Managing and controlling project costs effectively can make or break an AEC business. Not only do project managers have to be aware of their projects’ costs and performance at any time, they also need to be able to report on it to the company, where finance managers and execs have to make decisions based on the entire project portfolio. Earned Value Management (EVM) is a standardized, common-sense practice for analyzing project performance realistically. It correlates the work to be accomplished, a valuation of the planned work, and metrics to quantify what was actually achieved. Within EVM, the cost performance index (CPI) and schedule performance index (SPI) are important, widely used metrics. EVM allows accurate forecasting of the costs to complete a project from any given date (estimate to complete or ETC) and the total, final cost of the project (estimate at completion or EAC).An ERP solution optimized for AEC project management will make EVM and the needed calculations faster and more reliable by automating many steps and accessing all the data that matters.
The critical path method (CPM) is a proven approach to reducing project risks and preventing resource conflicts and process delays on projects. For reliable, efficient scheduling of your workforce, equipment, deliveries, and tasks, the CPM is a proven, quasi industry standard. It is often expected by AEC clients and well supported by leading AEC software tools. Without CPM, complex projects can more easily depart from their parameters and head toward emergencies.
CPM gives you a consolidated framework for considering and managing the constraints that apply to a given project, such as scope, schedule, tolerable risk, quality, budget, resources, and so forth. CPM-enabled project plans can highlight project activities and elements with their dependencies, forestalling double-scheduling, delays, and resource shortages before they can compromise your performance. You can configure flow charts and diagrams to see how project tasks and their components relate to one another or zoom on individual project segments to review workloads and resource needs at ground level.
It’s helpful if you can have your ERP system configured in such a way that you can transition smoothly from the work breakdown structure (WBS) to CPM-based project management. You should also be able to connect estimate and project change orders to your CPM workflow.
When projects are underway, you need to manage their cash flow, revenue, and many types of expenses in sync with the company’s business interests. ERP as your centralized resource for managing project operations and finance can make that effort consistent and efficient. It can help you avoid the dependencies on the expertise and knowledge of key individuals as well as likely errors and omissions.
Challenges many construction and other project-based AEC companies experience include incurring costs and needing to pay subcontractors long before they themselves are paid. If this is not handled well, you may make huge outlays in the early stages of a project, digging a financial hole that can pose a risk for the business.
Companies negotiate shorter payment cycles, minimal retainage clauses, and prepayments, for instance, when they need to mobilize labor and equipment. On the other hand, when they manage subcontractors, they look to delay expenses, implementing retainage and pay-upon-pay arrangement that work to their advantage.
In addition to facilitating project accounting and portfolio-wide finance management, your ERP system might also help you model the impact of cash flow management measures before you implement them.