Financial reporting in the construction industry commonly focuses on the need for historical project information for informed decision-making on costs and the need for analytic and reporting tools to capture critical, real-time data from ERP systems such as Viewpoint, Sage, and COINs to address timely cash flow issues. According to a recent 2020 Engineering and Construction Industry Outlook report by Deloitte, “…cost pressures, labor shortages, and trends toward fixed-bid projects…are likely to persist in the future. In 2020, the industry will focus on mitigating these challenges while capitalizing on trends that help improve operations and deliver a competitive advantage.”
There is no question the jobs of the construction financial manager and estimator are highly important in addressing challenges like these. However, they are held back in this endeavor because their ERP’s native reporting tools just aren’t flexible enough to meet their specific needs, and complex business intelligence (BI) tools weren’t designed for financial reporting.
This makes it more important than ever for construction companies to have purpose-built financial reporting with easy-to-use features. Finance teams are expected to quickly access and analyze data on costs such as payroll and materials in order to accurately predict profitability and cash flow while responding to changing needs. In addition, finance needs to access that core data without depending on IT teams or external consultants to create reporting for them.
Costs to Take into Account
When choosing a reporting tool, you need to think about the future. Does the tool offer the flexibility to tap into both ERP and associated software, such as bidding, to capture all the relevant data you need for decision-making? How easy will it be to analyze and report on the data once acquired? Can the tool easily transition your existing reporting templates when your organization migrates to a cloud version of your ERP?
Let’s look at an example common to all construction companies: estimating a job budget. This is typically performed by the estimator with historical guidance from the construction financial manager. When building an estimate, there are different costs that need to be taken into account:
- Capital cost
- Operation and maintenance cost
- Allowance for contingencies
Capital cost (job-related costs) requires access to data on land acquisition, architectural and engineering design, construction materials and equipment, labor, insurance, and taxes, among other areas. Not all of this data is located in one place—which means finance teams are required to find the data, download it, and then quickly organize it for reporting.
Operation and Maintenance costs (that typically occur over the project life cycle) require that finance teams review historical as well as current data in order to project estimates and evaluate spend, vendor cost variances, and services costs. This also requires access to data outside of financial records with the ability to merge disparate cost codes and identify data classifications across areas such as land rent, labor and materials for maintenance and repairs, and utilities.
Allowance for contingencies is probably the most difficult and the most fluid of all the costs. Finance is expected to evaluate and address unexpected costs that can occur during construction. Examples of these costs include design changes, schedule adjustments, and third-party requirements (such as new permits). The ability to accurately estimate these costs depends on access to data on historical actuals from past jobs in order to set realistic bounds on budgets for future projects.
All of these costs require the financial team to access internal construction ERP data in modules such as AP, AR, equipment, labor, and overhead, as well as external data such as time reporting and bidding (in HCSS HeavyBid, for example), and be able to put it into the right financial context. Compiling information from multiple sources gives you the best data pool for your analysis.
Selecting the Right Solution
To simplify this task and get the desired results, your financial team needs the right tool. Key capabilities of your reporting tool should include the ability to:
- Access all the data you need
- Quickly analyze and prepare reports on the data
In the case of a job estimate, you would likely want to create a view that breaks out the various components of an estimate to ensure all factors are evaluated every time. If you are an Excel user, you can appreciate doing “What if’s” and leveraging the power of Excel when you are drilling into profitability analyses.
In Viewpoint’s reporting, for example, you have to find the right report in each module, separate out the data you need with parameters, then run the report and search for the data you need. Or pull data from other sources, such as a bidding system, and manually piece that data together with the Viewpoint data in a static spreadsheet. Finance teams need a reporting system that can quickly give them access to that data and then enable them to drill into specific data such as job listings, agings, equipment, and phase information directly from Excel. Quick, automated queries like these, with an easy drill-down window to investigate any details, empower your finance team to run their analysis and reporting themselves, saving hours of time and enabling the best possible outcomes for your business.
Access Real-Time Data with insightsoftware
Start your job estimate modernization journey off right by choosing a financial analytics and reporting tool that accommodates finance’s specific needs, with access to real-time data from multiple sources, and strong support for Excel.
Learn more about why fast and accurate financial reporting is critical for construction firms. View the infographic.