Managing construction project costs – for a facility owner - is important but also very unique. With projects costing one, ten or even hundreds of millions of dollars, it’s critical that you keep tight control over the expenditures so that they don’t spiral out of control. After all, even 1% of unnecessary expense on a one hundred million dollar project, results in one million dollars wasted.
Owners need to manage the expenditures, but construction cost management requires the tracking of specific pieces of information. For this reason, accounting or ERP software do not have the capabilities to effectively manage construction costs. Without a dedicated project management software
for construction accounting, most owners turn to Microsoft Excel for construction reporting. They will build a multi-sheet Excel workbook to track the budget, budget changes, commitments, change orders, and actual expenditures. To further complicate things, they will add sheets in the workbook to manage RFI’s, issues and other items that may impact cost.
Sounds good right? Wrong! Here are 3 reasons why Excel for construction projects adds risks:
- Spreadsheets Contain Errors – A recent article points out that 90% of spreadsheet documents contain errors, based on analyzing multiple studies. A large spreadsheet with thousands of rows and formulas – like those we see all the time in construction – contain dozens of undetected errors.
- Multiple Versions – It’s easy to email a spreadsheet around to multiple people. The problem becomes figuring out which version is the latest one. When you look at a spreadsheet with millions in costs spread out amongst thousands of rows in multiple sheets – how do you figure out if you are looking at current information? Keep in mind, the cost data does not easily reconcile with an accounting system, so it’s difficult if not impossible to figure out.
- No Control Over Data – It’s difficult to lock down or protect certain data in the spreadsheet. With a spreadsheet that contains thousands of rows of information, what if someone changes a number. How do you figure that out? We had a client tell us a story of a macro that was deleted - for 90 days the entire team was working with incorrect information.
Ultimately, the information in a spreadsheet is used to manage the project or more specifically make decisions. If you have erroneous or incomplete data, you might be making poor business decisions and introducing risk into your projects.
The article mentioned an example where a math error in a Harvard economics study overstated the impact that debt burdens have on a nation’s economic growth . . .these spreadsheet mistakes can have far reaching consequences. I’ve personally seen multi-project capital programs where spreadsheet mistakes were in the tens of millions of dollars. In fact, we were preparing to demo our software to a large facility owner about 2 years ago – they gave us a spreadsheet with data from an actual active project to import into our software so they could see how it would work. When we imported the data, we discovered a $500,000 error due to a ‘broken formula’ in the actual spreadsheet they were using to manage their job.
If you must use a spreadsheet, be sure to tightly control access to it, don’t distribute it, and build and test all of the formulas. Also, find ways to reconcile some or all of the data with another system to assess whether your spreadsheet is reporting accurately. Or better yet, use purpose built software with the proper checks and controls to accurately manage your projects.