Real-time cost tracking and enterprise resource planning in a construction company

Introduction

Over 60% of Finnish construction companies still use Excel-based cost tracking or a separate accounting program that is not connected to the projects' real situation. Knowing a project's margin accurately requires manual compilation of hours, which is often done only when the project ends.

Real-time cost tracking changes this fundamentally. In this article we go through what it means, what it requires and what it gives a small construction company.

Why does cost tracking fail without real-time data?

Traditional cost tracking works like this: work hours are gathered into payroll at the end of the month, material invoices are entered into accounting with a delay of weeks, and the margin analysis is done after the project ends.

In this model the project manager drives looking in the rear-view mirror. Deviations are reacted to afterwards, when the damage is already done, and budget overruns only become clear at the final invoice.

In a real-time model the same data is available daily:

• Work hours are logged on mobile, and they show in cost tracking right away.
• Material orders are logged to projects, so the margin updates automatically.
• Subcontractor invoices are allocated to projects, so the project-level margin stays up to date at all times.

What does real-time tracking require?

Real-time data does not come from software alone, it also requires a change of process:

1. Hours are logged daily, not as a single sum at the end of the week.
2. Material purchases are logged to projects right when ordered, not through accounting with a delay of weeks.
3. Subcontractor agreements are in the system, so allocating invoices is automatic.

The change is small, but it requires management's commitment and clear guidance for the whole team.

Real-time margin as a management tool

When a project's margin is visible in real time, the logic of management changes:

Before: "The project went 15% over budget." This becomes clear in the final report, when the damage is already done.

After: "65% of the hour budget has been used, but the work is 45% complete." This becomes clear already in week four, when there is still time to react.

This leads to concrete improvements:

• Additional-invoicing negotiations with the client in time
• Allocating resources to where the margin is tightest
• Learning: what did this project teach for the next cost estimate?

Line-item tracking: costs by work phase

Advanced cost tracking goes below the project's overall level: hours and costs are allocated to the line-item, that is, the work-phase level. This reveals which work phases are profitable and which eat into margin.

When the calculation templates are based on real line-item costs, the next project's tender price is also considerably more accurate.

Summary

Real-time cost tracking is not a big system project, it is a change of process in which data moves automatically from the field to the basis of management decisions. The result is concrete: fewer margin surprises, better responsiveness and learning calculation templates for future tenders.