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; the answer 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 BI simplifies provide historical, current and predictive views of information business operations. discovery and There are numerous challenges facing todays analysis, making it construction manager. You have to manage facilities, possible for equipment, resources, large projects with numerous decision-makers at milestones, budgets and finances, schedules and all levels of an operations. Your enterprise needs to meet specific service organization to more requirements and comply with strict regulations and easily access, reporting requirements and burdensome bidding understand, analyze, processes. Externalities include business landscape, legal collaborate, and act issues, government regulations, environmental concerns, on information, socio-economic and political pressures. In addition anytime and enterprises must also understand and manage new growth. anywhere. 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.
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What BI can do for you? - Analyzing your business in parts/functions/departments is pass. Single Integrated view 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 in minutes - 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 can leverage future opportunities - You can be rest assured of Governance and risk compliance requirements being taken care - Efficient Project execution requires coordinated effort of all the stakeholders from top management 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. Viewing KPIs in conjunction with one another gives total picture. The following are the KPIs used by best-of-class enterprises: 1. Liquidity indicator 2. Schedule variance indicator 3. Work-in-process (WIP) reporting a. Margin variance indicator b. Project cash flow indicator c. Unapproved change-order indicator d. Committed cost indicator 4. Backlog indicator 5. 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 gives the 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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Backlog Indicator Businesses adept at backlog management position themselves well to select those business opportunities that will ultimately provide the most margins. Backlog includes signed contracts in process, awarded proposals, and some percentage of outstanding proposals relative to the firms historical hit rate. The backlog provides some assurance of future revenue and gross margin opportunities. Backlog management, supported by effective marketing and business development practices, is critical to a businesss success. By understanding what opportunities have been captured and what opportunities are on the horizon, a businesses can make informed decisions about what projects to pursue and how to price them. Most Managers consider a backlog of six to 12 months, with adequate margins to cover overhead and profit, desirable. Scorecard Indicator Because most organizations have a tendency to look only at objective, quantifiable indicators, it is easy to overlook the importance of qualitative measures that are less calculable. Best-of-class organizations realize the importance of evaluating their qualitative performance. We have termed this the Scorecard Indicator. Identifying the soft skills lacking in project personnel is challenging. Scorecard indicators provide a non-confrontational way to identify skill gaps. Organizations that use scorecard
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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.

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