Optimizing Expense Management Part 1: Spend and Project Management Challenges for Growing Construction Firms

The construction sector has continued to grow since the end of the recession. As more and more people need your services, the projects are coming in. How are you managing the increased workload? What happens during the next downturn?

These two questions create headaches for leaders at construction companies. You need to maintain control over an increasing number of projects, paying more suppliers and subcontractors. You also need to maintain your reputation for consistency and quality so that your firm is top of mind when the correction comes.

These two concepts — control and reputation — are intertwined. They also rely on two other vital concepts: spend management and project management.

How Spend and Project Management Are Intertwined

When you agree to take on a project, you put your name on the line. Is the project going to be completed on time? Are your people and subcontractors going to deliver quality work? Do you have the right relationships to get the materials you need? While the answer to these questions is usually an easy “yes,” a question that is often harder to answer is this: Are you maximizing the budgeted dollars effectively? It might not be so easy to tell.

In construction projects, it can be easy to overspend or miscalculate change orders — and not only because mismanagement and overspending cuts into your company’s profits. Your ability to manage money affects relationships and your reputation with future developers, suppliers and subcontractors. Well-managed spending on a construction project sets the tone for the entire project, demonstrating to everyone that you have the scope under control and that your time and expertise is valuable.

On the other hand, failure to demonstrate control over the money sets a different tone. Bad news gets out and your reputation declines. Suddenly it becomes harder to find the supplies or equipment you need at a price you want. Subcontractors notice that you aren’t in control and begin to use it as leverage. It becomes harder and harder to be involved in construction projects.

Challenges in Spend Management

When your entire business is built on your reputation, aligning your spend and project management capabilities is vital to your business’s future. Below, we discuss some of the challenges you may face in managing your spend that you need to address before they come back to haunt you.

Fraud

Construction businesses work with a wide range of suppliers, partners and subcontractors, and often it’s not easy to keep track of them all. This creates a serious potential for fraud. Fraud can be committed by a wide range of people, most of whom do not fit a typical criminal profile. These individuals could be your employees or the employees of joint venture partners. They could also be subcontractors or suppliers.

From common tactics like falsifying payment applications to material substitution and purchase diversion, fraud makes it a necessity to track your payments accurately, create an approval workflow that makes tracking easy and implement a solution that can identify a mismatch or duplicate invoice.

Paying Everyone on Time

Just as the sheer number of suppliers and subcontractors creates risk for fraud, it also makes the process of paying them in a timely manner challenging as well. Discounts are often tied to timely payments, and late fees quickly add up if you can’t pay on time. Added to this, once word gets out that you aren’t reliably paying everyone, other questions start to arise.

Word travels fast and reputation declines; one complaint with the BBB or criticism that you aren’t paying subcontractors and it becomes harder to find quality people to work on a project.

Keeping Back-Office Costs Low

If paying suppliers takes more time than you’d like, this translates to another fact: Someone is spending more time than is necessary to process and pay invoices. As they say, time is money, and every hour spent on invoice processing is an hour taken away from another, likely more important task. Every minute spent scanning a paper invoice into the system, matching the invoice, writing an email for approval and signing the check adds up.

According to an Aberdeen study on the impact of invoice automation on a business, the difference in cost between “best-in-class” organizations (top 20%) and “laggards” (bottom 20%) is astounding: Best-in-class paid $4.00 to process an invoice, compared to $9.60 for average companies and $23.30 for laggards.

Additionally, it took laggards nearly four times as long to pay an invoice than best-in-class companies and up to a full work week longer than average. Best-in-class averaged 3.7 days to process an invoice, compared to an 8.8 industry average and 14.3 for laggards.

Take Control of Project and Spend Management With SAP Concur

Business for construction companies is booming, but without the right controls in place, your reputation could suffer. At Wipfli, we understand how hard it is for your business to deliver projects on time and under budget, but also know that with the right decisions, you can take control of your money, capture more discounts, increase supplier and subcontractor satisfaction, and do all of this while minimizing fraud.

SAP Concur has become one of the leaders in the market for a wide range of industries, including construction. It allows businesses to automate their spend management, take more control over their money and increase visibility. We are proud to work with this company and would love to help you. Learn more about our work with those in Construction and Real Estate and our SAP Concur connectors for Sage Intacct and Dynamics SL/GP/AX. Contact us for more information.