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