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BI in construction
Industry
A business case
Manjunath B Patil
BDM, NRIT
July12
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Making informed decisions and making it quicker is very critical for any organizations
success. Right decisions result from analyzing accurate and timely information. Having said
that, it is humanely not possible to analyze dozens of report and thousands of records
generated daily from multitude of sources internal and external to your company. What if,
we could have analysis and not just data in consolidated, concise and palatable way; theanswer is Business Intelligence or simply called BI.
BI is a broad category of applications and technologies which simplify information discovery
and analysis, making it possible for decision-makers at all levels of an organization to more
easily access, understand, analyze, collaborate, and act on
information, anytime and anywhere.BI technologies
provide historical, current and predictive views of
business operations.
There are numerous challenges facing todays
construction manager. You have to manage facilities,
equipment, resources, large projects with numerous
milestones, budgets and finances, schedules and
operations. Your enterprise needs to meet specific service
requirements and comply with strict regulations and
reporting requirements and burdensome bidding
processes. Externalities include business landscape, legal
issues, government regulations, environmental concerns,socio-economic and political pressures. In addition
enterprises must also understand and manage new
growth.
To compete in this environment, the businesses must
establish and leverage a powerful combination of technology, business intelligence and
results management and deliver quality and value for every project, every objective and
every planning activity.
Construction companies have started using KPIs that indicate the overall health of an
enterprise. KPIs are meaningful yardsticks that businesses can see and use to effectively
communicate the day-to-day operations of the business, supported by the best practices of
general construction. Best-of-class enterprises have fine-tuned their organizations by
aligning people, processes, and technology to produce results that are better than the
industry average.
BI simplifies
information
discovery andanalysis, making it
possible for
decision-makers at
all levels of an
organization to more
easily access,
understand, analyze,
collaborate, and acton information,
anytime and
an where.
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What BI can do for you?
- Analyzing your business in parts/functions/departments is pass. SingleIntegratedview of your organization at any point in time possible.
- Not just Reports but analysis and interactive dashboards.- No more dependency on IT department. Complex reports and analysis possible inminutes
- Fact based decision making instead of gut feeling- Create scenarios or What if analysis and choose the best path when making
decisions
- Statistical modeling and Predictive analysis helps in risk assessment so you canleverage future opportunities
- You can be rest assured of Governance and risk compliance requirements being takencare
- Efficient Project execution requires coordinated effort of all the stakeholders from topmanagement down to field superintendents. Accessibility of Reports, analysis, alerts
via e-mail, portals, and mobile devices puts onus on people to make timely and
informed decisions and course corrections.
- Tight integration with Office applications for easy adoption and usage- Planning, budgeting and forecast functionality helps you to be in control from project
inception through to completion
Key Performance Indicators (KPIs) No single KPI can provide a complete picture. ViewingKPIs in conjunction with one another gives total picture. The following are the KPIs used
by best-of-class enterprises:
1. Liquidity indicator2. Schedule variance indicator3. Work-in-process (WIP) reporting
a. Margin variance indicatorb. Project cash flow indicatorc. Unapproved change-order indicatord. Committed cost indicator
4. Backlog indicator5. Scorecard indicator
Liquidity indicator
Cash is the single most important asset that keeps a construction business operational.
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The complexity of contracting makes forecasting cash flow difficult at best. Late payments,
schedule delays, invoice processing, change-order approval, vendor/subcontractors
payments, labor costs, and numerous other factors affect the timing and ultimate receipt
and disbursement of cash.
A manager should evaluate which projects are providing liquidity and which are using
liquidity. The average accounts receivable and accounts payable days outstanding can be
compared to industry averages for benchmarking.
Schedule Variance Indicator
Companys ability to meet and deliver projects quickly has a major competitive advantage
and as such scheduling today is of crucial importance.
Realistic Project schedule with contingency plan (change orders for example) can be used
to drive the project. Quality, safety, communication, planning, coordination, and resource
utilization are all enhanced through the scheduling process, which includes updates to it
and integration of input from all project participants. Scheduling and its value in
communication to stakeholders seeking satisfaction with the projects execution is
invaluable. Project schedules represent a detailed plan of individual activities, sequencing,
duration, and interdependence.
Schedules in relation with costs, resources, and labor hours help identify cash flow and
overall resource requirements. Schedule performance can be evaluated by simply looking
at the variance in terms of days. Evaluate variance as a function of the remaining duration
on the project. A negative variance of five percent of the total remaining duration is clearly
easier to make up than a 30 percent variance.
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Managing change orders Most change orders have schedule implications. Companies
who correctly maintain an updated schedule that reflects changing conditions increase
their ability to manage the construction process and scheduled completion dates. Using
the schedule plan to proactively manage change orders increases the companys ability to
identify and communicate favorable and unfavorable performance variances to all project
parties. Schedules also document completion dates, which helps minimize the impact of
damages.
Work-in-Process (WIP) Reporting
Project execution is at the heart of every construction business. Measuring and monitoring
WIP ensures timely corrective actions and confirms project execution according to plans.
Four of the most important project execution results are: Gross margin, Cash flow,
Change orders, and Project buy-out execution (including procurement contracts).
A) Margin Variance Indicator
The calculations for margin variance compare gross margins on in-progress projects,
completed projects, WIP, and annual business forecasted. This big-picture approach givesthe owner an understanding of how their total work program is performing relative
to the annual plan.
The margin variances say Forecast margin, Completed, WIP Gross margin variances are
calculated by comparing various margins. These KPIs provides a comparison to business
plan objectives, and promotes accurate estimates of cost-to-complete on projects.
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Project Cash Flow Indicator
Project cash flow is another principal element of the project managers responsibilities.
This indicator answers the question: Are your projects providing cash or consuming it?
Net Cash Flow gives the project manager a clear picture of how his or her work program is
directing cash flow for the company. It also identifies company cash flow from project
execution, communicates potential project execution problems, and promotes project
billing and collections on projects.
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Unapproved Change-Order Indicator
The goal of the change-order process is to inform the parties of changing conditions that
impact cost and schedule. Costs incurred through unapproved change-orders identify
possible financial exposure so businesses should be diligent in communicating these to
parties and seeking early approval.
The accumulation of costs incurred on unapproved change-orders is separately identified
as a KPI. Track costs on change orders separately from the base contract and approved
change-orders.
Committed Cost Indicator
The financial exposure, or contingent liability, comes from material price increases and sub
contractor pricing prior to contractual commitment of suppliers. Both can escalate out of
control if ignored. Contract length can be several years in duration and material price
escalations, without supporting contract provisions for cost increases, leave the general
businesses with significant financial exposure. Where price escalators are not feasible,contingent costs must be included to provide some protection to the businesses with a
fixed-price contract.
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indicators generally have better safety records, higher productivity, improved quality,
employee retention, and client satisfaction.
The scorecard is a list of important success factors that are weighted according to
importance and scored according to performance. Such a scorecard represents a
qualitative assessment of the processes driving high productivity and margin enhancement
on projects by various project team member roles.
Conclusion
Cognos product portfolio caters to businesses of all size, Small businesses to large
enterprises. Functionality wise from Desktop analytics to Enterprise wide reporting and
advanced analytics you have everything under one roof.
NRIT With deep domain expertise in construction industry can provide you solution that
suits your unique business requirements.
