Construction firms offer many services, such as constructing, designing, renovating, and supervising the development of infrastructures across both residential and commercial industries.
Due to the nature of these projects, the bulk of construction work happens on-site, thus making it difficult for off-site workers to manage labor costs effectively. In addition, it makes it difficult to gather accurate financial information in real-time.
As a result, many construction companies struggle to balance their books at the end of the day. Understanding cost control systems like field spend management can help create a seamless working environment for on-site and off-site employees.
This article explains field spend management and highlights a few generic expenses incurred on-site by construction companies. We also discuss how contractors can manage, review, and verify the financial decisions of on-site workers without increasing the administrative burden.
What is Field Spend Management?
Field spend management is an analytic system used to evaluate capital expenditure for the acquisition and implementation of construction projects.
It is a tool or method that keeps construction companies in the loop of what, when, where, and how money is being utilized — to control discretionary expenses on-site. It involves collecting, recording, and evaluating construction expenses to reduce costs.
Why is Field Spend Management Necessary?
A significant factor in construction is capital. Without it, contractors cannot execute projects. And like other resources, it must be adequately managed to prevent wastage.
Field spend management ensures the proper allocation of funds to different aspects of a project. For example, it oversees the purchase of construction materials and the timely payment of workers.
Also, it reduces the need for loans and credit. With proper management, you’ll save costs and maximize your profit. Also, it helps to complete projects on time by eradicating any delay due to unwanted financial crises.
Field spend management guides contractors in any financial-related decision-making by providing necessary information such as budgets and expense reports.
What are the Most Common Field Expenses Incurred by Construction Companies?
Every business has operating costs, and construction companies are no different. However, expenses in the construction industry can be classified into two distinct overhead categories; direct/field and indirect costs.
Indirect costs consist of the expenditures incurred by off-site or office-based operations.
Direct costs include all expenses incurred for and by production. It involves any activity contributing to the physical construction of a project.
Some examples of field expenses include:
- Direct labor
- Raw materials, e.g., Wood, Glass, Cement, Concrete, and sand.
- Manufacturing supplies, tools, and equipment
- Wages for the production staff
- Fuel or power consumption
- Sales commissions
- Consultants, etc.
Managing all these expenses can be challenging due to factors such as late or incomplete payments, inflation, unforeseen expenses, and late invoicing.
Therefore, contractors must employ adequate spend management tools to avoid financial issues.
How Do Contractors Typically Manage and Review Expenses?
Poor management of construction finances can lead to the loss of time and money. To avoid this, the plan of action for project control and record keeping is usually planned and created before a construction company begins any project.
This will help lead contractors to monitor developmental progress and keep track of any financial transactions associated with the project. Here are a few proven ideas:
- -Budget/Estimation: A budget is created to provide stakeholders- the Construction Company, investors, sub-contractors, and clients with a rough idea of the cost estimation for the project, as well as information necessary for its idealization.
- Excel (Spreadsheets): traditionally, construction companies store data using Excel. It helps to record expenses, create payroll, and provide a concise report of transactions. As a result, contractors can track all construction expenses and remain on budget.
- Payment schedules: contractors set up payment schedules to monitor the payment of construction workers and ensure they are paid on time. It contributes to the management of expenses by providing payment records.
These methods are not foolproof and shouldn’t be totally relied upon. Budgets are good; however, inaccuracies can lead to deficits and lower profits. You’ll need advanced tools to avoid these inaccuracies.
The bigger the project, the harder it is to estimate the expenses accurately.
Also, you’ll most likely exceed the budget without an accounting system that integrates all project parts. Budgets are more effective when you’re able to monitor them in real-time.
Using only an Excel system can create opportunities for errors. Duplicate data and information, high time consumption, and the inability to receive data from other accounting systems are some of the problems associated with using Excel.
Of course, it can be used in the early stages of your company. But exploring and investing in good accounting software is ideal.
Also, payment schedules do not adequately cover the wages of subcontractors and employees. In fact, with the amount of receipts subcontractors generated, keeping track of them all will be difficult and will require more than just payment schedules.
Can I use Software or Tools to Manage Field Expenses?
Yes, you can, and it is strongly recommended. But unfortunately, many contractors don’t have the qualifications to manage expenses on large projects, mainly because they are not trained to be CFOs.
Nevertheless, they have to manage field expenses properly. Thankfully, many software and tools have been created to help with this. These tools are designed to monitor and handle construction expenses, making field spend management easier.
The benefits of adopting any spend management software for your business are numerous. You can do much more than manage expenses or improve revenue generation with proper implementation.
Here are some of the advantages of using field spend management software and tools:
1. Real-time Visibility into everyday financial Transactions
Spend management software tracks and monitors every financial transaction in real-time and evaluates how that expenditure fits into the approved budget. This can help you identify and deal with departments that may be mismanaging money.
2. Improved Risk Management, Better Internal Controls
Tracking your expenditures can help deal with uncontrolled spending, catching fraudulent invoices early, and identifying areas needing new company practices. It gives you, as a contractor, more control and a broader perspective that’ll guide your decisions.
3. Reduced Expenses in Operational Cost
Field spend management can be vital in reducing overhead expenses for a construction company. A well-structured process solves scheduling issues and improves communication between different departments, drastically reducing the potential for errors and saving the company money.
Additionally, utilizing spend management software that has intuitive features can assist in
- Eliminating unnecessary purchases
- Flagging identical invoices
- Optimizing working capital
- Identifying price arbitrages
4. Better Employee Experience
The convenience of having a centralized source of information can improve an employee’s working experience, making it easy for them to carry out their duties as effectively as possible.
Most spend management software and tools are especially useful for storing details concerning a project in one place. This helps the efficient transfer of information from off-site workers to on-site workers.
5. Insights to Drive Business Decisions
Perhaps the most important benefit of spend management software is the level of detail it provides to stakeholders during assessment reviews. These details can be helpful in:
- Forecasting rough order of magnitude estimates for future projects.
- Benchmarking internal performance into milestones
- Increasing profit margins from cost savings
- Identifying and leveraging trends gotten from expenses data
6. An Accurate and Uncompromised Financial Data Bank
Since field spend management software works like an automated ledger book that records financial transactions in real-time, altering financial records to cover up for theft, fraud, and losses becomes virtually impossible.
Popular spend management tools and software providers include Ivalua, Fyle, Divvy, Viewpoint, Proactis, and Centre.
Most spend management tools mentioned above come with a subscription price, which might discourage many contractors from looking into them.
Fortunately, we at Toolbox have a spend management platform that’s free for all our Contractor Card users. The expense management tool is free to access and use if you are a Toolbox customer. The platform allows you to view and track all the expenses incurred on the charge card and also get more details about each expense.
As discussed, the bigger the construction project, the harder it is to estimate and track all your expenses. This is where field spend management helps manage the financial operations of your projects and your company.
Even small construction businesses can better manage their field expenses through Toolbox’s free spend management tool. Apply today to access the spend management platform and obtain a corporate card built strictly for contractors.