Editor's Note: This is the first article in an eight part series called "Better Next Year," by Fred Ode, CEO, chairman and founder of Foundation Software.
We learn over and over again that too much of a good thing can be a bad thing—case in point: Spreadsheets.
For many small contractors, spreadsheets are the first and only technology solution needed to get their companies up and running quickly. After all, spreadsheets are extremely versatile and easy to use. They can be used to create and track job estimates, billings, payroll, job costs, financials and more. As a company grows, however, so do the spreadsheets associated with each of these functions… not to mention the amount of time required to maintain them all.
Contractors intent on becoming "better next year" (i.e., taking the steps needed for long-term success) need to take a long and hard look at their spreadsheet use. Like any business tool, spreadsheets excel (excuse the pun) at specific functions, but should not be used for every imaginable purpose.
Recognizing Spreadsheet Abuse
In business, there are always painful processes that scream “INEFFICIENT!” Owners will generally waste no time seeking solutions to these in-your-face problems. But over reliance on spreadsheets is usually not like that; it sort of sneaks up on you one day. All at once, it seems, your beloved spreadsheets have spiraled out of control.
In construction, the scenario generally goes something like this: The small contractor uses spreadsheets for estimating jobs and invoicing clients. Because spreadsheets are flexible and easy to use, the contractor creates more and more worksheets to analyze job costs as needs arise. Soon, however, the contractor has “islands” of data that cannot be linked. He ends up spending much more time building and maintaining the spreadsheets than analyzing the figures themselves. And as the volume of data grows, it takes longer and longer to maintain the spreadsheets, and reports (or billings or payroll!) fall behind. Soon the data is outdated, and the owner no longer has a clear picture of the company’s financials.
In its day, spreadsheet technology was leaps ahead of manual methods. Back when the first program was introduced (more than twenty-five years ago), construction owners were amazed at how fast and efficiently their estimating, job costing and accounting tasks could be accomplished. Since then, however, newer and more sophisticated software tools have become available at costs even small business owners can afford. More importantly, good construction-specific applications offer owners the tools they need—such as instant access to consolidated data—to compete in today’s highly-competitive construction environment.
Spreadsheet Dependence and Off-the-Shelf Software
Contractors using inexpensive generic applications, such as small business accounting software, also tend to suffer from spreadsheet sprawl. Why? Because these off-the-shelf applications do not offer contractors enough flexibility or formatting capabilities for job costing or specialized reporting. Owners complain they cannot see their data the way they need to see it. As a result, they spend even more time reentering and manually updating data into spreadsheets.
Without the ability to integrate data between general ledger, job costing and other modules, for example, it becomes impossible to manipulate data and see numbers in different ways (such as aging reports by project manager, production reports by geographic region or financials by job). In exchange for greater reporting detail and flexibility, these contractors come to rely on a series of disparate worksheets that offer virtually no data validation or protection against errors.
Database Software Outperforms Spreadsheets
Spreadsheet software is great at performing complex calculations, linking to worksheets, performing ad hoc queries, what-if scenarios and so on. It has serious drawbacks, however, when used for data storage, or retrieving data from beyond the simplest of queries or accommodating multiple users. Adding large amounts of data to spreadsheets can quickly deteriorate the integrity and usability of spreadsheets.
In contrast, most job cost accounting programs, as well as other construction-specific applications, are built upon secure databases, designed to handle large amounts of data and multiple users. These applications can easily handle millions of records, and reports can be shared among users without concern for tampering or unauthorized use.
In general, the larger the size of your data or the more challenging it is to organize, the more likely you are to need an integrated construction-specific application built upon a database management system. Think of it as the storage place where all company data can be seen all at once and examined in hundreds of ways. Each transaction is entered once and flows to other areas or modules where appropriate. In addition, date-sensitive applications tie every transaction to their entry date so that reports can be run for any time period—monthly, weekly, daily...or even prior years in the past.
Good construction-specific software also features hundreds of standard construction accounting reports, as well as customizable report-writers, so that contractors can recreate their spreadsheet reports without reentering data. And in those instances where contractors need to manipulate or extrapolate their data outside the system, many good construction-specific systems provide seamless interface with third party report writers or spreadsheet applications.
Have You Outgrown Your Spreadsheets?
Spreadsheets are flexible, easy-to-use and can be found on nearly every office PC. As "the" tool that revolutionized desktop computing, there will always be a role for spreadsheets in construction. In fact, for the small contractor or start-up company, these desktop applications may be the only technology required for their financial and reporting needs.
However, as contractors grow in size and project volume, there will come a time when the business can no longer rely on spreadsheets for collecting, consolidating, reporting and analyzing data. As a tool for estimating, job costing and financial reporting, spreadsheet technology has simply outlived its usefulness. Perhaps the greatest liability appears to be the hidden cost of wasting valuable resources; spreadsheets are clearly an inefficient way of handling data. Fortunately, construction-specific software systems built upon powerful database engines now offer what spreadsheets don’t: A comprehensive data warehouse of up-to-date, accurate information and unlimited reporting possibilities.
Construction Business Owner, June 2007