Archive for the ‘Using Construction Software’ Category
In my last post I talked about how an integrated construction software system can automatically generate a job schedule from the data in the job estimate.
Now that you have a job schedule, and it is integrated with your job estimate data, there are a lot of very useful things you can get out of that, such as:
Allowance items are items that your customer must shop for and select before they can be purchased and installed. Allowance items include things like floor covering, wall covering (wall paper, paint colors), ceramic tile, finish electrical and plumbing fixtures, cabinets, and appliances.
Allowance items are called “allowances” because their exact costs cannot be known until specific products have been selected. So, when the contractor writes the contract, an allowance amount is added to the contract for each allowance item. The customer is allowed to select any product priced up to the allowance amount, and must pay the difference between the allowance amount and the actual cost of the product selected.
An Allowance Schedule shows the list of allowance items, with the dates on which each item must be ordered in order to be received in time for scheduled installation.
How does the Allowance Schedule know when each item must be ordered?
When you create an estimate, you specify which items are allowances by checking a box to indicate an item is an allowance item. If the item has a product associated with it, the product information includes the order lead time – how much in advance the product must be ordered. Since the job schedule knows when the item is scheduled for installation, the allowance schedule calculates the “order by date” by subtracting the order lead time from the date of scheduled installation.
So, the allowance schedule gives your customer two very important pieces of information: how much they are allowed to spend for each item (or pay the difference), and when each item must be ordered to be received in time for scheduled installation. Giving your customer this information in a clear, concise form is good for both you and your customer. It gives your customer the information they need in order to keep up with the project schedule, and it gives you a very clear document to refer to when questions arise about the amount of their allowances, or why the job has fallen behind schedule (because the customer didn’t order the product on time).
While we’re on the subject of allowances, I should mention another very important feature of integrated construction project management and accounting systems. As we all know, construction clients rarely pick out allowance items for the exact price that you allowed in your contract, so obviously there is a need to account for the differences.
This means that records have to be kept of the allowance amount for each item, the actual cost for each allowance item, and a report must be provided to the customer to document the difference between the original contract amount and the actual amount after allowance items were purchased. Managing that manually is a pain and a lot of work, but a worthy integrated construction software system will do all of that for you automatically. How?
The system knows which items are allowances, so after you enter actual costs for them, it can automatically recalculate the contract amount, and generate an “allowance variance” report, which is a sort of automatic change order for allowance items that documents the difference between the allowance amount and actual cost for each item.
A Draw Schedule shows the dates on which draw (invoice) payments will be due, and the amount of each payment. The payments are based on the value of the job items anticipated to be completed within the draw payment period. A good integrated construction software management system can generate a draw schedule automatically. How?
Since the program knows the scheduled installation for each item, and it knows the estimated cost for each item, all you have to do is tell it the draw payment period (how often draws will be made – 15 days, or 30 days, etc.) and the program adds up all of items that are anticipated to be completed within each payment period.
Purchasing is an area in which an integrated construction project management system can be of tremendous benefit. Purchasing materials for a construction project is extremely tedious, time consuming, and error prone. And errors in ordering construction materials can wreak havoc on your job schedule.
Also, the difficulty in purchasing materials for construction projects results in a significant “hidden cost” that contractors just have to live with because there’s no way around it. What hidden cost? Let me explain…
If you need to purchase a single medium to big ticket item, you will logically shop around to see where you can get the best price. If you need to purchase a few items, you’ll still check around to compare prices and go with the supplier with the lower overall cost. But if you have to purchase hundreds of items for a job, and thousands of items for multiple jobs over a year, what are you going to do? Do you shop around for prices for every item you purchase? No. You do what all contractors do: decide on a materials supplier (based on whatever criteria that may be: the convenient location, or the because of the gal in the sales office) and stick with them.
Well, guess what: building materials suppliers know that you don’t have the time and resources to shop around for everything you purchase. So what does that mean? Let’s just say materials suppliers don’t feel any pressure to compete for your business based on pricing. This means that, at best, you may not be getting the best price for your purchases, and at worst, you may be getting gouged. But how would you know? And what could you do about it?
Well, you could start using an integrated construction management software system that allows you to store and compare product price lists for each of your vendors, and then automatically select the vendor with the lowest price when it generates purchase orders to purchase materials for a job.
How would you get all those product prices into the computer?
Other than typing them in manually, a good construction software management system will give you two ways to do that. One is that you should be able to automatically submit price quote requests to your vendors for specific items (with specific quantities needed) for a job, and you should be able to do that by email so that the vendor can do the data entry and email the prices back to you so you can import them.
Or, your vendor should be able to provide you with a computer file that contains their product price list, which you can simply import into your construction management system.
So, instead of sitting and staring at plans for hours on end to compile lists of materials to purchase, you can use an integrated construction project management system to generate purchase orders for you automatically. And if the construction system also integrates the job schedule data, then the purchase orders can be generated based on the dates on which the materials purchased need to be delivered in time for installation.
If you have employees, then you need to provide them with instructions for what work items they are assigned to at which job sites, and when. An integrated construction project management and scheduling system will allow you to assign employees (resources) to schedule items, and then automatically generate work orders to be distributed (by paper or email) to employees. Work orders can be re-generated as a result of last minute changes and updates to the job schedule.
OK, I’m convinced! I definitely want to buy an “integrated” construction software system.
Well, not so fast.
Unfortunately, there is a fair amount of latitude taken among some construction software makers in how they define the term “integrated data”. Some software companies market their software as being “integrated”, when in fact it is only able to copy data from one part of the system to another. So the data still exists in separate instances for each functional part of the program. This is better than having to enter it into each program module from scratch, but not much better.
The problem with that approach is that, once you copy data from one module to another, you must make any updates to the data in all places where that same data exists. You can’t update the data in one module and then re-copy it to another module, because that will over-write the changes that you made to the data in the second module. So in systems like that, you are forever required to make updates to the same data in as many places as it exists.
That’s not data integration in our book.
The only truly integrated construction software systems are systems in which the data exists in a single central database, where all data is entered only once, where all information only exists in a single instance of itself (information is not duplicated anywhere in the system), and where changes to data entered in one part of the program are instantaneously reflected in all other parts of the program. That’s data integration.
So how do you tell if a software system is truly integrated or not?
One easy way to tell whether the data in a system is truly integrated is if the system is based on Microsoft Office (Excel spreadsheets, Word documents, Project schedules). If a software system is based on Microsoft Office, then the data is not integrated.
Software systems that are based on Microsoft Office (UDA ConstructionSuite, for example) are not integrated because the data can only exist in separate files (Word documents, Excel spreadsheets, Project files, etc.) You can copy data from one source to another, but, as described above, when you do, you are creating multiple instances of the same data. So when information about the job changes (as it does every day), you must update that information in every place that information exists in the system (and make sure you remember where it all is!). Also, when you make changes to information in one part of the program, since that data is separate from data in the rest of the system, those changes are not reflected in other parts of the system.
What about construction software that integrates with software made by other software companies, like QuickBooks? Is that really integrated?
Good question. There are many construction software companies who advertise that their system integrates with QuickBooks. But look out. QuickBooks integration is another issue that has multiple definitions. Many construction software systems advertise that they are integrated with QuickBooks when really they are only able to export data that can be imported into QuickBooks. Again, this is another example of duplicating data resulting in the problems that come from that: when information in your construction system changes, you will need to re-export it and re-import it into QuickBooks. Or you will need to manually make the same changes in QuickBooks that you did in your construction software system. That’s not real data integration.
But QuickBooks has it’s own database, so data has to exist in both systems, right?
Right. But QuickBooks provides other software developers with an “application programming interface” (API) which allows other software companies to write programs to automate the synchronization of data between two systems. So even though the data does physically exists in both systems, a program can be written to automatically and transparently maintain the synchronization of data between the two systems – in real time. That’s data integration.
So, if you are considering a construction software system that is advertised to integrate with QuickBooks, make sure you find out whether the synchronization of data between the two systems is managed automatically, in real time, or whether that has to be done manually, or in batch update mode.
Benefits of Construction Software: Generating Construction Schedules
In my last post I talked about how an integrated construction software system can automatically generate customized documents for your customer with specific information about their job. Another thing an integrated construction software system should be able to do is generate a CPM job schedule. (more…)
In my last post I talked about the benefits of using detailed job cost estimates, and then I started to talk about how using detailed job cost estimates (in an integrated construction software system) pays additional dividends.
An integrated construction software system is a system that shares all of its data between all of the systems functions. The advantages of using an integrated system are:
- You only enter each piece of information once.
- Data entered in one part of the program can be used in other parts of the program.
- The data entered in one part of the program can be validated for logical consistency for use in other parts of the program.
- Because data is only entered once, there is no discrepancies between data in various parts of the system.
- When data is changed in one part of the system, the changes are reflected in other parts of the system that may be affected.
Another benefit of using detailed job estimates in an integrated construction management system is that you can use the data in the estimate to generate a number of different types of documents for uses other than job estimating, such as:
- create construction proposals, bids, and contracts
- create construction schedules
- request construction materials price quotes
- request construction subcontract RFP’s or bids
- create construction materials purchase orders
- create subcontractor contracts
- track construction costs
- create construction invoices and AIA payment applications
Today, I’m going to talk about the first item, creating construction documents for your customers. This includes construction proposals (construction bids), construction contracts, and other construction documents that your customer needs in order to be kept informed about the construction process as it progresses.
“Keep my customer informed? Thanks but no thanks! I don’t want them breathing down my neck any more than they already do!”
Referring back to my Chicken And The Egg post, remember that your customers only fear what they don’t know. So, rather then leaving them in the dark, your relationship with your customer will actually be greatly improved if you give your customer clear and complete documentation about the job from end to end, on an ongoing basis.
And remember, you’re using integrated construction management software now, so this isn’t going to take any more work. Once you’ve created a detailed job estimate, you can just click some buttons and watch the program go to work for you…
The first thing your customer needs is a printed proposal that will clearly define the scope of the work you propose to do. There are a number of reasons both you and your customer need this, but the two main reasons are that a printed proposal gives you…
- Something to refer to when questions arise about exactly what the customer requested and exactly what you agreed to do.
- Something to refer to when questions arise about how much the customer agreed to pay for what you proposed.
So to create a printed job proposal, or contract, your worthy construction software system will take all of the information in your job estimate, and merge it into a “template document”, or “merge document” to produce a customized proposal or contract for your customer – complete with your company’s logo and letterhead.
A “template document”, or “merge document” is like a “mail merge” document in MS Word; it merges data from a data source (such as your job estimate, etc.) into standardized text, to generate a customized document for your customer, such as this: Fixed Sum Contract.pdf.
Merge documents allow you to develop and save standardized text that you can use over and over again to produce any number of different documents that your customers will need, or will greatly appreciate. A good construction software system will allow you to produce any of the following types of merged documents:
- Allowance Schedule
- Change Order
- Cost Plus Contract
- Schedule of Values Draw Request
- AIA G702/G703 Payment Application
- Draw Schedule
- Fixed Sum Contract
- Job Progress Report
- Job Recap and Summary(Final Billing)
- Job Site Photos
- Allowance Variances
- Simple Estimate and Proposal
So, all of these documents can be produced by simply merging data that is already in your worthy construction software system into your pre-defined merge documents.
That’s pretty slick. But then what do you do with them? Print them out and hand them (or mail them) to your customers? Yes, you can do that, and a lot of folks still like paper these days. But a lot of your younger customers, being all into the internet and iPhone gizmos, might ask you to email your documents to them, or post them on the web so they can download them.
Well, your worthy construction software system should be able to do that too, without any fuss.
So see, here you have gone from simply having created a detailed job estimate to having all sorts of useful customized documents generated and printed, emailed, or posted on the internet for your customers, without doing any more work. Not so bad.
And along the way, besides having made your job estimating more accurate, you have also greatly improved your professional image!
As I mentioned in a previous post, there are many benefits in using construction software. Because the benefits are all interrelated, it’s difficult to start at one point and go from there. For example, creating a good estimate allows you to do better job costing, and better job cost information allows you to create better estimates.
So, rather than try to find the beginning of any sort of cost benefit tree and start there, I’ll just start with the beginning of the construction project management cycle: the estimate.
In the end of the day, the bottom line is whether you make or loose money. That’s why they call it “the bottom line”. Because it’s the bottom line of a ledger in which you record your income and expenses. If your income is more than your expenses, then you make money; if your expenses are more than your income, then you loose money. That’s the bottom line.
Some contractors operate like this:
1. Make a bid.
2. Do the work.
3. Invoice the customer and deposit the payment.
4. Check the bank balance. If I lost money, ask for more.
This is may be the best you can do if you don’t have a way to accurately anticipate and track your construction costs. The disadvantage of this approach is a difficult customer relationship, and more important, you don’t know where you are making or losing money, so you can’t do any better estimating the next job. So the cycle continues.
Construction estimating software allows you to:
• Create detailed, itemized job estimates,
• Track the actual costs and labor hours,
• Report the difference between estimated and actual costs – by item or summarized by job phases or cost categories – for one job or for all jobs.
This is the only way you can know whether you are making or losing money, and, more importantly, why you are making or losing money. But you can only do this if you itemize your job estimates.
Q: How detailed do you need to make your job estimates?
A: How detailed do you want to be able to track your costs?
The level of detail you need in your job estimate depends on the level of detail you need in tracking your job costs. For example, if you’re a general contractor, and you subcontract construction of the foundation, you will be OK estimating a lump sum for the whole thing based on your subcontractor’s estimate. Your subcontractor’s bill will be for a lump sum, so you’re not going to be able to track your cost for the foundation at any lower level of detail.
On the other hand, if you’re a foundation subcontractor, and a GC asks for a bid on a foundation, you could say (like a lot of people do), “I know what it costs to put up that foundation”, and give the GC a lump sum estimate based on what you know it costs for x number of lineal feet of foundation.
The problem with that approach is, what do you do after the job is done and you have less in the bank than when the job started? Just add something to your next estimate? OK, then what do you do when your competitor turns in a lower bid on the next estimate?
There was a time not so long ago when you could get away with that approach, because there was more work to go around than there were people to do it. But those days are over, my friend, so it’s time to sharpen our pencils.
This means you need to come up with a detailed estimate. Again, how detailed? The answer is, your estimate needs to broken down to the same level of detail as your materials or subcontract purchasing and costs. And, if you have employees, your labor estimates needs to be broken down to the number of hours it will take for each type of work that has a different labor cost associated with it.
“Why do I need to create estimates with that level of detail? What good will it do?”
The reason is so that when you record your construction costs, you are able to compare the construction costs to your estimate. That is the only way you will be able to know exactly where you are making or loosing money on an individual job, or as a trend on all of your jobs.
“What about using construction a cost database like RSMeans cost data, or National Estimator?”
You can create estimates based on costs from construction cost databases like RSMeans cost data, or National Estimator, and good construction estimating software will allow you to either integrate with construction cost databases, or import costs from them. That’s a good place to start, but what many construction contractors find is that the costs in off-the-shelf construction cost databases are not very accurate. You can start there, but be warned that you may end up double checking all of the costs. Many construction contractors find that, in the long run, construction cost databases are not worth the expense.
“But how could I possibly take the time to create estimates with that level of detail? That would take forever!”
Yes, it would take forever, if you had to create an estimate with that level of detail from scratch every time. But that’s not how construction estimating software works. Good construction estimating software allows you to create job estimate templates and assemblies that you will use again and again.
Construction estimating software is designed based on the idea that there are a lot of similarities in the work that you do from one job to another. You may build completely different types of projects, use different materials, purchase from different vendors, use different subcontractors, and you may even use different employees. But even with that much variability, there is a lot of detail that is common from one job to the next. And the more specialized the type of construction you do, the more overlap there is from one job to the next.
All you need to do is get started estimating your first job. Yes, the first estimate may take a bit of a time investment. But once you have that estimate, there will be parts of it that you can use in your next job, by just changing the unit costs and counts. Each job you do results in another template that you can use on another job. After running a job, if you find that part of the estimate was not detailed enough, the next time you do similar work you will know to break that part down to a lower level of detail. But once you do that for one job, that assembly will be available as a template for other jobs with similar elements.
And, in addition to being able to copy estimate templates or assemblies from previous jobs to create new estimates, using construction software that integrates estimating with construction cost accounting gives you a huge bonus: you can use actual unit costs from previous jobs as your new estimated costs.
“What? You mean I can create new job estimates based on the actual costs from previous jobs?”
That’s right. Good construction software integrates your estimate data with your construction cost data. The result is that every job you do is adding to and updating your own job cost database. You can’t get construction cost estimates more accurate than that.
I know estimating construction costs on that level of detail seems like a lot of work just so you can have accurate cost accounting and guaranteed profitability. And it would be, if accurate cost accounting and guaranteed profitability was all that you got out of detailed estimating. But as you’ll see, there are so many more benefits to using detailed job cost estimates that by the time you realize them all, you will agree that it doesn’t make sense to operate any other way. Especially when you use integrated construction management software that allows you to reuse your estimate data for other important construction business functions, such as when you:
• create construction proposals, bids, and contracts
• create construction schedules
• request construction materials price quotes
• request construction subcontract RFP’s or bids
• create construction materials purchase orders
• create subcontractor contracts
• track construction costs
• create construction invoices and AIA payment applications
I’ll be talking about how you can use construction software to do each of these things in future posts.