In-depth: Toil for the Robots

The leadership roles in automation were claimed by telecommunications companies, banks and insurance firms as well as large groups of companies whose normal operation is scarcely possible without efficient accountability and management. Many developers, integrators and consulting firms believe that time has come for construction firms who display readiness for automation projects. What awaits them on that path and why has it taken them so long to embark on it?

The past years saw a rapid growth of the construction sector, brought about by economic upturn, higher individual incomes and introduction of mortgage lending. At the same time we witness qualitative changes in Russia’s real estate market, with new stronger players, including foreign operators, establishing their presence here. Russian builders actively tap into capital markets, smaller firms are taken over by larger companies, while major operators evolve into investment and construction groups.

However, despite the sector’s rapid growth, the level of automation in construction remains extremely low. There are believed to be a variety of reasons for that. Several conferences held in 2006 focused on automation in construction, including an event hosted by the Russian Builders Association (ASR).

Icing on the Cake

To begin with, before the federal law No. 214-FZ on shared construction came into effect, builders had faced no problems raising cash for their projects. As a rule, the majority of planned apartments were sold as early as during the digging of a foundation pit, which along with high profits allowed construction firms not to care much about minimization of costs and achieving financial transparency. The builders simply had no time to consider automation of their businesses.

The second and third reasons are closely connected. The sector’s demand for automation systems is quite specific but until recently developers were unable to offer viable and tested solutions to the builders.

What are the specifics of the building sector? The point is that any construction company is in need of close integration of a large number of sites and compulsory automation of accountability and control.

Automation is crucial, first and foremost, for budgeting and control over financial flows. The overwhelming majority of building companies are still only pondering on automation of cash flow accounting. Flow of goods, prime cost accounting, let alone profitability ratio remain beyond the scope of accounting. Speaking of prime cost, builders often refer simply to the actual cost of a given property, while profitability is seen merely as a difference between receipts and spending. No data on debts and real cost of construction are registered, which results in errors in pricing. As a result, the entire business suffers loses.

Labor tracking, contractor expenses and payables under construction contracts and planning of receipts from sale, lease, etc. constitute another field that requires automation.

Control over construction contracts requires special attention towards tracking works accomplished by contractors and their outstanding debts. As far as sale agreements and tenancies are concerned, importance needs to be attached to cash receipts and clients’ receivables.

Introducing project management automation is essential for efficient operation of construction companies. This, in fact, is the icing on the cake for any system designed to ensure allround automation of a construction business. Effectively, construction is a project-based business where each property under construction may be defined as a long-term – of 3 to 5 years – investment and construction project. Thus, builders inevitably face the task of introducing automation of project management.

Questions Arise

It is not enough merely to develop a plan of works; works need to be tracked closely and necessary adjustments made without delay. Or else, the operator will fail to meet his deadlines and attain his goals. Construction firms are advised to collect field reports regularly – a task that may prove quite challenging given poor computer literacy of their rank and file workers. That is why, today project management in the majority of cases amounts to mere publication of project timelines.

The areas of operations where automation systems are most widely used are budgeting and accounting. However, specialized software tools used for the purpose are by no means integrated in the management information systems of the company. Here, certain difficulties arise, too. To begin with, material consumption rates and estimate prices quoted in templates often fail to conform to reality, forcing companies to set their own rates. Secondly, the estimate is after all a preliminary calculation, while contractual prices may differ considerably. As regards accounting, entries based on primary records are almost always made with delays impeding timely response from decision-making bodies. Accountants are not to blame but real-time data flow is crucial for managerial decision-making, while accounting departments proceed from primary records, which are often submitted with delays.

The abovementioned spheres requiring automation are of utmost importance, but the task of creating an integrated automation system for a construction company is not confined only to those. Other spheres involved include labor tracking, payroll accounting, warehouse management, control over procurement and supply chains, cost effectiveness analysis, debt portfolio management, etc. As a result, finding a cake with the proper icing that would make a fastidious sweet tooth happy proves to be quite difficult.

Change of Heart

While the general level of automation in construction companies remains low, the situation is changing quite rapidly.

Big cities clearly suffer a shortage of homes and offices and building companies are set to ease it actively acquiring construction sites there. Property development projects are popular with financial firms, oil and gas companies and other similar entities. Builders and developers are forced to seek new sources for raising cash for their projects. Major construction companies establish unit investment funds, issue bonds and credit notes and even mull IPOs. The key requirement they are to meet is financial transparency.

All those developments result in better quality of project management in construction. In order to raise cash for their projects , companies are forced to demonstrate a high degree of control and financial transparency. The sector witnesses arrival of new managerial staff, versed in finance and economics, aware of the importance of a full-fledged information automation system for attaining one's goals. Besides, the government, along with industry unions and financial companies have already set about developing criteria of financial stability for construction companies. Meeting these criteria will scarcely be possible without introducing a clear-cut system of control and management over all operations within a construction company.

When evaluating the current market situation developers of IT solutions move to meet the needs of the property market by joining ranks and expanding functionality of their systems. Last year a group of developers announced the launch of their joint product - an integration toolkit and new construction-oriented automation systems. For example, after Mirax Group had vertical solutions for the construction industry integrated in the Business Control automation system, the company signed partnership agreements with PMSoft, the developer of project management systems Primavera and StroiSoft, which offers budgeting software Smeta.ru.

All-in-One Solutions

What is referred to as an industry-specific solution? Unlike conventional software and accounting tools, universal business automation systems, or ERP (Enterprise Resource Planning), can be adjusted to certain tasks of each given enterprise. Each company is a unique entity, hence it is vitally important to find a compromise solution by adjusting its business operations to existing management solutions and vice versa. In this case, a vertical (or industry-oriented) ERP solution is the best option for an enterprise. Such tools help minimize risks, may be introduced rapidly and in the long run help reduce overall costs.

Those tools build on prior experience of other construction companies and specifics of the industry have already been tested in real-life projects. Adjusting the toolkit to the specifics of a concrete enterprise requires accurate adjustment of the system, instead of redeveloping one-half of its modules.

Learning From Mistakes

While the level of business automation remains low, as early as today the majority of construction companies are at the stage of choosing an automation system for their operations. Neither the companies themselves nor developers of automation solutions have accrued any substantial experience so far. And yet, everyone knows that you must spoil before your spin but nobody wants to be the first to risk the challenge and suffer setbacks.

The experience of using Business Control has revealed that problems arising during automation projects are just about the same as those faced in any other field. To begin with, employees may find it hard to adjust to new work routines; their average learning ability is low; besides, businesses lack efficient regulations procedure. At times, businesses deliberately obstruct introduction of new systems as people are not ready, nor willing to change the rules of the game. The human factor has always mattered and in the long run cost higher than any high-end IT solution. Therefore, the process of automation in construction is likely to be fraught with significant difficulties. However, advantages of a transparent and streamlined business operations are so self-evident that quite a few company are ready to risk their time and cash in order to enjoy those advantages. After all, almost all sectors of economy have adopted automation systems and in doing improved business management and increased profit margins. This is the ultimate goal of introducing business automation. .

This piece was contributed to Vedomosti by Sergei Bashmakov, head of IT at Mirax Group and developer of the business management system Business Control. The point of view of the author does not necessarily reflect the position of the editors. .