The nuts and bolts of 
construction software selection

How programs handle accounting functions can greatly affect your bottom line.

There are major differences in construction project management systems, and selecting a system that doesn’t closely match how you do business can greatly affect it.

When choosing a project management system, focus on features that closely match your business priorities. It is the only way you can be sure you will get what you need from a given vendor, says Sheldon Needle, president of CTS Inc. He is a construction software consultant with a wide array of resources to help contractors select a project management system. At www.ctsguides.com/construction.asp, Needle offers a free downloadable software selection kit that can help you in the selection process.

Know your business
The first step is knowing what you need to run the company. Pay attention to the following details so your business methods do not conflict with the software. This sounds simple, but gets more complicated as the selection process proceeds.

• Accounts receivable What kind of billing do you do? Do you issue time and materials or cost-plus invoices? How does the system integrate job cost with billing and how much flexibility does it allow to modify invoices? Do you issue draws in Association of International Accountants (AIA) format? Do you need to have invoices issued from work orders?

• General ledger/financial reporting Understand how software completes budget tracking for multiple budgets and revisions, and how it handles intercompany accounting with multiple entities based on a single journal entry. It differs greatly among software packages.

Review report format abilities. Does the program handle basic column formats or will it also let you format rows with calculations? This is important because most contractors require custom reports.

How easy is it to handle consolidations? Do you need to roll all entities together with automatic eliminations, or is it a matter of combining specific companies?

Cash management can range from simple cash flow projections to full blown cash management capabilities with complete bank reconciliation, cash flow reports and float information on bank accounts. Some systems include cash flow projections based on outstanding accounts payable, accounts receivable, and purchase orders.

Some systems have separate cash management options while others roll this function into general ledger or accounts payable modules. If you work internationally, look for systems that handle foreign currency.

• Payroll Union payroll can be a big item for contractors. Make sure the software can compute union benefits and deduction calculations. Most systems are flexible. The software should handle it the way the union does, such as deduction percentages taken before or after taxes.

Union report systems vary. Some are very flexible and can report to a specified union format, while others can be more challenging. If the vendor cannot provide the format you need out of the box, it may take extra work to create union reports.

• Collecting data Do you work on multiple sites? Collecting payroll data from remote locations varies greatly among construction accounting software packages. Identify how payroll data is collected on the jobsite. Do you use time cards? Is information input directly by workers into a computer or by other means?

Getting payroll and other data from the field and into the accounting program may be accomplished by batch file transfers or by remote entry into the system from the field. Consider the need for real-time information and the amount of effort needed to make the transfer. Some packages offer a Web interface for remote data entry/reporting.

You’ll want a system that makes all necessary intercompany entries for you. Most systems can handle basic payroll tax reports.

• Accounts payable Early warning or alert capabilities of software is an important accounts payable issue.

For example, you may want the system to warn about subcontractor insurance expiration dates or when an expense transaction puts the project over budget. Different systems provide different levels of warnings during invoice entry.

The systems can offer choices on how vendor invoices are selected for payment. Some systems offer a “pay when paid” capability.

• Integration between accounts payable and purchase orders What are your needs for updating purchase orders and creating accounts payable (AP) vouchers? Systems handle receipts against purchase orders (POs) and voucher creation differently. Some automatically create a voucher based on a PO receipt and let you set tolerance levels for acceptance.

Commitment accounting is important for many users who want to track POs against budgets and receive a warning when an AP entry causes them to exceed budget.

Systems handle unapproved invoices differently. Some allow you to set a flag to indicate they have not yet been approved and will not post to job cost or general ledger until they are approved. Some systems offer “compliance groups,”or user-defined parameters such as receipt tolerances, cut-off amounts for subcontract, or other limits set up for subcontracts and POs. The system checks to see if entered invoices meet group compliance. If compliance is exceeded, the system issues an alert.

• Job cost The main issue for job cost is integration. Investigate integration between job cost and other modules such as scheduling, project management and estimating.

How easy is it to move data between these applications and to make changes? This is particularly important for larger contractors.

Project management and document control is becoming more important as contractors move to a paperless office. Does the package support this? Some offer Web-based project tracking and updating.

• Input and uses of percent complete reports Percent complete reports can vary in their detail and can be tailored to your company’s needs. Major differences exist between systems on job cost reporting. Review the system’s standard job cost reports to understand the data source for the reports. Find out how easy it is to develop new reports or modify existing ones.

• Equipment tracking Do you track equipment costs and preventive maintenance? Do you want a visual maintenance tracking system? Do you charge equipment use to jobs?

Some systems will track tool usage through their equipment modules. How does the system handle depreciation costing? Do you need to integrate between PO and equipment for purchases of parts for maintenance? These must be considered across the various systems.

• Inventory management Systems vary in inventory costing capabilities. Some provide a variety of pricing mechanisms such as last-in, first out (LIFO) and first-in, first-out (FIFO), while others are much more limited.

Can you update inventory with an outside pricing service? Understand the integration capabilities of the inventory, purchasing and estimating databases.

• Purchase orders Some systems can create POs based on estimates. Another consideration is how the system handles PO back orders.

Published in the July/August 2005 issue of Contractor Tools and Supplies magazine.

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