ERP in Construction and Related Industries

Summary: Constructors today find themselves facing harsher business conditions. The market determines their prices and, with joining the European Union, even more stringent conditions are to be expected. The only area constructors can still influence is: their own overheads. This means they must monitor their costs; monitoring alone, however, does not suffice. In order to keep costs to a level that still guarantees profit, these need to be checked against planned values on a regular basis. This, more than anything, requires planning. As such, the basic function of an ERP system has to be the implementation of a regulative cycle, consisting of: planning monitoring checking alerting. In this case, creating improved working conditions for everyone involved is relegated to second place).

An "ERP" system may not be an ERP system: why does accounting not suffice? The term ERP (Enterprise Resource Planning) in itself already highlights why most of today's ERP systems in reality are not what they are claimed to be. One of the term's keywords is the word planning, which in this context does not signify planning simply for planning's sake; instead, it should be viewed as a basis for implementing a regulative cycle for cost control, triggering alerts at a point when additional costs can still be prevented. When constructors generate overtime on site and this is only recorded upon calculating salaries at the end of the month, the only option that remains is for payment to be made. An ERP system should provide explicit information concerning upcoming overtime (or waiting time that will later lead to overtime), and it should do so during the course of the month, thus facilitating a reorganisation of work processes to avoid overtime altogether. Another key phrase in the term ERP is resource planning; in addition to financial resources, this also includes human resources, materials, machinery, as well as time management. Today's systems mostly focus on planning for a fixed period of time and in reference to expected financial values; based on this, analyses are then made using accounting data. This, however, is a mistake. Costs that have been thus recorded represent consequences of events that have since passed; analyses based on this set of data can be considered nothing more than post mortems. Lastly, the complete term enterprise resource planning indicates the necessity of incorporating all company departments in the planning process rather than just accounting. An ERP system must not, therefore, be limited to only using accounting-related data but also include quotation costing, site-based incidents, supplies, machinery management, task and staff management, commercial activities, reception, project management, planning and accounting. Accounting applications are not comparable to ERP systems, regardless of their indisputable importance for a company or the extent of their interrelationship. Data provided by accounting and any resulting analyses, are inevitably obsolete, so much so that managing everyday business based on them alone is impossible. Some processes can be described as inherently monthly(calculation of salaries, for instance) and as such cannot provide any realtime status information during a current month. Provision of some data to the accounting department is delayed so much that it is obsolete despite an accountant's accuracy or timeliness. Upon carrying out a number of analyses for one of our users, we established that the average delay of data related to inventory activities is 28 days (although all storage facilities were, in this case, equipped with computers). This means that the accounting department has, on the same day, recorded one document that was one day old and another one that was a month old. Records like those, naturally, cannot render any useable data. Even more staggering is the fact that 67% of said company's documents are delayed by more than the legal maximum of seven days and that the average delay is 56 days.

According to a survey by the Aberdeen Group ("The 2007 ERP in the Mid-Market Benchmark Report"), an ERP system should contain 24 modules. Apart from the usual: the general ledger, purchase and sales ledgers, stock, payroll and asset ledgers, this document also mentions Project Management, Customer Relations Management (CRM), Purchasing, Sales & Marketing Management and Monitoring, Capacity Requirements Planning, Event Management, Enterprise Asset Management, Workflow Management, etc.

Can an ERP be made up of modules from different suppliers? Yes, it can, but at an increased cost. Until now, we have been unable to convert this statement into currency. Luckily, these kinds of problems also affect more advanced economies. The American National Institute of Standards and Technology (NIST) published the results of a study showing that the increase in costs amounts to approximately 3.7% of the total project costs. More details on this study can be found at the address www.carpio.hr/html/nepovezanost.html, where a link to the original 200-page document is available under the reference GCR 04-867. Increased costs are not the only problem of those types of hybrid solutions. The development of such solutions mostly follows different directions due to the individual suppliers specific interests. Those solutions invariably need to exchange data, which in turn means that control between the individual modules, based on thus exchanged data, cannot be established; in reality, they are not integrated but continue to do everyday work processes without control. Apart from the additional programming of links between modules (causing more additional costs), hardly anyone programmes the creation of feedback information, which would allow the limitation (or control) of modules sending information. At some point, all that data will reach the accounting department (electronically, through manual entry, etc.) so that past errors may be reviewed; yet, it is impossible to influence the generation of costs. In construction companies, integrated solutions used for quotation costing, expenses analyses and accounting are the ones most often encountered. A large number of standard normative data creates the illusion of construction-related management, while the accounting part of it appears to handle cost management. Normative data, however, merely represents average values as recognised by professionals, as opposed to real costs. Real construction costs must be put in context with time, as the time it takes to finish a construction has the most profound effect on costs involved. A project does not just have to be finished on time, but also within a set frame of planned value. According to Professor, B. FLYVBJERGs published study (see more on www.carpio.hr/html/profit_u_graditeljstvu.html), the costs of an internal delay can increase to up to 12% of the total project costs. Without the implementation of some scope of control over other parts of the company, these types of solutions for proposal processing are nothing more than tabular calculators on steroids.

The Carpio system 25 years of development have enabled the Carpio system to set up a system of integrated management and controlling of day-to-day business, associates, overshoot alerts, time and deadline management, as well as management of partner-related events. The system incorporates the complete construction process, from proposal analysis to operational controlling, including comparisons to the overall plan and calculated quantities, CRM, supplies, engagement of basic resources and teams, internal work orders, reception, and coordination. Using the latest methods of Project Management Earned Value Management (EVM), the system calculates Cost Performance Indexes (CPI), Schedule Performance Indexes (SPI), Cost Variances (CV), Schedule Variances (SV), and other indicators of project results, all based on operational data.

As this is one system with a single database, the integration is real. The fact that a piece of information is entered only once is less important than the fact that information from one module controls information in another module, as it is one single piece of information visible in different modules. This product provides the management with an infrastructure for operational management of production processes and a lever to help implement a regulative cycle for cost management. Making the necessary organisational effort to ensure a swift and successful system implementation rests with the management team. Dinko Baun, Bs.Sc www.carpio.hr