ERP (Enterprise Resource Planning)
One shared system of record for a company's accounting, job cost, payroll and purchasing.
Quick Answer
ERP (enterprise resource planning) is an integrated business system that connects a company's core functions, such as accounting, job costing, payroll, purchasing and reporting, around one shared database. In construction, the ERP is typically the financial system of record, and estimating and project tools exchange cost codes, budgets and commitments with it.
The Full Picture
An ERP system gathers a company's major administrative functions on a common data foundation so that one entry updates everything that depends on it. A construction firm's ERP typically includes general ledger, accounts payable and receivable, payroll, job cost, subcontract and purchase order management, and financial reporting. The point is consistency: the same job, cost code and vendor record is used wherever it appears.
Job costing is the center of a construction ERP. Each job has a budget broken down by cost codes, and committed and actual costs are recorded against those codes. For preconstruction, the estimate is the origin of that budget. When a project is won, the estimate's cost codes and quantities typically become the job's starting budget, and the way that handoff is structured determines how easily actual costs can later be compared to the estimate.
Integration is where most of the effort lies. Estimating, bidding, scheduling and field tools usually run in separate applications, and each needs to exchange data with the ERP: cost code lists, budgets, subcontract values, change orders and invoices. The exchange may be a scheduled file transfer or a connection between systems through an interface, and it breaks down when each system uses different code structures or names for the same thing. A shared cost code list and clear ownership of each data element prevent most problems.
A few cautions apply. An ERP is a financial and operational record, not a design or takeoff tool, and it does not replace project management or estimating software. Implementations take planning and staff time, and customization increases later upgrade work. For a preconstruction team, the practical questions are which cost code structure the ERP uses, what format budgets must be delivered in, and who maintains the code list.
Real Examples
Common Misconceptions
People assume: An ERP replaces estimating and project management tools.
Actually: An ERP is the financial system of record. Estimating, scheduling and field management are usually separate tools that exchange data with it.
People assume: Integrating with an ERP is a one-time setup.
Actually: Cost code lists, budgets and vendor data change over time, so integrations need ongoing ownership and testing.
Frequently Asked Questions
What does ERP stand for?
ERP stands for enterprise resource planning. It refers to an integrated system that manages a company's core business processes on a shared database.
What does an ERP do for a contractor?
It typically manages accounting, job cost, payroll, purchasing and subcontract commitments in one system so financial reporting is consistent across jobs.
How does an estimate get into an ERP?
The awarded estimate's cost codes and amounts are loaded as the job budget, either by importing a file or through an integration. The format depends on the ERP and the company's cost code structure.
Why do integrations between ERP and other tools fail?
Most failures come from mismatched cost code structures, unclear ownership of data and changes made on one side that are not applied to the other. A shared code list and a named owner help.
Is an ERP the same as project management software?
No. An ERP is the financial and administrative system of record. Project management software handles field and project workflows such as RFIs and submittals, and the two exchange data.