While building a multimillion-dollar structure, the imprecise choreography between a general contractor, a dozen or so subcontractors and hundreds to thousands of laborers is anything but graceful.
When things go awry with just about any single task—such as installing the concrete foundation or plumbing—the fallout can bring construction on a new metropolitan hospital or the latest chain restaurant to an unceremonious halt. Miss one inspection deadline and a project can be set back weeks; cost overruns can climb to seven digits.
Thats what cash-flow-dependent businesses like Layton Companies need to avoid if theyre going to survive and thrive.
Layton, a Sandy, Utah-based holding company for four construction and engineering firms, found that the typical construction delays were exacerbated by its outdated billing system. Project managers had to wait four or five days for a bill to be sent to accountants for review and approval. In the meantime, the next stage in the project, such as hiring another subcontractor to hang the drywall, was either delayed or ordered to proceed without anyone on site knowing the exact cost.
“When youre out on a construction site, everything happens so fast, you sometimes dont have time to think through all the implications of a single decision,” says Alan Rindlisbacher, marketing director at The Layton Companies. “Youve got all these moving parts and a project manager out at the location trying to keep everything straight and under budget. Its not easy.”
Working with multiple subcontractors simultaneously providing a variety of materials and services challenges even the most organized crew.
“Wed have to tell a particular contractor not to proceed with one element of construction like the electrical work until we could get the order approved back [at corporate headquarters],” Rindlisbacher says. “So youve already got the next stage of construction, perhaps the interior walls and painting, lined up for the next day. But they cant do their portion until the electrical work is done. Meanwhile, were paying for these contractors time and falling behind our own work schedule.”
Managing a construction project from the initial bid all the way through to completion is an endeavor that, until recently, relied mainly on Excel spreadsheets and handwritten orders that were then mailed to corporate offices where an accountant would approve any materials or subcontracting contract.
Getting an order or contract approved often took at least a day, which is a lifetime amid the bulldozers and cranes of a construction site.
Worse, transactions on a given project were stored under one file and couldnt be sorted by date, vendor, contractor or even a single project manager. So accountants, field representatives and executives had to dig through green-bar paper to find relevant data for ongoing jobs or completed projects.
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-Up”> Playing Catch-Up
For Layton, this was the legacy of an application called Construction Industry Software (COINS) developed by Shaker Computer and Management Services Inc. in Latham, N.Y.
Coins “was what was here when I got here and we were at least a version or two behind the most recent version,” says Layton chief information officer Steve Wright. “It was a very old system and it wasnt keeping pace with our growth.”
The Layton Companies combined sales surged 33% from $270.3 million in 1999 to $358.7 million in 2002. It estimates sales climbed 10% to 15% for the year ended Dec. 31, 2003, and that theyll increase by the same percentage again this year.
For the four companies under Laytons umbrella, more than 150 different projects can be ongoing at any one time. When on-the-fly changes to the general-contracting plan were made by a given customer, each change and billing order had to wend its way through the old, sluggish system, usually resulting in cost overruns and further delays.
The companys margins were decreasing because projects scheduled to be completed in five weeks were actually taking six or seven. Contractors originally supposed to be on site for only two days were working four or five—all at Laytons expense. As a privately held company, Rindlisbacher declined to specify how much margins have decreased, saying only that it was “significant.” “Our volume kept jumping but our margins were shrinking,” he says. “The technology was a big part of the problem.”
Under the old billing system, accountants and corporate officers could not easily obtain necessary data or documents. “We needed a way to empower our men out in the field so they could have access to the information immediately and get the costing and approvals they needed in minutes or hours rather than days and weeks,” Wright says.
In May 2001, Wright and his three-person information-technology team finally decided to abandon their old-fashioned paper chase and try enterprise- and project-management software designed for the construction industry by Computer Methods International Corp. (CMIC). Seven months later, Layton had integrated the core financials, project-accounting, subcontracting and payroll applications with its existing R/S 6000 platform and Oracle database.
The new system, which cost $750,000, gives Layton executives a real-time snapshot of the entire financial history and status of all current projects. Project managers and accountants now have the ability to approve billing orders from laptop or desktop computers instantly, and have access to detailed information about materials and labor costs.
Each project is tracked online and gives accountants, executives and on-site workers an opportunity to share and extract data such as the amount of concrete needed for each phase of the foundation or steel to be used for the interior walls. Meanwhile, the consolidation of all this data means that a project manager working a similar project in another part of the country can see how his colleague priced a particular portion of a job.
“We cant really quantify how much this one function has saved us but theres no question were now more accurate and on target when it comes time to bid [on] a job—and thats where the money is made,” Rindlisbacher says. “In our business, its all about the bid. Once youve got the job, its your responsibility to finish the job to specifications. If you didnt bid it properly, thats your tough luck.”
With scores of jobs going at any one time and each job spanning from a few months to several years, the cost-transaction and accounts-receivable functions can now be identified and monitored for a given time period. Being able to purchase concrete in large quantities for multiple projects rather than buying a little at a time for each individual structure is just one of the advantages Layton now enjoys.
Also, Rindlisbacher can see on a minute-to-minute basis how much is being spent and how much will be earned from a multi-year project such as the new airport in Boise, Idaho. He and other Layton managers can quickly pull up the overall running cost of the airport project, broken down by each of the 20-plus subcontractors working the project.
When executives see, for example, that the plumbing contractor installing the bathrooms for the terminal is closing in on either the total cost or time allocated to that portion of the job, they can have the on-site project manager investigate. If its running behind schedule, Layton managers will make sure the plumbing contractor picks up the pace or else theyll move up other projects, perhaps the lighting systems, to ensure the overall project doesnt fall too far behind schedule.
“It gives us the chance to focus on and monitor our subcontractors much closer than before,” Wright says.
Moreover, any employee with proper clearance can see exactly how many subcontracts are outstanding on a project—how many nails, screws, cubic feet of sheet metal are and will be used and how that compares to a similar job going on 2,000 miles away. Instead of sending an entire supervisory team—project manager, accountant, etc.—to job sites throughout the U.S., Layton can now monitor projects remotely, saving travel costs while improving communication at each job site.
“Its changed the way we do everything,” Wright says. “We can now have a project manager effectively run a site in Las Vegas from right here in our corporate offices in Sandy. Its a lot easier to have everyone in the same room here rather than some in Tennessee and some in Arizona and everyone trying to communicate through handwritten notes and cellular-phone calls.”
With a clearer picture of where each individual job stands, The Layton Companies can better project its annual results and budgets and deliver more-accurate bids faster than competitors who still rely on the labor-intensive practice of hunting and pecking through years of paper references.
A 115,000-square-foot office building requires the same amount of steel, concrete, tile, paint and other materials in Massachusetts as it does in Colorado. After completing one job, all the pertinent data—including the contractors used, time allotted for each segment and total cost of each stage—are logged and stored online in the new system.
When another office building of similar size is up for bid, Layton Companies can now pull up this historic data with a few keystrokes and know exactly how much time and money will be needed to complete the building. Better yet, the system also shows where and why cost overruns or savings developed and that information is then factored into the bidding process.
“If we cut our estimate too close on the last office building and we can now see exactly where and why that happened, we can adjust our bid for the next job and make sure that those overruns are avoided,” Rindlisbacher says. “With the old system, we just knew we didnt make enough money and heard a lot of clutter about how and why from different contractors. Now we have the line-item and dated data to recreate an entire job.”
“In essence, budgeting and forecasting are non-value-added processes,” says Eric Austvold, an analyst at AMR Research. “Its a point-in-time guess at what a company wants a year later. You want a system that helps you manage the data so that you can make better assumptions.”
Equally important, Wright says, is finding a vendor partner who understands your business as well as you do.
Toronto-based CMIC came out of the mid-1970s as a customer-software firm focusing on the intricacies of the construction industry. Unlike most industries, construction calls for very unusual data fields that typically arent satisfied by off-the-shelf enterprise-resource-planning or customer-relationship-management software packages from large vendors.
For example, the concept of “retainage” accounting applies to virtually every construction project. In essence, this form of accounting means that subcontractors arent paid until the job is 100% completed. Otherwise, a subcontractor can put a lien on the project and prevent future work from being completed.
Because contractors are billing the costs of the project and then adding a fee, its not possible for most generic enterprise-software systems to make that distinction in real-time.
“Weve learned how to anticipate just about everything that a mid- to large-sized general-contracting company would run across,” says Gord Rawlins, president of CMIC. “This product were selling now CMIC Project Management software has only been around for about 10 years but it comes with almost 30 years of real-life experience behind it,” he says, referring to the product, which has evolved since the mid-1970s.
And Layton has learned that now it can use fewer project managers to manage multiple sites—sometimes remotely—and reduce its accounting staff by 25% while taking on more projects in shorter periods of time. “Were getting more bids now because were able to cut it much closer with much more confidence than we ever had before,” Rindlisbacher says. “Thats real ROI.”
Next Page: Layton base case.
The Layton Companies Base
Case”> The Layton Companies Base Case
Headquarters: 9090 S. Sandy Parkway, Sandy, Utah 84070
Phone: (801) 568-9090
Business: A holding company for four engineering and construction-related general-contracting firms providing commercial construction services in the U.S.
Chief Information Officer: Steve Wright
Challenge: Implement enterprise- and project-management software to reduce operating expenses and accurately forecast costs for new job bids.
Financials in fiscal 2003: Estimated sales of about $400 million; net income not disclosed.
- Improve annual sales by at least 15%
- Reduce accounting overhead by 25%. (Layton declines to disclose the specific number of employees.)
- Trim billing order process from five days to less than one hour.