later, during valuations, this information is provided to the accounting system to compare actual costs to anticipated costs for the production of earned value reports.

To complement Candy, BuildSmart is a web and SQL-based construction enterprise accounting system. It is not an ERP in the classical sense such as Oracle or SAP, Dick emphasised. Designed by construction professionals specifically for the construction industry, it integrates costing, project accounting and enterprise accounting for real-time analysis and the effective construction management.

According to Dick, BuildSmart manages all sources of project cost – materials procurement, payroll, subcontractors, plant, stock and overheads – allowing the construction business to track all costs by contract, and by both activity and cost type, all in real-time. Four interlinked ledgers are used: contracts, overheads, plant and balance sheet to provide the detail that effective construction business management requires.

BuildSmart allows information to be entered where it is generated – at the site or in the office, and to be processed and viewed wherever in the world using a secure web-based connection available through a strict permission-based system.

Role-based screens allow each user to focus on the part of the process for which they have responsibility. Workflow is straightforward and logical, with the system managing the balancing leg of each transaction with particular attention to an accurate work in progress account. Management reports are immediately available to those users with permission to see them.

Thus with Candy, BuildSmart is in fact a powerful management information system, allowing strict control of the procurement process, allowing real-time comparison of what has been spent (using BuildSmart) with what was expected to have been spent (using Candy), allowing timely and effective management actions, tight cost control, and improved margins.