Top 5 Reasons Why an ERP Won’t Work as a Cost Management Solution

It’s not uncommon for organizations to consider the idea of using their ERP as a one-stop-solution for all their technology needs – even when it comes to managing the many-layered complexities of cost management on major projects. It’s an appealing idea: everything in one place, under the tight control and scrutiny of the finance department. The challenge with this of course, is that the target users of an ERP are in the finance department, not those who are managing the day-to-day operations of a large construction project.

Construction projects have many moving parts and a colossal amount of data to carefully manage in order to keep the project running to plan. Not only that, but there are numerous different types of users that need to work collaboratively in real-time. Such as: Project managers, project controls, engineers, field staff at the jobsite, subcontractors, project owners and others, that all need to work together, sharing data and workflows, to seamlessly bring a project to a successful conclusion.

While a number of the major ERPs have optional module add-ons, such as for project management, job costing, and cost tracking; these tools are generic in nature, and are not designed for the intense operational activity that requires a much more robust solution to meet the demands of construction projects.

A good friend of mine that works in project controls went through this at her company when they were told they were to use the Job Management module in their ERP for project controls. She put it this way, “We needed a bulldozer, but they sent us a Toyota Corolla. In their minds, they’re both ‘vehicles’, so what’s the difference? Clearly, you need the solution that is fit-for-purpose for the job.” They ended up not using it for much, so had to build their own spreadsheets to do their work.

To examine this all a bit further, here are 5 critically important reasons why ERPs just won’t work as an operational-level project cost management solution.

1. An ERP Is a System of Record

All software solutions, by design, are highly specialized. They need to be. It’s the same as anything in life: you can’t be good at everything. ERPs are not designed as operational tools – instead, they perform the critical function as a corporate System of Record. Its use is not primarily aimed at the team of experts that are managing the day-to-day oversight and cost management of construction projects. Construction teams need the right tools to do their job. Don’t bash a square peg through a round hole; it’s vital to accept that not one tool can do it all.

2. The Devil is in the Details

One of the biggest frustrations we hear, is that ERPs lack the ability to plan, track and report at a detailed level. ERPs have limited flexibility around key project functions, such as: designing a project hierarchy, coding and detail reporting that is needed for major projects.

3. Sorely Lacking in Project Controls

ERPs don’t provide key project controls features and workflows that are instrumental for construction project cost management. For example: time-phased budgeting, detailed forecasting, EVM reporting, timeline curves like S-Curve and Cash-Flow Curves, Planned Value, SPI, scheduling, etc. They also don’t do justice to the requirements around change orders and estimating. They’re also very limited in the flexibility required around cost code management.

4. Insufficient Field Tracking and Reporting

While some ERPs come equipped with a time tracking module, these modules are simply not designed for capturing daily costs, hours, equipment, materials, documents, etc. from the Jobsite. Equally dire, is that the user interfaces are definitely not built with the typical site foreman or other field personnel in mind. Construction cost tracking solutions are specifically tailored for efficient field data capture, and designed for easy data entry by typical construction field personnel.

5. Cost Reporting is not Enough

When it comes to the suite of tools available for project cost management, about the best an ERP can provide – even with the all the extensions – is basic Project Cost Reporting. Which is ok for small projects with few moving parts. For construction projects, what is required, is robust Project Cost Management. There is a significant difference between cost reporting and cost management. It boils down to whether you’re simply reporting on what happened in the past (with limited detail), versus actively and proactively managing the present (in real-time); along with the ability to forecast into the future; in addition to learning from the past. And on top of that, the ability to have those features and data easily accessible in many varieties of reports, charts and dashboards.

A High Cost for Limited Return

A Corporate decision promoting the ERP as the operational tool of choice is always influenced by the finance department. As well-intended as this may be, the finance team is not viewing the solution from the lens of the operational groups that are actually managing the projects on a day-to-day basis. Unfortunately, they’re buying into the story being sold to them by the SAP sales rep, without fully soliciting the input of the operational team and their requirements. This kind of thinking comes at a high cost. Not only are they shortchanging the operations teams on having a solution that would actually meet their needs; but they’re going down a path where they’ll be overpaying by enormous amounts to get a solution that’s nowhere near fit-for-purpose. It’s key to remember, that a proper cost management solution is far less expensive – in terms of both implementation, training and licenses – than what it costs to bolt-on ERP extensions. And all for very little return.