Business Process Integration in ConstructionAECbytes Viewpoint #90 (Aug 21, 2019)
Today, most construction companies use a fragmented array of business applications. These include a project management system, resource management, time and expense tracking, estimating, an ERP or other financial backend, and a host of spreadsheets and other applications. But none of these tools easily connect to provide a real-time view of the business, both operationally and financially.
The solution to this problem seems to be to integrate these functions, so that construction companies have better insight and business management capabilities. Ideally, construction companies should have the tools to manage their business in real time, instead of through guesswork and outdated data.
Project Business Automation (PBA) is a new category of software solutions that promises to do just that by replacing these stand-alone applications with one system.
The Common Construction Problem
Being able to use real-time, or near instantaneous data to make management decisions isn’t new, but it is in construction.
“The industry never really invested in tech or IT,” says Steffen Fuchs, a McKinsey partner who specializes in capital productivity. “So it’s been operating the same way since the 1940s.”
More traditional industries with large-scale repeatable business processes such as manufacturing, retail, or distribution use real-time data to manage their business. According to a recent Harvard Business Review study, 83% say the ability to translate data into actionable insight at the optimal time and 80% say data accessibility (right data to right people at the right time) is extremely important in creating a foundation for real-time analytics. That is why retailers can predict and automate the fulfillment of a product throughout the supply chain.
The construction industry is lagging other industries in terms of access to real time information through digitization. Most construction processes are project-based, including estimating, designing, scheduling, managing resources & assets, costing, financial reporting, and more. Data related to these processes is often delayed and reviewed near the completion of project rather than consistently during the project. It is typical that these processes use data that is days, weeks or even a month behind. The result is that critical business decisions are being made with information that is out of date.
This lack of timeliness leads to most of the problems we hear about in construction—i.e., project delays, miscommunication, lack of oversight, etc.—and is why most projects end up behind schedule and over budget.
A report from McKinsey most of us have seen points to lack of digitization as one of the core problems (Figure 1).
Information technology spending is less than 1 percent of revenues for construction, even though a number of new software solutions have been developed for the industry.
But is digitization the real culprit? Most construction companies do use a project management system. They also often use software solutions to manage time and expenses, as well as resources and assets. They have plenty of spreadsheets too. They do buy systems. These are all “digitized.”
The reason traditional retail or distribution companies can operate with real-time data is because all their systems are integrated (Figure 2). In general, all business processes for these companies are managed in the core ERP solution (sourcing, inventory, logistics, resource planning, asset management, etc.).
Conversely, most of the construction business processes are managed in isolated point systems that are disconnected from each other, while the ERP is used primarily as a financial backend (Figure 3)
The problem with these independent and disparate systems is that they are usually loosely integrated, if at all. Most of the data integration happens manually in spreadsheets.
This situation is the reason why executives and managers at construction companies don’t know what is going on operationally and financially with their projects until it’s often too late. Weekly or monthly status meetings and reports are already outdated. Decisions based on outdated or incomplete data can have devastating effects on the project, business, customer and bottom-line profits.
Project Business Automation
Project Business Automation (PBA) is a new class of solutions that aims to tackle this issue and integrate all these functions into one solution. This is a challenging endeavor, especially when different departments (or fiefdoms) fiercely protect and defend their favorite point systems.
The concept of PBA is to provide a single, integrated solution where today, most companies are using a wide array of separate tools. A recent example in another industry is Marketing Automation. Before Marketing Automation, there were separate tools for email marketing, web tracking/analytics, web forms, social media posting, etc. Marketing Automation integrates these tools into one system and in doing so connects and automates a lot of previously manual tasks. This provides much more robust and complete insight into marketing activities.
PBA does a similar thing for project-based AEC companies. What PBA brings together are 3 areas of functionality:
- Operations: Integrating advanced project planning, scheduling, resource management, etc.
- Financials: Integrating project cost management, estimation, etc. for complete financial oversight and control.
- Insight/Analytics: Integrating operations and financials gives firms the real-time portfolio and project intelligence that provides instant and transparent visibility into their business.
Integrating these three pillars of business in one system allows construction firms to make critical business decisions with real-time information. It also means that many problems that used to occur due to a delay from one step in the process to another simply don’t occur, so firms can be more proactive in managing the business and head off smaller issues before they become big problems.
The integration that PBA offers allows information to flow freely throughout the enterprise, which means these construction companies can start managing their projects and business processes in real time just like other industries.
Why PBA Matters
Using real-time data across the organization for decision making creates a radical improvement for most construction companies.
Changes or issues in a project that used to take weeks to manifest can now be discovered much earlier. For example, when a project manager makes a change to a project schedule that affects the cash flows and profitability of that project, executives know about it in real time (Figure 4).
The multibillion-dollar construction conglomerate based in New Brighton, Minnesota, APi Group, is an early adopter of this new category of solutions. “It’s a game changer,” said Mike McParlan, chief operating officer at APi Group. “We get the right information to the right people quickly and simply.”
PBA isn’t just about insight. Having all the business process and data managed in one system enables companies to create automated work flows that can head off issues before they become big problems. That means small issues that used to cause major problems downstream can be reduced or even eliminated.
In other words, PBA enables companies to go from reactive, putting-out-fires mode, to proactively managing their business.
PBA promises 3 changes for construction companies:
- PBA replaces/displaces many existing point systems currently used by construction companies. As a result, companies no longer need to manage these individual applications, and the integrations between them, or manage the compiling of data in spreadsheets because of them.
- As a result, PBA brings substantial improvements in efficiency and productivity. Construction companies can now operate in real time, much like their traditional industry counterparts.
- All of these enhancements mean that construction companies should be able to complete more projects on time and within budget with greater profitably.
McKinsey has said that the construction industry is ripe for disruption. Is PBA ushering in a new era for construction companies?
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