The economic downturn has hit construction companies particularly hard, forcing contractors to make difficult decisions in order to cut costs.

The common approach is to reduce staff and sell equipment in order to stay afloat, but this method increases overall risk. Companies could be forced to let valuable employees go and when the economy picks up again, could find those staff members working for a competitor. Recent advancements in technology have added another path-the ability to lower costs and optimize business processes by implementing a software system that doesn't require a heavy initial investment. This technology is called Software as a Service, or SaaS, and allows companies to use powerful, integrated software applications that increase productivity without the need of sophisticated hardware. Given the current economic conditions, SaaS could be the solution that allows contractors to survive the recession.

Most software for the construction industry is divided into two categories: on-premise and on-demand. Everybody has probably used both, whether they knew the terms or not. On-premise software, the traditional model, is usually purchased and installed on a computer or server, and is often not connected to the Internet. An everyday example of on-premise software is Microsoft Office-you buy the program (usually along with a computer), load the software onto your computer and use the application, regardless if you have an Internet connection. The information that you create with that software, such as a spreadsheet, is not accessible by multiple parties over the Internet, unless you directly e-mail it to them.

With the on-demand model, or SaaS, the application isn't stored on the user's computer or server, but on the software vendor's system, and you can only access the software through an Internet connection. The information created by this software isn't stored on the user's computer either. Free e-mail, such as Hotmail or Gmail, are examples of SaaS-you log in through the Internet, and access your e-mails, but once you log, off the e-mails aren't stored in your computer-they are housed somewhere on a server. In recent years, online applications have grown to include spreadsheet and document applications, along with customer relationship management software.

To explain SaaS further, we need to clarify some terms. Some construction software is Web-based, which means that it can be accessed through an Internet connection. For example, a project manager in the field can send a project update through a mobile device, and the information is transmitted, via e-mail, back to the head office. This type of software, however, is hosted at the construction company's servers and is not considered a SaaS solution. Another recent term thrown around in the IT world is cloud computing, and it's easy to confuse it with SaaS. Cloud computing refers to the technological infrastructure, such as virtualized servers, that a SaaS solution runs on.

Advantages of SaaS

There are two main advantages of SaaS for construction companies: SaaS doesn't require a large capital expenditure, and it allows smaller and mid-sized construction companies access to powerful software solutions.

Most SaaS solutions use a subscription-based pricing model, so users pay a fee based on a monthly or yearly schedule, or in some cases, on a per project basis. In addition to what modules or applications are being used, (such as cost and budget management or imaging and workflow), the number of users also contributes to the overall price. Contrast this with the on-premise model, in which the company pays the fee up front to purchase the system, and it's easy to see the advantages. For a SaaS solution, a construction company doesn't have to make a large initial payment, which reduces risk and helps manage cash flow. Additional users and applications can be added as needed, creating a better return on investment.

The lack of a big initial expenditure, combined with the solution of being hosted by the vendor, grants smaller to mid-sized contractors access to larger and more sophisticated software solutions. In the past, an obstacle for smaller companies to use integrated software systems has been both the cost and technological infrastructure needed to use these systems. The larger the system, and therefore the more powerful and more valuable, the greater the technology support needed to run the system. Some large contractors often have entire IT teams dedicated to making their solution work, and it's very easy for a contractor to lose sight of their core competency of building buildings, and instead, spend too much time on managing the software. With a SaaS solution, however, the burden of system maintenance, including upgrades and patches, falls on the software vendor, freeing up the contractor to focus on completing projects.

Disadvantages of Saas

There are disadvantages associated with a SaaS solution, the most notable being the issue of ownership. Since a company buys an on-premise solution and owns it, the system can be customized to meet the specific needs of that company. This has been a crucial selling point in construction software, given the unique needs of the industry. A SaaS solution, however, is not very customizable, and the users have to perform the business processes the way the vendor designed the software to do it. This could lead to training and usage issues, and be a potential roadblock to company-wide adoption. The upside of this approach is that it forces companies to re-evaluate the way they do business and throw away outdated or inefficient processes.

A larger issue concerns the ownership of the data. With a SaaS solution, the data that is entered into the system, including sensitive financial data, is stored with the software vendor, which is often located far away from the contractor. The first concern is who has access to that data-it would be impossible for a contractor to know all of the employees who work for the vendor and their accessibility to the information. Given that too many construction projects end with lawsuits, contractors need to have access to their information whenever they might need it. The best way to overcome this issue is to determine clearly in the contract access and ownership of the data.

When choosing a software solution, whether it be a SaaS or on-premise, construction companies have to make sure that the solution fits their needs by improving data integrity and access and reducing multiple data entry though integration. With the lack of an initial payment and the subscription-pricing model, a construction software service solution might be what a contractor needs to survive the current economic downturn.

Construction Business Owner, September 2009