Points to Examine When Choosing the ERP System in Construction Project Management and The Ideal Structure

2^nd Project and Construction Management Congress, 13 – 16 September 2012

İzmir Institute of Technology, Urla-İzmir

Ahmet Avinal

Avinal Software Consulting Construction Co, Architect, Istanbul

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Abstract

ERP, in a broad sense, is a set of multi-module application software assisting an enterprise to manage and inspect all departments and activities in an integrated manner, while enabling data domination, share, and management.

Confusion in perception has been the case in the ERP concept as in many concepts. There are many products on the market bearing the name of ERP. This abundancy of ERP solutions has left the users confused. Therefore, they fail to acknowledge the fact that they need a specific ERP solution that fit their industrial processes, and are able to control the data within the industry-specific units or phases.

Functions of the construction sector are among the most extensive and complex functions of all sectors. For this reason, construction projects, in line with the philosophical core of project management, more than others, need to be completed on time, within the budget, and in a good quality.

Average level of education and culture of the employees is lower than other sectors. The construction sector, more than others, needs an integrated management that spends large budgets in short time periods.

Users utilize the ERP systems more efficiently only if they make the right choice. Making the right choice is enabled by properly investigate the considered product within the working principles of the relevant sector.

If we section out the project phases of a construction solution (Feasibility – Design – Creating the Proposal – Planning – Execution – Assessment and Evaluation – Project Closure) as creating a Company Database and memory, there are hundreds of questions to be asked according to the functions of each phase or the sector-specific structure of each module as presented in the functional diagram attached.

This paper intends to outline the solution for an ERP that is specific to construction sector, based on the functions required by these phases.

Keywords: Erp, Planning, Construction Project Management

Introduction

“Construction Project Management” or “Project Management” as put in a broader sense is a concept of which the content has remained nearly unchanged for thousands of years.

A project refers to the process of initiating, executing, checking and closing an original plan in line with objectives and goals fitted in a described content.

Projects are ad-hoc and they finish once they are completed. Construction projects are unique in a way that their project owners, execution teams, execution places, equipment used, construction period, persons in charge of management and inspection, and their budgets are different for each construction project.

Considering that the Management is conceptualized as a form of art and a field of science, stimulating a group of people towards a predefined goal, and ensuring division of labor and coordination among them can be considered as the art of management.

Scientific scope of the management on the other hand is referred to as completing the project within the most optimized budget in a most timely and quality manner while combining the most efficient use of time, money, labor, machinery and equipment, which is the ultimate goal of the project management.

The art section of management can be described as “Leading and Managing.” The art of management executing the duty of subcontracting the works (i.e. Leading and Managing) may require personal qualifications, skills, and experience.

The science of management demands detailed preparation works in order to set the goals correctly, planning, comparing the planning goals with the current situation, assessing and evaluating, drawing a projection based on this due diligence, and envisaging the future more accurately.

ERP is an essential tool of the Management practice which, in today's technology, has brought in practicality 'i.e. Do-How.' to “Construction Management” rather than knowledge and skills 'i.e. Know-How.”

A construction firm should be able to perform these phases, while utilizing the data required to be recorded within a common database.

This can be achieved by keeping and appraising all data including project, quantities, analysis, unit price, proposal, progress payment, cost accounting, fixtures, scoring, stock, checking account, procurement plan, payment plan, time schedule, budget, cash flow statements, and profit-loss accounts in a format that is consistent with the system and by conveying them to the necessary points in a format that is tailored for the presentation.

ERP software serves as tools which essentially enable data domination, sharing, and management. Construction sector data can be categorized as follows: documentary data and numeric data.

Documentary data refers to projects, technical specifications, contracts, and correspondance documents. Numeric data on the other hand is comprised of quantitave, monetary and temporal data. These include quantities, unit prices, analyses, activity content of the time schedule, actual percentage, measurement-evaluation data, scoring data, accounting data, procurement data, and warehouse data.

Although the data that should be kept within the ERP organization is generally the same, it is unique to each construction project. Each project should be titled separately and evaluated accordingly. Following sections refer to the phases of construction projects and operations within these phases.

A – Project Phase:

Project phase delivers project design by Architectural, Static, Mechanical, and Electric designers as well as groups of experts which serve as their sub-disciplines. There are thousands of projects and technical documents obtained in this phase. These are called the documentary data and sharing them among designers, investors, and executors should be made possible.

Nowadays, the act of sharing such data and transferring files is performed via “e-mail” attachments or “ftp” files.

This method creates abundance of unnecessary files inside our computers and causes unparseable duplicates and chaos in data.

Document management within the ERP content should allow every participant to access classified, accurate and final data that are not duplicates.

B – Preparation Phase:

There are 2 main actors in construction projects. These are the consultant group which performs inspection and implementation on behalf of the investor, and the contractor which executes the project.

Preparation works are called “estimation” if they are performed on behalf of the investor whereas they are called “proposal” if they are carried out by the contractor's technical staff. During these works, the departments in charge change while the scope remains the same.

In preparation phase, assessment of numeric data is crucial. The scope of the tender subject to assessment should be able to be transferred to the system called the “Company memory”, while using the past or current data logs of analyses and unit prices for pre-assessment.

Pre-assessment must follow detailed works in the “work-specific” files. Quantities must be examined in greater detail. Work-specific analyses, unit price descriptions, technical contents, unit prices, overhead expenses analyses, and pre-work schedules must be prepared. Pre-budget and cash flow statements should be able to be easily determined depending on the scenarios examined in this phase.

Essential ERP modules or data logs of this phase are as follow:

Unit Price Module;

“Unit Price” module, consisting manufacturing unit prices, and current prices of materials and workmanship, and “Analysis” Module are two of the essential modules of the preparation phase, which can be qualified as “Company Memory.”

Unit price logs for all the works that the company has prepared so far must be readily available.

This module should be able to describe and select the price lists for materials manufactured by an unlimited number of companies under the relevant item with the brand information and specific codes, and using them in the current proposals.

“Unit Price Log” for each company should be able to be created, recorded, and reported in at least two languages.

Unit Price Description, technical definitions and notes for each item should be able to be assigned and reported in different formats.

In order to keep extensive record of information about the items, picture files for each item or file connections in every format should be able to be created and viewed.

Multiple “Currencies” and cross exchange rates should be able to be entered so that calculation for any given currency is possible.

The capability of ensuring the categorization and reporting of all essential used source items by type (Material, Local, Imported, Workmanship, Machinery Equipment, Subcontractor...) should be provided.

The module should be capable of classify all items found under each unit price log under any coding system according to CSI (Construction Spefication Institude) master format coding system, Public Works coding system or any other coding system.

In accounting, material transactions are related to a number of account codes. These codes should be able to be described while ensuring automation in creating tickets for warehouse or accounting.

The latest entry price and average price of any given material based on the accounting and warehouse records should be automatically found in the relevant column of the work-specific unit price log.

3D project software also contains manufacturing item catalogues for bills of quantities. It should be able to send item descriptions for the relevant work to the software and to import item logs from the software.

It should be capable of recording man/hour and machine/hour information on every item. Data obtained in any given format (Excel, txt, asci ) should be able to be imported to the unit price logs.

During tender preparations, submitted offers should be able to be assessed based on different currencies in order to compare contractor assessments.

Analysis Module:

It should have the capacity to contain analyses of all Public sector organizations in your country as well as recent manufacturing analyses of your company. Analysis files that are specific to your company or work should be able to be created.

It should be capable of creating unit price descriptions, technical explanations and relevant file links for all manufacturing analyses.

It should be able to give the desired group codes to rates or unit prices used for the analyses, while distinguishing group sub-totals within any given analysis.

It should be able to import workmanship and material manufacturing items from files other than the active unit price file.

Profit rate of all analyses should be allowed to be determined and changed throughout the file or individually for each analysis.

Manufacturing analysis unit prices should be able to be automatically changed when the active unit price-rate file linked to the analysis file is modified.

It should be able to perform analysis transfer between the files.

In Activity Analysis, manufacturing amounts should be able to be integrated with the quantities database.

Shipping, depreciation and overhead expenses, as well as profit rates should be able to be entered individually for each analysis.

Changes made in the active unit price log linked to the analysis log or in the auxiliary analysis should automatically modify all other related manufacturing analyses.

Linking the detailed drawings or pictures to the manufacturing analyses and viewing them in analysis reports should be made possible.

Quantities Module:

Quantities database can be considered as the most required module for proper operation of the “Construction Project Management ERP” system. Which manufacturing? Where? What is the total amount? These are the most significant questions of the system that need answering. Measurement and evaluation in each module need to answer these questions. On a structural basis, the quantities module need to support other databases, export this data to other modules in desired formats, and share the database.

We should be able to keep the records of all manufacturing quantities, as well as the quantities of profiles and iron within the quantites database.

We should be able to further enter all manufacturing details, quantities and site information in a chart form in the quantities database.

We should be able to create site quantities using these site charts, because site quantities are equal to site estimation.

In these site charts, estimation-proposal action for any given job should be able to be as easy as a “single click.” Site information (construction diary) that should be available in the relevant estimation file, information about to which manufacturing item it belongs, and quantities information on the manufacturing address should be able to be described in the quantities module.

If three out of four data (location-item-amount) generating an estimation exist in this quantities database, does one need another structure to create the estimation-proposal?

ERP should be capable of being integrated with the quantities module, exporting thousands of quantities related to manufacturing described in these projects, together with their linked site charts, to the quantities module as easy as a “single click,” and sending unit price logs of any given project to these programs.

C- Planning phase:

Planning phase is referred to as the start of the execution phase. This phase consists of creating execution scenarios. It requires more particularly a detailed work schedule prepared by the contractor for the purpose of time management. Avinal, A. (2010)

Temporal data obtained as a result of time planning enable chronographic assessment of other data obtained during other phases of the project.

Functions and configurations expected of CPM software need to be distinguished as after and before ERP systems. Pre-2000s marked a period where CPM scheduling applications did not contain the right content due to the number of data to be entered and the difficulties in updating the data in each modification, therefore they were mostly insufficient.

A schedule created by using the CPM technique is merely a temporal tool of planning and management, helping the right execution of the work by reporting priority and schedule of the activities and manufacturing to the relevant departments.

However, if an ERP system is included in the “construction project management”, it should be integrated with the schedule.

Here is why;

Kicking off with the question “What are the manufacturing processes that need to be included in the schedule?”, we discover;

Estimation is the most detailed chart depicting the required manufacturing processes in a construction project.

Estimation is a digitized and verbalized expression of the projects. An estimation file created with required details, should consist item numbers of all manufacturing processes needed for the project, manufacturing descriptions for all items, quantitative values, information on the manufacting location, and manufacturing prices for all items.

Work schedules in construction projects are the tools which calculate the temporal scale of the activities of any given project estimation consisting of manufacturing data, using the CPM or PERT algorithms.

This discovery leads us to the fact that estimation data and work schedule data in construction projects should have a direct correlation.

Changes occurring during estimation phase should be able to be simultaneously reflected on the work schedule. This means that we should be able to track all changes made in quantities, unit price, manufacturing analysis, people in charge of manufacturing or technical processes in the work schedule data.

Work schedule is an expression of estimation in a different format, which determines temporal scale of manufacturing or requirements of estimation manufacturing processes and resources of these manufacturing processes.

Therefore, Proposal/Estimation which is an integrated expression of the preparation phase, should be converted to a CPM software algorithm in an ERP system medium. Completing this step typically means achieving the impossible (Avinal, A. 2009).

Work schedule is the most important tool which is supplied with the data compiled in the preparation phase, and reveals the temporal scale of the data found in the modules in execution and measurement&evaluation phases of the ERP, by means of the temporal data calcultated as a result of its configuration.

D- Execution Phase:

Procurement, budget, team optimization, and work order for manufacturing execution discipline stand out as the functional modules and operations required in the execution phase. Data obtained in the preparation and planning phases serve as an essential set of data in the execution phase.

Quantitative and monetary values of manufacturing processes and activities in a construction project are retrieved from the preparation phase modules, whereas the temporal data is obtained by the work schedule calculations.

Temporal scale of the activities and manufacturing processes described in the work schedule typically refers to the “temporal” data required in other modules of an ERP system. One cannot refer to a proper project management without knowing the quantitative, monetary and temporal scales of manufacturing processes and activities in a construction process.

Without presenting temporal, quantitative and monetary scales, it is NOT possible to;

Identify a list of material requirements in procurement operations,
Create material procurement plans,
Determine suitable payment plans,
Establish a cash flow balance,
View and examine monetary and temporal expansion of the budget
Perform team optimizations,
Deliver execution of the project with the right organization using daily work orders.

ERP modules or data logs of this phase are as follow:

Work Orders;

The first essential function of the work schedules is to ensure creating work orders, and providing discipline in the manufacturing follow-up. Work schedule is the most fundamental tool which enables follow-up of all the manufacturing processes for a construction site or a project within the determined temporal planning scale while ensuring temporal measurement and evaluation. This should be the first measurement criterion of the actual functionality of the work schedule (2009-1).

In order to receive work orders, the people in charge of manufacturing processes, which are the activity sources, should be determined and matched. Estimation/proposal module fits this task perfectly. ERP content should allow receiving work orders on daily or weekly basis for the manufacting processes of which the temporal scale is defined in the work schedule, the quantitative scale and people in charge are determined in the estimation phase.

I would like to further underline that;

Executing the project by following the daily work orders is one of the most essential requirements of the science of construction project management.

Procurement Module;

Operations inside this module should go through the following phases.

Creating demand for the method of daily procurement or receiving bids, approval process, selection of companies for bidding, collecting and assessing bids, placing orders, receiving goods via daily procurement or orders, creating records of warehouse and accounting following receiving goods.

When creating demands, we should be able to select by accessing unit price logs or warehouse records.

Quantity of the related material at the warehouse, its average price, and latest entry price as well as its monthly requirement based on the work schedule should be able to be monitored.

When receiving bids, we shoud be capable of record all correspondences and documents exchanged with companies in relation with their proposals in digital format and accessed as easy as a “single click.”

All comparisons based on proposal or item should be able to be monitored when needed.

Demand creator should be able to see the current phase of each material in his/her demand.

We should be able to automatically create records of accounting or warehouse when receiving data from other modules.

Planned Budget-Cash Flow Module:

The budget designated in this phase serves as a preliminary assessment of income and expense forecasts within the budget module and Proposal-Estimation data of which the quantitative and monetary values have been identified during the preparation phase, with the temporal scale according to the work schedule. Actual budget measurement and evaluation can be carried out during the “Execution” phase.

Modules operating in this phase need to be interactive and integrated with quantitative, monetary, and temporal data obtained in other phases.

ERP system in the construction project management should ensure integration with the operations in this phase as well.

E-Execution and Measurement&Evaluation Phase;

Execution phase typically consists of the following modules; Cost accounting and Stock, Fixtures, Scoring modules integrated with the cost accounting, and Budget and Manufacturing Designation module.

Cost Accounting Modules:

I believe that companies should keep the cost accounting separated from their formal accounting when it comes to the ERP system in the construction project management.

Here is why;

Corporate construction companies usually operate on a global scale. They work with different currencies and accounting systems in different countries. Each country has a different system of accounting and fiscal liabilities.

Each project conducted by a company of such scale resembles a manufacturing plant requiring work-specific follow-up. Each project has independent management responsibilities, manufacturing responsibilities, teams, income & expense statement, and profit & loss statement. Projects undertaken on a larger scale need independent accounting tracking. Formal accounting books of a company which is incumbent upon fiscal liabilities in different countries cannot be kept in the same platform. It is sufficient to transfer summarized data from these accounting systems to the central accounting system.

In addition, Cost Accounting data recording details in construction projects should be more comprehensive than regular accounting records. Each expense item should be examined and recorded indicating the details of building, activity or manufacturing process that the expense item belongs to.

In case of projects conducted in different countries and currencies, budget and income&expense statements are the most important data that needs to be compiled using a common currency. This problem can be easily solved by consolidating these statements in a common currency.

Actual Budget - Cash Flow Module:

Budget perception in construction projects fall outside the usual accounting standards.

Each manufacturing process and all resources necessary for these processes should be indicated in individual rows in the budget module for each project.

In other words, the proposal/estimation, completed with a time schedule, should be included in the budget module in a different format. Users should be able to monitor and create reports in relation to quantitative, monetary and temporal values, as well as the comparisons of all manufacturing processes and materials.

In case of a manufacturing item, we should be able to view the monthly quantitative and monetary values in comparison with the actual values based on the work schedule.

In case of resources, we should be capable of comparing the necessary quantity based on the manufacturing analysis with the warehouse transactions and usage status.

In case of an overhead expense estimation, we should be able to view and report, item by item, the actual accounting status of this estimation as well as the expenses which are the reason of this actual amount.

Manufacturing Designation – Measurement and Evaluation module:

Measurement and evaluation concept should be considered in two different ways in construction projects.

The first one is the measurement and evaluation carried out during the first three phases of the construction project management, namely conception, preparation and planning. This ensures preparation of the “Master Plan” in the most accurate manner, which serves as the main setup for the project.

The second measurement and evaluation serves as a tool to point out the differences between the estimation and the actual outcome in the course of the project, and to determine the corrections to be made. Data evaluation in the 'Manufacturing Designation' module where daily designation and follow-up data is collected can only provide partial correction.

This module should be able to present estimation values vs actual values of each activities and manufacturing processes as well as their actual percentage.

We should be able to compare the temporal data of all activities and manufacturing processes calculated in the work schedule with the actual temporal data.

Subcontracted manufacturing processes should be able to be transformed into subcontractor progress payment and recorded in accounting books in a 'single click.'

We should be capable of preparing reports on the man-hour data indicated in subcontractors' manufacturing processes.

We should be able to create peports of expenses and manufactured items, indicating the desired detail and extent.

The most important aspect is to be able to ensure updating the work schedule automatically, without having to open it, by means of calculating AS (actual start date), AF (actual finish date), actual percentage of all activities and manufacturing processes.

Conclusion

Contractors and consultants are the two essential actors in the construction sector. If we were to make the analogy between undergraduate, graduate and postgraduate levels and corporate culture, skills, and education levels of these two groups;

Measurement and evaluation of their corporate and undergraduate level accomplishments should be first performed in the preparation phase. Their tools and methods used in the preparation phase are, as I see it, their undergraduate level accomplishments.

Their skills and corporate culture levels during the planning phase indicate their graduate level accomplishments. Parties which have no sense of planning and fail to perform the basic planning operations cannot build the construction project management ERP system, or run the system accurately. Avinal, A. (2009-2)

ERP in the construction sector should not be considered merely as a set of software enabling automation of operations. Embodying the entire process of the sector, it also serves as a training tool of the construction project management, and thus the postgraduate work of the contractor or consultant firms.