White Paper End of Month Reporting In The Construction Industry Financial forecasting and management of a project. The need to constantly monitor the financial performance of a project means end of month reporting is a key process for construction businesses. Companies need to work out, on a monthly basis, whether the project is actually making money and what kind of return it is generating. While the use of manual spread sheets to carry out this reporting has for years, been a mainstay of the industry, it potentially comes with two very major flaws - flaws that can wreak havoc on the operational efficiency and financial viability of any construction business. Firstly, using spread sheets for end of month reporting is prone to error and inaccuracies. If you are manually collating information from the numerous stakeholders involved - from the accounting system to the project system(s)- onto Excel, and attempting to calculate the resulting finances yourself, how can you be sure the figures are consistent? Abstract Construction companies need to keep accurate tabs on the project's earned revenue and costs at all times. Without a capable system in place, there is often no way to tell until the end of the project the true costs. This is especially crucial given that the notion of the 'financial' completion of a project can be vastly disparate from the actual completion of the physical building or structure itself. There is often a number of ongoing transactions that can take place well after the project ends, which means a real-time method of gauging the project's financial performance at any given time is required. This is where contract valuation systems come in, offering companies consistent and reliable reporting to help stay on track financially through the entire course of a project. Secondly, what you claim may not be a true reflection of what the project has earned. This is because your objective will be to maximise your claim at every opportunity. In its simplest form, profits are defined as revenue minus costs, but you need to keep track of the revenue you are entitled to. This leads companies to the all important question: "What have we really earned at the end of the month and what is the real profit position?" To answer that question, companies need to have some method of effectively measuring the value of the projects’ work in progress (WIP) and be able to tell at any given point in time just how it is financially performing. It's not just the snapshot in time these businesses need either do they have a way of forecasting what the situation will be like next month, in two months' time, until the end of the project? With these complexities involved, using a spreadsheet for the purposes of end of month reporting is simply not a viable option. Jobpac International Systems Pty Ltd, L1/201 Miller St, North Sydney, NSW 2060. Ph: +61 2 9492 4100. www.jobpac .com.au The pitfalls of using spread sheets for end of month reporting. In light of the discussion so far, we can boil down the challenges of manual reporting methods into three main areas: 1. Lack of timeliness It can take several weeks after the end of the month for project leaders to see any meaningful results and analysis. This is because pulling data from across the organisation, manually loading it onto a spreadsheet and then working out how projects are performing is labour intensive and very time consuming. By then, it is too late to take appropriate remedial actions to fix any issues and positively impact the project's performance. Furthermore, project leads are never utilising the latest and most timely accurate data needed to perform financial health checks on the project on an ongoing basis. Customer quote “We know where a project is at any point in time during the month. With Jobpac Contract Valuation, we have the ability to do a hard close-off at the end of the month which gives us the exact financial project position at that time. This adds real value to our business. Compared to working with historical data from your P&L or balance sheet, we have ‘point in time’ data. We know what the impact of what we do today, will be on tomorrow or next week.” Managers therefore, are waiting until the end of the project to realise the full costs involved - a practice that simply is not forgiven in this fast-moving industry. 2. Robert Barron CFO, Wiley & Co. Pty. Ltd. Inconsistency The use of spread sheets for end of month reporting is also fraught with a range of inconsistencies. Manually it’s almost impossible to consistently assess a project, and, to ensure it is on track to achieve the desired outcomes. Individuals across the organisation are bound to assess figures using disparate data sources and using different methodologies. For example, a common source of disagreement during the course of a construction project is conflicting viewpoints between the finance manager and the project manager. Both individuals are likely to have different assessments on how the project is progressing. One main reason being that the project manager is usually unable to tie his or her results with information from the accounting system. This disjointed method means it is incredibly difficult to reconcile assessments across the board and glean meaningful insights into the status of the project. As a result, it can be difficult for senior managers to buy into results if they have no confidence in the integrity of the data. On top of this, the inconsistency means consolidating the results in a practical manner is a huge challenge. 3. Inaccuracy Using a spread sheet for reporting has inherent risks. When it comes to entering and updating financial data, there is no way to validate the data entered, which undermines its integrity. Further, companies who record profit based simply on claims less costs, means they won't have an accurate picture of where the project stands until its financial completion, and when all transactions have been entered. These companies need a better way of ascertaining the real profit being made during each phase of the project. Key Measures What is the profit contribution of each project? What is the real liability of each project? Potential Consequences What is the company’s short & long term cash flow requirement? Using a manual reporting approach likely means directors and senior managers don’t know until weeks after the end of the month what the key measures are. This results in delayed and disjointed decision making and may have severe financial and operational implications. What is the revenue, cost, cash & profit projection of each project? Jobpac International Systems Pty Ltd, L1/201 Miller St, North Sydney, NSW 2060. Ph: +61 2 9492 4100. www.jobpac .com.au Integrating the construction enterprise. Case Study The high risk nature of today's construction industry, means companies simply cannot afford to operate without an integrated end of month reporting approach. Further a systematic approach to contract valuation gives companies the ability to manage that fine balancing act between obtaining snapshots of a project’s performance at any given time, while also ensuring it doesn’t hold back ongoing progress. Total Construction has built a reputation as an industry leader in health, aged care, food & beverage, airports, education and industrial and commercial design and construct projects. By cutting out inaccuracies, inconsistencies and inefficiencies related to the use of traditional spread sheets for end of month reporting, using systematic contract valuations ensure the company is dealing with timely, accurate and real-time information. The end result? Consistent and consolidated information across the business enabling ongoing financial assessments and better decision-making. More timely data A contract valuation system completely eliminates the need for spread sheet reporting. This means information is available whenever you need it. With the spreadsheet method, its normal to wait for several weeks after the end of the month to garner the necessary data. On the other hand, an integrated system automates the process and completes the reporting for you in no more than 8 to 10 days. This means you'll receive the results in time to conduct analysis, make decisions and implement any necessary changes. Fluid, accurate and real-time information Although it is true that business never stops and the requirements of a project are constantly changing, it's essential that your company can view an accurate time-slice of the project's progress when required. Integrated contract valuation allows you to do just that, as it captures all the data in static form so you can assess a snapshot of the project's financial performance at any given point in time. This is especially crucial at the end of the month when you are required to analyse that static data without it continuously changing. Established in 1995, the company operates in the eastern states of Australia, employing +120 staff and turning over +$100 million. Total Construction implemented Jobpac in 2002. “With Jobpac, we turn the group’s results around one day after the end of the month. This is because Jobpac has given us a consistent and structured approach to monthly project forecasting and contract valuations. It’s incredibly powerful to have confidence in the numbers and know where the business is at, so quickly after the end of the month. Essentially, this software gives you the ability to draw 'a line in the sand' and review static data for the most real-time, accurate results. It lets you freeze key financial information while still supporting the ongoing operations necessary to progress the project. With this capability, you can accrue costs and take any other remedial actions that may be necessary. Better Consistency An integrated contract valuation system means the same methodology is used across the company to measure financial performance. The company becomes more efficient in managing the entire project and assessing whether it is delivering on its objectives and targets. This means decision makers use more timely information to take the necessary courses of action before it is too late. Jobpac International Systems Pty Ltd, L1/201 Miller St, North Sydney, NSW 2060. Ph: +61 2 9492 4100. www.jobpac .com.au Jeff Jones, CEO Total Construction. Decision-making harmony Perhaps the greatest benefit of an integrated contract valuation system is that it enhances the decision-making capabilities of your organisation. As data is more consistent and accurate, decision makers can review the information with a greater sense of confidence. They are therefore able to make more informed decisions and the potential for conflicts in view is greatly reduced. Basically, a contract valuation framework informs the reviewer on three key things: Contract Valuation Review Information 1 What has been achieved at a particular point in time 2 What is planning to be achieved until the completion of the project 3 What has been claimed on the client and the value of the work so far By answering these key questions in a timely manner only a matter of days after the end of the month, contract valuation allows any construction company to make the best decisions for both the short and long term and keep a handle on their financial position. Jobpac End of Month Reporting and Financial Forecasting Jobpac provides sophisticated solutions for financial forecasting and management of a project by providing a performance and commercial measurement framework at end of month. It gives early warning of potential over or understated forecast final margin positions using contract valuation methodology to validate that the reported project position makes sense and is on track to achieve the predicted forecast outcomes. With Jobpac you can take your project margin and cash flow forecasting to new levels of accuracy and efficiency. Jobpac - the most widely used construction management software Jobpac is the most widely used construction management software solution built for the Australian market. It is designed to give construction companies a project and business-wide integrated approach to managing projects, finances and complex business processes. In 2013, Jobpac was used to help manage and control more than $86 billion of works. Jobpac International Systems Jobpac International Systems develops, services and supports enterprise software for the construction industry to help run finances, operations and projects more profitably. Jobpac Connect is a complete web-enabled integrated construction management solution that provides commercial, financial and management control . Better visibility. Better control. Better bottom line. www.jobpac.com.au +61 2 9492 4100 Jobpac International Systems Pty Ltd, L1/201 Miller St, North Sydney, NSW 2060. Ph: +61 2 9492 4100. www.jobpac .com.au
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