Real Costs Vs. Budgeted Costs
| February 05, 2013 |
By Daniel C. Brown, Contributing Editor
An Iowa-based contractor has won 80 percent of the available bonus payments on a successful 18-mile, two-lane asphalt paving project near Grinnell, Iowa.
Contractors today can compare real daily job costs to estimated budgets and determine whether or not they actually made or lost money on a given day. It wasn’t always so.
Historically, contractors used their accounting system, which had a job cost module, to do cost reporting. You could compare actual costs to budgeted costs on a monthly basis out of your accounting system. To work with accurate data, the accounting system needs to be current with all the bills, and all the time sheets, and the entire payroll, in order to produce a comprehensive cost report.
“That’s the way it was from the dawn of time,” says Christian Burger, an IT consultant to the construction industry and a frequent speaker at meetings of the Associated General Contractors of America (AGC). “Then what happened was that the systems that were producing the estimates – those from HCSS, Hard Dollar and Bid2Win (now B2W) – said that the contractor doesn’t want to wait a month to get actual costs.
“Contractors said, ‘We’ve got this estimated data here,we can make these comparisons,’” says Burger. So now what has emerged is a field-cost tracking system from HCSS, Hard Dollar and Bid2Win. You put your labor hours and your equipment hours into their system and it uses standard costs and compares that to the budget that the estimating system originally set for that activity – paving or grading, or whatever.
“It gives you a report of how many dollars you either made or lost on an activity that day.”
– Adam Kuyt, risk control and contract manager, Flatiron
“But not all of the costs on the job are coming through that mechanism,” says Burger. “To get a comprehensive cost, you still need your accounting system. But to get immediate productivity and manpower – probably the most variable things on the job – contractors are starting to use HCSS, Bid2Win and Hard Dollar because they have these field-based reporting packages.
For several months, Flatiron Corp., a large heavy/highway contractor based in Colorado, has been using Heavy Job from HCSS to compare real-time production data with estimates. “There are multiple reports that are available from the system, hard-coded basic reports from the Heavy Job system that tell you what your production is today relative to your estimated or your original budget that you uploaded into the system,” says Adam Kuyt, risk control and contract manager for Flatiron. “It does the comparison calculations, and it tells you whether or not the unit cost of the work that you performed today was in line with the budget, or over budget, or under budget. And it gives you a report of how many dollars you either made or lost on an activity that day.”
Flatiron is also starting to implement Heavy Job on a mobile application – with iPads. “We’ve been testing that in the field,” says Kuyt. “The field foremen can have an iPad to do timecards.” Before, foremen used a laptop computer or a PC that had to be connected to the Internet. With an iPad, a foreman can simply store the timecard information. When he gets to a place with an Internet connection, he can download his timecard onto Flatiron’s enterprise server. “He just sends his timecard up, kind of like an email,” says Kuyt.
“We’re going toward the goal of not having paper timecards any longer,” says Kuyt. “And the guys aren’t required to keep a paper diary that tells what they did that day. The diary can be done on the iPad, and then he hits a button to send his timecard up and can send the diary notes at the same time. And all of that data is now stored on a server where the data is backed up. You’re not going to lose anything. Gone are the days of looking for a field notebook two years after the job is complete.”
Does Heavy Job help Flatiron make money?
“That’s exactly our reason for adapting Heavy Job,” says Kuyt. “We wanted to make sure that our foreman in the field, who is performing the work, knows whether or not he was profitable on the units that he produced that day. I think that feedback loop will encourage foremen to be thinking about improving productivity on every single shift because they know what they did yesterday.” Kuyt says it’s still too early to tell if the company is actually accomplishing that, but that’s the goal.
Another program that permits checking daily costs against a budget comes from B2W Software, formerly known as BID2WIN Software. The company supplies a program called B2W Track, which has been on the market for about four years, says Paul McKeon, CEO of B2W Software. B2W Track can be used alone or together with the company’s Dispatch and Maintain modules as one unified solution. All modules are browser-based, so no software needs to be installed on each computer running the programs, and all operational data is always up to date and available in real time.
“In the field you open your laptop and get a Wi-Fi connection and you can start entering cost information,” says McKeon, “and the information is building into the server in the office immediately. We have the only true browser-based solution that is real-time connected to the server in the office.” If a foreman cannot get a Wi-Fi connection, B2W offers the option to run in a disconnected mode.
McKeon says that B2W Track creates the framework for one to enter field cost information. A foreman can collect, on a daily basis, the information that relates to job cost metrics. “Say that a subset of a large bid is grading,” says McKeon. “You can go into the field and enter in today’s labor, equipment, materials, subs, trucking – all costs related to grading – along with your production. By doing that with B2W Track, the foreman then has the ability, at the end of the day, to see how they performed against the estimates.”
A second benefit for B2W Track is that management can see live data for all of the work for which field logs have been created. “They are able to see across all of the work, which jobs and which parts of certain jobs are in trouble, the percentages of completion, how much money is left in the work, and so forth,” says McKeon. “So management gets instant feedback in terms of job cost analysis, not just for what happened today but for what has happened collectively on the jobs that are in process.”
McKeon says B2W’s solutions have digital dashboards that show summary information graphically on pie charts, bar charts, and other ways. “We have digital dashboards that allow managers to see the big picture first, then drill down to whatever level of finite detail they want to see,” says McKeon.
A third benefit of B2W Track is that once a foreman has entered labor time for a given job on that day, the information can be used for payroll by an office administrator. Labor hours are only entered once. No more do people fill out time cards to be typed manually in the office.
In May 2011, the company released B2W Dispatch, a scheduling program for workers and equipment. And B2W Maintain, a new module for managing equipment maintenance, is ready.
“With B2W Dispatch you schedule out where all of the crews and resources are going to go tomorrow, and the next day and so on,” says McKeon. “You plan for where the work is going to happen, which crews are going to work where, and you plan all of your equipment moves with a low bed.”
When B2W Maintain is complete, all three programs – Track, Dispatch and Maintain – will all work together as one unified operational solution. “Just assume somebody is using the Maintain module, which is designed to manage the process of repairing and maintaining all of your equipment,” says McKeon. “Let’s assume that a mechanic pulls a dozer out of the field for repair. The minute they pull that dozer out of action for repair, because it is all dynamically tied into an application, the person down the hall – who is using Dispatch – will know they cannot send that piece of equipment somewhere tomorrow because it is not available.”
McKeon says that the entire B2W operational suite is built on the latest Microsoft technology – the dot-net platform and the Microsoft SQL server. “So it is the most advanced, powerful, most scalable technology program that it can be on,” he says. “That is not the case with any other solution that we compete against.”
Paul Cianciarulo is the chief estimator at Pavex Construction Division of Graniterock, San Jose, Calif., and he says HCSS’s Heavy Bid greatly speeds up his estimating process. “Whereas before you might have 10 estimators, now you can do the same amount of estimating with five estimators,” says Cianciarulo.
He says the Heavy Bid program is very intuitive in its organization. “HCSS took a lot of time to work with professional estimators in developing the program, and they got it right,” says Cianciarulo.
He likes the Master Estimate feature of the program. With that, you set up a hypothetical project with standard crews and production rates, and then modify it to fit your specific project at hand. “You can very quickly get a job-specific estimate,” says Cianciarulo. “And it allows you to export information out to Excel, or you can export an estimate out to several different scheduling programs, such as Primavera.”
Pavex prepares well over 100 estimates every month, and the success rate varies. “Estimators would like to get 10 to 20 percent of the project estimates they turn in,” says Cianciarulo.
“If everything is in place, it takes probably less than 10 minutes to submit a bid.”
– Jesse McConnell, accounting manager, Dobson Brothers Construction
Milestone Contractors, a large Indianapolis-based heavy-highway contractor, has 110 supervisors reporting payroll for various crews, and runs 18 asphalt plants. Yet the company uses just four software vendors, says Curt Elliott, Information Systems Administrator. The four are:
• Viewpoint Construction Software for core accounting, project management, equipment management, plant material management and document management (scanning documents for archival records).
• HCSS, which provides Heavy Bid for estimating and Heavy Job for field managers to use in comparing actual costs versus estimates.
• Generation 3 from Libra along with Enterprise Information Server (EIS), from Libra Systems Corp., for accounting purposes at the 18 asphalt plants.
• Primavera 3e/c and Primavera Contractor 6.1 from Primavera Systems for scheduling.
“The four software systems are very integrated to limit the need for duplicate data entry,” says Elliott. “We used to do our dailies as well as many other documents off-line in various programs which only led to mistakes and duplication of effort. Viewpoint and Heavy Job Manager both runs on a large server and require connection through Terminal Services to function. With Heavy Job Manager, foremen and superintendents can enter daily production and labor information and compare it to the estimates done with Heavy Bid.”
That way, Milestone foremen literally know whether they made or lost money in any given day. The goal is to give field managers the knowledge they need to adjust their methods, labor and equipment – on time – before a project loses money or fails to meet budget. In the past, field managers often have not had labor cost information for a couple of weeks after the fact – perhaps not until the project was complete.
At Milestone, field managers use laptop computers and tablets to enter their project management information, including labor and equipment time, production, etc. “We use wireless cards in laptops, or high-speed connections at some jobs, or some guys have high-speed connections at home,” says Elliott.
Job cost information is then uploaded into Viewpoint for doing payroll. “At the same time the foreman can use Heavy Job to click on the production analysis screen and get his budget comparison for the day,” says Elliott.
“But we still prepare weekly and monthly cost reports in Viewpoint for our core accounting purposes.”
Shortly after implementation of Heavy Job, Milestone only committed four payroll errors in a week, with 110 supervisors reporting. “We were pretty proud of that and we continue to work on improving our content quality,” says Elliott.
Elliott says Viewpoint helps Milestone to turn over its money faster and run more profitably as a result. “Viewpoint allows us to more efficiently and accurately bill our customers,” he says. “As a result, we make a huge impact on our interest expenses and interest income.
“We went live with Viewpoint on June 1, 2001,” says Elliott. “Over five years, we increased our annual revenue by 40 percent and decreased our accounting staff by 40 percent. Now, that’s R.O.I.!”
When a Milestone manager starts a project, he gets an electronic file of all the information he’ll need to report and track costs daily: payroll, production, equipment usage, subcontracts, hired trucking, material usage and yield, and the like. It’s up to field managers to track costs daily. It puts the power of decision-making at the source where it belongs so managers can make timely changes to keep a project on budget and on time.
Elliott says the company has been using the scanning module in Viewpoint for six years. The module enables Milestone to digitally scan all accounting and project records and save them. “We used to think we didn’t have enough time to stand at a machine and scan documents,” says Elliott. “Once we realized the impact of efficiency and archival on the whole process, we can’t afford not to. All job information documents are scanned in a virtual file system that mimics the old paper system. This allows our people to access their documents while sitting at their desk or at a remote site.”
Generation 3 from Libra along with EIS allows Milestone’s plants to work independently yet still be managed at the main office. The 18 plants are all on high-speed connections which allow managers to remotely look at the silo inventories, sales for the day by customer, and tonnages on Milestone jobs.
Primavera Contractor 6.1 is able to function independently on the foreman’s laptop. The foreman updates his schedule and sends his updates to the office where it is imported directly into the network version of Primavera 3e/c and becomes a part of the master schedule. Indiana DOT now requires project schedules be submitted in a compatible format to Primavera – and Milestone has ramped up their scheduling efforts and knowledge of Primavera to meet the required need.
Jesse McConnell is the accounting manager for Dobson Brothers Construction, a $50-million plus heavy/highway contractor based in Lincoln, Neb. She says Heavy Bid works very well to submit electronic bids to transportation departments in three states – Nebraska, Kansas and Oklahoma. “That’s the only way that I have ever learned it,” she says. “We take a bid from Heavy Bid and import that into the electronic bidding file from the state. If everything is in place, it takes probably less than 10 minutes to submit a bid.”
Burger says that contractors need to design their overall information systems to accommodate both the accuracy required by their job cost accounting system and the full detail needed there, and the immediacy of the need by the field for close-to-accurate production data.