Construction Companies Should Plan Ahead for Technology Expenses
With revenue and customer requirements increasing, contractors are feeling the pressure to invest more in information technology (IT). However, many are not assessing what they need and creating a budget for it in advance. This can lead to companies spending too much money on products that they don’t end up using.
“Companies should anticipate their 2014 IT expenditures now, instead of wondering how the costs were incurred at the end of the year,” says Bob Sniegowski, a construction principal with CliftonLarsonAllen. “A prepared budget forces the IT department to be more thoughtful about their purchases and not succumb to impulse buying technology that won’t be beneficial in the long-term.”
Many companies have significantly increased their technology expenditures over the past few years. While the cost of individual IT components has never been cheaper, those components and applications are becoming obsolete at a faster rate and are being used by an increasing number of staff.
With the pace of change and growing dependency on technology, how do you anticipate the magnitude of this expense, much less control it? The following steps can help you be more proactive in managing your company’s technology expenses.
Analyze your annual expense
Your technology expenses should be separate from the traditional office supplies or telephone accounts. Within that account, can you distinguish between costs for one-time major upgrades (e.g., new servers) and support or monthly usage? How do you account for laptops, mobile phones, and tablets? Are they considered a technology expense or accounted for elsewhere?
Look for efficiencies
Check if your mobile phone plan fits the current usage patterns for voice and data. If not, can your provider offer you a better plan?
Assess whether you are using obsolete applications because they fill a vital business need or because your staff are reluctant to implement a new system. Do your various applications “talk” to one another because they are integrated, or do they run on separate systems that each require customized reports?
It is best practice to budget for replacing or upgrading some of your technology each year. By planning for the necessary improvements and budgeting for them, your company has a higher chance of using the products to their full capacity. Remember that staff may also need to be trained on how to use new systems — which may require additional costs.
At the same time, keep your budget flexible enough to account for unexpected IT problems, and to take advantage of unanticipated advancements in technology.
Pass the cost on
Technology has found its way into nearly every facet of the construction process, from estimating and scheduling, to GPS equipment locators and closed circuit TV monitors. However, the pent up demand to invest in IT conflicts with the need to minimize general and administrative (G&A) expenses.
A relatively low G&A expense is a competitive advantage in the contracting business, but often a challenge during a growth cycle. Most IT costs are not really G&A expense though, but an indirect construction expense that should be a direct job cost, or allocated among the projects that benefit from the expense. This may require a shift in your estimating and general conditions rates, but you will be in a better position to anticipate and control these job-related technology expenses.
How we can help
The construction industry has been criticized for its relatively low technology spending as a percentage of revenue. As contractors experience the benefits technology can provide, expect the rate of IT spending to continue to increase. Managing the rate of increase and maximizing the benefit received will be essential to remaining competitive and profitable. CliftonLarsonAllen can help analyze your IT expenses and help you select and implement an IT system for your business.