by Mike Oster, Owner/President, Gemba Technologies
The cost of providing technology to a jobsite is not free. This is no different than the cost of a Manufacturing Company allocating a portion of their technology costs/line automation into Cost of Goods. This article introduces why it is critical to establish the Value Proposition for new Technology, as well as, determining the merits of recovering portions of the technology through a Chargeback system.
When Construction Companies are faced with a decision to acquire a new system or cloud service, the discussion can turn quickly into “how will we pay for this system”? Everyone is generally aware that the cost of the technology at the jobsite will be proportionally charged to the job. Oftentimes, a company will express concerns with the current system, but they are often worried about how the cost of new technology will impact the profitability of the job. It is a Catch-22, but keeping a system beyond its non-value add life is a bad idea.
Companies should provide their people with the best tools available. Management understands the value of providing the best small tools for their Trades. Employees want Performance, Durability, and Efficiency with the tools they are given. Benefits of the best tools for the trades are immediate. But, what about technology tools for staff? Decisions on technology tools can be made because of cost and not value. That is because the value of technology tools/systems may or may not be immediate and may be subjective. However, the value of your technology tools/systems should pay massive benefits.
The formula for acquiring a new system is simple. The “anticipated” Value of a New system is determined by identifying the anticipated Direct (Cost Reduction/Revenue Increase) Benefits of the new system, plus the (subjective) Indirect Benefits of the new system, plus the recovery/chargeback costs charged to the Job/Owner, minus the Cost of the System over its Total Life.
V = DB + IB + r – C
Most of the calculations (Direct Benefits, recovery cost, and Cost) are easy to calculate. Where companies often stumble is articulating to the management team the Indirect Benefits of a system. For example, if a company is evaluating a new Safety Tracking system that allows a company to do Predictive Analytics that would help a company improve the chances of sending all employees home safely to their family every day, the Indirect Benefit is Priceless, right?
Cost of “tools” should be charged to the project, whether they are tools for the Trades or tools for the Project Staff. Owners should be insisting on that their contractor companies should be using high value technology systems. Owners need to demand and validate that contractors are using the best tools to improve quality, safety, costs, schedule, records management, employee retention, etc. If a contractor is using outdated technology, this should be a Red flag for the owner that contractor “may” be using outdated processes.
As our industry becomes more dependent on technology, the debate on recovering technology costs (a.k.a. chargeback) to the jobsite will grow. Our industry must increase the level of spend on technology in coming years to improve productivity, attract and retain talent, and reduce the severe trades shortage that is coming. We must all work together to make this happen. The cost of technology is insignificant compared to the positive impact for our industry.
If you are a relatively large construction company, it is likely, that your competition is recovering/charging jobsite for technology services. If you have a loose or informal approach to chargeback, you are either 1) leaving real and significant costs on the table for jobsite profitability, and/or 2) running the risk of not staying current with technology due to your chargeback practices.
Perhaps, your company is not only struggling with the decision on how much to charge for technology services, you may also be struggling with whether your company is spending the right amount on technology in the first place! Whether you need assistance with developing a Chargeback Strategy or developing the ROI calculation when evaluating a new system, Gemba Technologies can help. Please email me directly at firstname.lastname@example.org to find out how. Likewise, for a copy of my free eBook on Technology Chargeback for the Construction Industry, please click here and enter your contact details - http://wp.me/P7DUVP-5j
Mike Oster is president of Gemba Technologies. Gemba Technologies provides CIO Services across multiple industry spectrums. Services include development of IT Strategies, business plan development, process re-engineering services, cloud strategies, contract negotiations, technology assessments, security strategies, emerging technologies, and other CIO services.
Oster is well-known in the Construction Industry and participates in Leading conference presentations, webinars, and articles targeted at Information Technology and the Construction Industry. With close to 40 years of total I.T. experience, Oster has worked for a variety of industries including construction, manufacturing, utilities, food & beverage, entertainment, and the software industry. Oster holds a B.S. in Computer Science from Maryville University and a Master’s Degree in Information Management from Washington University in St. Louis.