The “Owner” on major construction projects, has a very different set of challenges and priorities than contractors or EPCs. While contractors are busily figuring out ways to get the work done as cheaply as possible, the Owner is busily controlling project finances, monitoring vendor performance, and making sure the project is commissioned on time and on budget. In the big picture, Owners of course have a much more holistic view of the project in its entirety; and ultimately are managing the cost and timing expectations of their stakeholders and investors.
What that translates to on a day-to-day basis for the Owner, is close management of their vendors. Put into simplistic terms, it’s the vendors who are doing the work, and the Owner who is paying for it. The challenge to the owner however; is that close management of vendors is not a trivial thing to do. There can be dozens if not hundreds of vendors on the job throughout a project’s lifecycle, and keeping on top of their costs, activities, productivity – and validating the invoices they send – all requires the owner to collect, organize and analyze a lot of information on a daily basis.
The problem: Time to move on from 'old-school' methods
The Construction Industry is one of the last industries to adopt and embrace technology as end-to-end solutions for management of major projects. It’s shocking how many paper timecards, home-grown spreadsheets, phone calls, emails and handshake agreements are still used on multi-million dollar – or multi-billion dollar – projects. There are a lot of people that hold on to these methods as the real way projects should be run; however the world has undergone massive changes in the past 10 years, and the construction industry needs to catch up. To be clear, technology is in no way a replacement for boots-on-the-ground at the jobsite – computers can’t replace human eyes, ears and spidey-sense. Nevertheless, technology can take on much of the administrative, clerical and information-gathering work that can dramatically increase the visibility into what’s happening on a project. Without it, you’re left with a colossal pile of paper and spreadsheetsthat provide little more than an ocean of darkness. Tragically, it’s because of these ‘old-school’ methods that the owner not only needs to deploy an expensive army of project admin staff to tackle all the manual effort required to monitor their vendors; they also need a very good legal team to manage all the claims.
There are many challenging parts to this whole equation of vendor management. However, with the right technology and a slight shift in process, some of the more high-risk and costly parts of managing construction projects an be eliminated. To the point, let's address the issues that owners face around Vendor Cost Tracking and Vendor Invoice Matching, which form the root-cause of some of the greatest challenges that major projects face. To better articulate the problem, here’s a quick explanation of each:
- Vendor Cost Tracking. Most owners don’t record vendor costs on the project at the time the cost was incurred. They instead wait until they receive the invoice from the vendor before recognizing project cost. This delay in cost visibility on the project can introduce numerous issues with accurate project reporting. It also causes problems with approving the actual invoice when it arrives – see more on this below in the Invoice Matching part.
- Vendor Invoice Matching. This is an extension of the problem introduced in #1 above. When the vendor submits an invoice – whether it’s a progress/milestone invoice or an invoice for the supply of goods – it becomes an enormous and error prone challenge to match-up the invoice with the work completed or materials delivered.
A third area that’s related to this, is Vendor Performance Monitoring. Not all vendors are created equally, and for an owner to stay on top of project progress, they need to have good metrics on the productivity of their vendors. In order to evaluate vendor productivity and performance, certain metrics need to be gathered on a daily basis from the jobsite.
The solution: Deploy the right technology
People talk about the “Intelligent Jobsite” as a goal for organizations to achieve for gathering and exchanging quality information so that people at the jobsite and in the office can work efficiently as an integrated team, and make informed decisions. In order to endow your teams with intelligence on both sides, three things need to occur:
- A dedicated software solution designed for this purpose needs to be deployed. Software can provide the platform for gathering and reporting data, which can dramatically simplify and streamline vendor management, cost tracking and invoicing.
- With the help of a new system, a new mapping of the processes involved in how projects are planned and executed will need to occur. It’s likely that your current processes are not well mapped-out and have an unnecessary number of steps, resources and are very costly. Streamlining processes that align to a new system will have a dramatic effect on efficiency, productivity and project success.
- A slight shift in thinking. We all know that getting field personnel to do something new – like learn a new system – will be met with some resistance. The organization as a whole needs to embrace a new way of thinking about the problem; and the solution needs to bring value to everyone – including field staff.
For more details, download our full whitepaper on managing vendor accruals.