Tech can disrupt construction cost management in the Middle East
As market liquidity tightens, tech can redefine how Middle East construction spends and saves its money
Cash flow has been a significant challenge for construction companies in 2018. During the year, numerous business leaders have told Construction Week that this issue has been exacerbated by the problem of delayed payments.
Andrew Greaves, partner and head of GCC at Addleshaw Goddard (Middle East), told Construction Week earlier this year that liquidity remains a hurdle for construction companies in the UAE and across the region.
“The main challenges and opportunities for the construction industry revolve around a tightening-liquidity environment in the market, which is likely to lead to a greater consideration and use of alternative funding structures such as public-private partnerships and export finance and, perhaps, a more active claims market,” Greaves said ahead of Construction Week’s Leaders in Construction Summit UAE 2018, held in Dubai this September.
Greaves’s comments followed similar views expressed by Sanctum Consult’s chief executive officer a year ago. In September 2017, Craig Beeson told Construction Week that it was “apparent that all actors across the value chain” were facing difficulties related to cash flow. He added that this trend could be driven by oil-price fluctuations or “increased cautiousness from financial institutions” at the time, noting that “a lack of proper and effective contract management” could also be one of the factors causing regional liquidity problems.
Indeed, efficient control is a pivotal point for solid contracting businesses. Project outcomes are informed by the input – of cost, time, and talent – made by their stakeholders and, as Andrew Skudder, chief executive officer of CCS explains, “control is at the heart of profitability when it comes to construction”.
Speaking to Construction Week, Skudder continues: “Construction performance and progress cannot be monitored on financial data alone, and engineering information is just as – if not more – critical. Engineering control includes generating and managing allowable and actual quantities of resources, wastage, manhours of labour, production of equipment, and time for construction activities.”
The role of technology
The last few years have been a tipping point for construction technology and its adoption in the Middle East, but in a region accustomed to operating without digitisation, is cost management software truly a requirement?
“Most companies have some form of control, but to be successful, the key is to capture the cost long before it hits the book of accounts [and] in one system, thereby having one source of truth,” Skudder says.
According to the CCS boss, it is also important to clearly define ‘cost’, which at his firm is considered “purely as actual cost incurred”. Cash management includes monitoring, comparing, and predicting the actual cost versus the budgeted spend “as a value […] that is practically achievable, comparable, and informative”. In the contracting sector, costs and budgets “take on an additional dimension”, which covers the allowable and actual utilisation of factors such as resources, equipment, manpower, wastage, time, and so on. Skudder says “it is one thing to know that there’s been a [case of] over-spend”, but the next step should be to find out how to rectify the excess and plan for the future.
“Historically, information has been late or nearly impossible to compare, as it comes from independent silos […] in the group,” he continues. “Estimators and accountants, after all, do not speak the same language. Without digitisation, you have no clear indication of the actual status of the contract.”
CCS’s Candy and BuildSmart systems, according to the company chief, have been designed to allow “accurate comparison” of actual values against expectations “in real time”.
“BuildSmart’s architecture allows all cost information – such as payroll, plant, stock, yard stock, and so on – to be entered once where the information is first produced – for example, onsite, or at the head office or a work yard. [The information can then] be managed through a single database for full integration and real-time analysis.”
The need to speedily involve cost consulting experts in a project must not be forgotten. Skudder says “you cannot control what you cannot measure”, and costing or budgeting, despite all their accuracy, eventually depend on “the quality and timing of the quantification, specification, and aggregation of the work to be done”. Estimates are “the foundation of control” for a project, but they are also often “out of the contractor’s hands”.
“[This] is where experienced people, processes and systems come into play – for the cost conscious, these are priceless. The right software will give you not only control of money, but also an intimate level understanding of budgetary amounts, quantities, rates, and actual costs. [This brings] all the key role players in the company together to make informed decisions, from a complete holistic view of the project costs.”
CCS, which works with more than 300 contracting firms across the Gulf and the Middle East and North Africa region, knows a thing or two about how contractors are taking to cash management software. Skudder agrees that for the most part, the procurement, finance, and technology teams of contractors understand the benefits of cost consulting software, but “the challenge they face is in bridging the gap”.
“This gap includes segregated or separate systems producing different information at different points in time, a lack of collaboration, and the existence of silos within the company,” he tells Construction Week.
The finance manager of Abu Dhabi’s Trojan General Contracting, Jayakumar TR, says with trained staff in place, CCS’s systems will result in “a huge cost saving” for his team, since “all the controls and tools” needed to manage projects can be integrated into a single platform. Mike Moffett, group commercial executive at Dubai’s Dutco Group, says the company has witnessed “better discipline [and] management of cost” by using CCS’s platform, adding that his team is “better off a year down the line”.
So what comes next for a company that has already been picked to work on landmarks such as Burj Al Arab, Atlantis the Palm, Yas Water Park, Bahrain World Trade Centre, Kingdom Tower, and King Abdulaziz International Airport? Skudder seems intent on raising awareness about the need for cash management technology, and how it can lead to not only monetary savings, but also a new definition of ‘cost’.
“We consider a more apt [barometer] to be ‘earned-value management’,” he concludes. “It is theoretically simple, but often not so in practice.”