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ERP for construction industry: good, bad and ugly

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CIOL Bureau
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BANGALORE: I recently met the CEO of a construction company and he told me that he never was able to pay serious attention to implementation of an ERP system (or IT automation of any significance) in his company because when times are good he was too busy pouring cement and when times are bad, like now, he has no money!

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He can barely keep the banks off his back and so he does not have the luxury of thinking about the future. I am sure many of you will smile wryly and say “I can feel this man’s pain”. Unfortunately, what separates the long-term winners and losers is the difference in preparedness for the future in good times and bad times.

As the CEO of a rapidly growing ERP solutions company focused on the construction and real estate verticals, you don’t expect me to tell you: “Stop! This is a bad time to invest in IT to improve your future competitiveness”.

Let me review the promises of a well-designed and executed ERP system for the construction industry:

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The Good

1. It gives you visibility into the totality of your business – accounting, estimation, construction management, progress on project completion and schedules, property sales and management, human resources, profitability by product lines, cost structure, etc.

2. It helps you manage your cash flow, your liquidity and banking relationships. Remember that banks, private equity and other stake holders want to invest in companies that have robust systems to control their financial risks.

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3. Standard ERP platforms only automate the four 'M's of any business i.e. 'men, machines, material and money'. However, industry-ready ERP systems, the trend today, will bring you the industry best practices so that you are not reinventing the wheel at every turn.

4. Specific to construction, industry-ready ERP solutions help you with accurate estimation, digital archive of the schedule of rates, access to historic prices, automated bid tabulation, contract management, change orders and digital inspections including capture of site photographs.

5. Industry-ready ERP solutions for the C+RE industries also help you seamlessly integrate core construction management processes with your accounting and scheduling systems. This streamlines the computation of running account bills in an error-free mode and also produces earned value reports.

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6. It helps you comply with government regulations; AS 7 Project accounting standards and owners documentation requirements.

7. With built-in business intelligence it helps you mine the data for information critical to your business. It gives you the valuable information in real time when it will be of most use to you.

8. Properly implemented and managed, an effective ERP system can improve your competitive position tremendously by driving business efficiency and not leaving decisions to gut feel.

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The bad and the ugly

Unfortunately many installations of ERP do not meet their promise or are outright failures. Most of the reasons are now well understood and many are specific to the nature of the Indian C+RE industry. The most common ones are as follows:

1. ERPs are seen as something for the IT department, not as a critical management tool. If the senior management is not involved in specifying what results they are looking for, the potential will never be realized.

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2. Hiring an incompetent IT manager to run your ERP system. The biggest expense in a construction company is not its people unlike the IT Industry. Therefore, while the construction firm may believe the IT manager is fairly well paid compared to other employees, it may be far below what a good IT manager costs. This attitude of “after all, he has been looking after my PCs, he has been stringing wires, he can run anything” is a disaster. ERP systems are critical to a business’s success and a qualified IT manager is equally important.

3. ERP is a check mark purchase. My accountant told me we need an ERP system so I will go out and buy the cheapest from a fly by night local vendor as the offerings from Microsoft, Oracle and SAP are expensive. They are out to take my money. Let me deal with a smaller vendor who lives around the corner. All ERP systems are the same. When the system fails to meet the sales promises, it is because all IT systems are useless and just a pain in the neck.

How then can you achieve a successful ERP deployment in Construction Industry?

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1. The CEO and CFO must be involved in what they want the ERP system to do for their business and not leave it up to the IT manager. As management, your involvement is just not to allocate the capital for purchase, you have to make sure the system gives you what you want to make your business efficient. You are not buying it for your IT manager.

2. Buy a reputable system from one of the top international vendor. Remember from their worldwide experience and thousands of deployments they have built in the best practices. Microsoft, SAP and Oracle are the leading business software providers and they spend hundreds of millions of dollars each year enhancing their ERP systems and bringing very substantial innovation to this domain.

If your IT manager recommends a homegrown system or from one of those little local vendors, change your IT manager. This is not a small guy’s game. In India you have a lot of little guys peddling their toy systems. Keep away, they have no future and the total cost of ownership (TCO) will kill you.

3. Staff up properly or outsource the operations part to a knowledgeable service vendor. IT may not be your strong suite, so why not focus on your primary business which is construction and leave the operations to professionals who do this for a living? This is not only cost effective but will avoid a lot of headaches.

4. The ERP platforms mentioned above are generic. As the CEO or CFO of a construction firm looking to leverage technology for competitive advantage, you need to buy a complete industry-ready ERP system which has built on it a comprehensive construction and real estate industry specific solution. You do not want to do custom development on a generic platform. It is too expensive to build and a nightmare to support.

Finally, what is new in ERP systems today?

1.You may have heard that ERP systems, especially from the world-class global players are expensive, take very long to deploy and need very time consuming and expensive customization to make them specific for your industry and your company. All this was true a few years back but like every other domain in IT, the progress made in ERP solutions has been mind blowing. Costs have come down by a factor of five times, industry-specific solutions are now available on all three of the major platforms and customization required is minimal.

2. Very strong mobile solutions are now available where your ERP is now extended to the field for data entry, retrieval and you can monitor the progress of the project while you are on the beach in Goa or even traveling out of the country.

3. The best ERP solutions now come with industry-specific add-on’s, bringing the best practices to the table in addition to significantly reducing the customization effort and the time to deploy.

So ready to make the right decision?

(Balaji Sreenivasan is the founder and CEO of Aurigo Software Technologies Inc. The opinions expressed here are those of the author and do not necessarily reflect the views of CyberMedia)

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