How Construction Companies Should Approach Enterprise System Selection

When it comes to selecting an enterprise system for your construction company, the right approach is crucial.

There are some key considerations to this decision-making process:

  • Unique business process needs
  • Available deployment options
  • Industry-specific solutions
  • Systems selection approach and landscape

However, businesses in every industry have specific challenges when they’re making a selection. Below you can explore each consideration in scenarios that apply to construction companies.

You can also read a more detailed analysis of the selection process in our article 5 Key Considerations for Enterprise System Selection.

Process Needs

For construction companies, certain business processes are especially important:

  • Estimate and bid management
  • Construction accounting, including job costing
  • Customer relationship management (CRM)
  • Human resources (HR)
  • Billing and payroll management month-end close
  • Budgetary and variance analysis

By taking a holistic view of your process needs, you’ll be able to better determine if you want to build a single, integrated system or a system with separate applications.

ERP Tiers

Determining an ERP tier for your company is an important, complex decision based off many different variables.

A brief outline is provided below:

  • Tier 1 systems are built to handle complex business processes for larger construction companies with revenues over $500 million.
  • Tier 2 systems focus on mid-size construction firms with revenue ranging from $20 million to $250 million.
  • Tier 3 systems often appeal to smaller construction companies because they’re inexpensive and can be implemented quickly.

Choosing an ERP tier is specific to every company. A lot of companies make costly mistakes by choosing the wrong tier and then spend even more money correcting this error.

There’s a wide range of variability, and some of these factors could include:

  • Complexity and number of bids
  • Number of transactions taking place in the system
  • Number of subcontractors involved in projects
  • Amount of people simultaneously logging on to the system

If you’re a high end commercial builders working on skyscrapers and strip malls—projects that involve a large numbers of subcontractors—it’s likely you’ll choose a Tier 1 system, but the choice isn’t always so clear.

For a company with 150 employees and revenue of $50 million a year, a Tier 2 system is the initial, obvious choice. However, your company might have a small number of high-value contracts and a low amount of transactions. If you’re primarily tracking payments from subcontractors, you may not need a Tier 2 system.

Likewise, a smaller company with 10 employees working on residential homes may choose a functional Tier 3 system as a cost-saving measure. However, if your projects tend to have lots of little transactions and a high number of subcontractors, it could make more sense to go with a higher tier initially. This could avoid the larger cost of changing tiers later on.

As you can see, choosing a tier can be a complex process, and it must be given careful consideration.

Deployment Method

There are three options for ERP deployment:

  • On premise
  • Hosted deployment
  • Cloud-based

Cloud deployment is proving to be a safer option for construction firms who want to invest in safe, lean IT infrastructure—especially smaller companies that don’t have a large IT budget.

Cloud deployment also allows for the use of technology accessories out in the field. Field technicians and project managers working on a jobsite can easily access the system from their mobile devices and tablets increasing efficiency and access to real time data.

Industry-specific Solutions

Once you’ve decided on a deployment method, you’ll also have to consider how configurable you want your system to be and whether or not you’d like to choose an industry-specific solution.

Horizontal Systems

Mid-tier horizontal systems have strong budgeting, project management, payroll and estimating features—capabilities that suit many industries.

Unfortunately, they don’t come pre-built with construction industry-specific project cost categories or change order management. They do, however, allow you to create:

  • Project templates
  • Project tracking
  • Progress billings based on user-defined criteria

Many of the horizontal systems also have mobile applications that can be accessed onsite.

Vertical Systems

Vertical ERP systems provide the following for residential and commercial builders:

  • Project bid management
  • Job costing
  • Field time entry
  • Payroll management
  • Job progress billing
  • Reporting

These systems could also come with property management modules for related real estate industry needs.

However, their integration capabilities are less sophisticated than horizontal systems. For example, vertical systems typically don’t have mobile applications because vertical systems are traditionally personal computer (PC) based.

System Selection Approach

Define the following processes in your scope:

  • Bidding
  • Procurement
  • Construction
  • Billing
  • Payroll
  • Month-end close

These business process requirements should be your ultimate selection decision criteria and specifically based on your company’s needs.

Make sure to clearly define your needs in your request for proposal (RFP), so the vendor you ultimately choose can set up the system to your specifications.

Here are some questions to consider as you’re going through the procurement process:

  • Do I want to allow users to put in their purchase requests or have a centralized procurement process?
  • Do I need purchase approval routing and, if so, how do I route for approval?
  • Does my system need to be able to talk to vendor systems?
  • What are my vendors’ requirements?
  • How do I want to track my subcontractor information including: contracts, invoices, payments, retention, and change orders?

We’re Here to Help

To read a more detailed analysis of the selection process, please see 5 Key Considerations for Enterprise System Selection.

For more information on how to choose an enterprise system that works well for your company’s specific needs, please contact your Moss Adams professional.