Construction ERP: Overcoming Growing Pains and Maximising Profitability

Since 1975, RedSky has been in close collaboration with numerous construction and contracting companies to understand their processes and systems. It is common for these companies to begin their journey with generic finance systems and multiple spreadsheets to manage their commercial and operational aspects. However, as a company grows and surpasses the £5 million revenue mark, managing project control and accessing data becomes increasingly challenging, leading to delays and mounting administrative burdens. Unfortunately, it often takes companies 2 to 3 years to realise that their current systems are no longer sustainable and make the transition to a construction-specific ERP platform.

Budget justifications can often pose an initial obstacle, as well as the lack of resources within the team to consider a significant administrative process change. The purpose of this article is to highlight the consequences of not implementing an ERP platform earlier.

Common Challenges in Construction Business Growth

As your team successfully delivers projects on time and within budget, your reputation within the supply chain grows. This can lead to new clients seeking your services and existing clients ramping up their demand. This can result in rapid growth rates of 30%, 50%, or even 100% per annum.

However, this growth can bring new challenges. Your project teams may rely on an overstretched accounts department that is working with silos of data and double-handling information to provide current contract costs. Unfortunately, this data can be 2 to 6 weeks out of date, and manual handling is prone to errors. Procurement may be manual or managed on a separate system, leading Contract Managers to manually prepare Excel sheets to track the most up-to-date position. The Commercial Team may also be handling multiple Sub-Contractor applications using offline sheets, duplicating the efforts already made by the accounts and contract managers. Additionally, there may be no centralised record or reminder system for Pay-Less notices, creating a potential financial risk.

Moreover, the accounts department is currently hiring new staff to manage the numerous manual processes that are in place. This includes cross-checking goods received notes with invoices, assuming they are not lost or damaged during transit. The manual order system does not provide any indication of outstanding orders yet to be fulfilled, and budget control at the point of order is not feasible.

These are just a few examples of the common issues we encounter. The costs to the company can be both apparent and hidden. Often, the owner or Board sits up and takes notice when the first “smash and grab” payment of £50k is made, or an audit shows invoices have been paid twice and year-end operating margins have been halved – doing twice the amount of business to stand still!

Benefits of Construction-Specific ERP Platform

The business case for investing in an ERP system is compelling. It provides a platform for process change and profitable growth. The platform should be scalable, flexible, and configurable to meet your business needs. The benefits include:

• Single source of truth
• Up-to-date project/contract data
• Real-time decision-making
• Reduced number of projects that overrun and exceed budget
• Increased profitability
• Improved cash flow management
• Better supply chain management
• Improved customer satisfaction
• Improved governance and compliance

The implementation of an ERP platform can result in a single source of truth, eliminating islands of information and data silos, which in turn reduces manual intervention and double handling of data. This leads to up-to-date project/contract data that is readily available to decision-makers, ultimately reducing the number of projects that exceed budget or overrun.

Cloud-based ERP systems offer a single interface to your business information, providing real-time visibility into your business performance. This information is available across multiple locations and can be accessed on any device, including PCs, laptops, and mobile devices.

By offering user-friendly interfaces and role-based access permissions, an ERP platform ensures that data is tailored to each user, facilitating their adoption of the tool for effective project management.

The implementation of a construction-specific ERP platform brings enhanced visibility to all projects, leading to improved control and seamless integration with critical supply chain partners. This, in turn, enhances project performance and boosts bottom-line profitability at both the project and organisational levels.

Furthermore, a key driver for implementing an ERP platform is the need for better management of complex construction businesses. This includes day-to-day operations on-site, whether it’s a single or multi-location setup, efficient supply chain management, comprehensive project life-cycle management from tender to maintenance, effective financial performance tracking at the project, company, and business levels, as well as robust risk and compliance management.

Business case for ERP investment

Surprisingly, many companies we encounter have not established a cost justification before exploring the market for solutions. All business investments require a thorough understanding of the known and unknown costs associated with current processes and ways of working. It’s crucial to evaluate and gain a handle on these costs before making any investment decisions. It’s worth noting that not all benefits of a new system are easily quantifiable. For instance, scarce, well-proven construction professionals view modern efficient systems as an essential recruitment and retention tool.

In addition to the cost profile justification, it’s important to consider the business risks associated with delaying or not investing in an ERP platform. The business case should outline your desired end goal and how the investment in an ERP platform will support you in achieving that objective.

Selecting an ERP vendor to partner with

To aid you in your vendor review process, we recommend that you create a bullet point list of the required functional scope for the platform. You can use this list to compare vendors and as a checklist during demonstrations and presentations.

When selecting an ERP vendor, there are several factors to consider, including

• Functionality: Does the vendor offer all the functionality you need? Is it scalable, flexible, and configurable?
• Technology: Is the technology up-to-date? Is it cloud-based or on-premise? Is it secure?
• Implementation: What is the implementation approach? What resources will be required from your team? What is the timeline?
• Support: What support does the vendor offer? What are the response times?
• Experience: Does the vendor have experience in your industry? Can they provide references?

Key Considerations When Selecting a Construction-Specific ERP Solution

Prioritise a construction-specific ERP solution, as it is specifically designed and developed for project-based operations, eliminating the need for workarounds that you are trying to avoid.

Ensure that the core systems, such as finance, payroll, contracts, subcontractors, digitised P2P (Procure-to-Pay), and reporting, are all integrated on a single platform. The system must be configurable to align with your existing processes without the need for customisation. Additionally, it should be scalable to accommodate future growth expectations over the long term.

The vendor should be capable of presenting several client case studies and providing references that can be verified. It’s also important to inquire about the consultants who will be implementing the system. A vendor that caters to multiple sectors may not have the same level of expertise in their team as a vendor that specialises in the construction sector. This highlights the importance of selecting a vendor with a proven track record of working with construction companies and a deep understanding of the complex and challenging requirements of the construction sector.

It’s also essential to assess whether you can work with the company effectively. It’s worth noting that the sales representative will not be responsible for implementing the system. Therefore, it’s crucial to understand how the company operates and how it collaborates with you to implement the solution that addresses your specific requirements.

Phased Approach to ERP Implementation

While you may have a lengthy list of desired features, it is important to maintain a phased approach to implementation. Focus on the essential functionalities initially, set realistic expectations, and allocate resources accordingly.

The most successful projects occur when the client company takes ownership of the project and system. It is advisable to have a client-side project manager who actively drives the project forward, with support from the Board. Recognising that business process change can be challenging will help justify the necessary investment in services and training. It’s important to note that the software itself does not facilitate change; instead, successful implementation and achieving a positive return on investment (ROI) rely on knowledge transfer, improved processes, and user adoption.

To summarise, a contemporary construction-specific ERP system, such as RedSky ERP, should serve as a foundation for process improvement and profitable growth. The approach taken throughout the journey, from vendor review to implementation, will determine whether it becomes an expensive and ineffective investment.

See RedSky ERP in Action

Author: Chris Winson, Business Consultant at RedSky