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How to pay for new technology in construction budget

Construction Budgeting 101: How to Pay for Construction Technology

Why You Can’t Afford to Underspend on Construction Tech Tools

In a construction budget, spending for technology can be more of an afterthought than a priority. Shockingly, out of 19 industries, construction allocates the least amount of revenue for software and technology, according to Gartner. Meaning, the construction industry underspends cross-industry averages by 60-70%—a staggering number. In the past, construction companies were failing to spend enough on software and technology, with 37% of contractors reporting a limited construction budget as a major factor. In fact, according to a recent study, one-third of US contractors say they spend less than 1% of corporate revenue on IT. With numbers like this, it’s no wonder that productivity as a whole is declining in the industry.

With building spending increasing worldwide, shouldn’t more construction budget be allocated to the tech and tools we all know are improving project efficiency? Yes, but not all companies recognize the financial benefits of investing in technology right off the bat. But consider what can happen when companies refuse to invest in innovation? Remember what happened to Blockbuster? Well, they disappeared and Netflix emerged as a clear winner. Blockbuster didn’t keep up with technology and the flagship product and services that they provided and sold eventually became obsolete. And this story has been played on repeat for a wide range of industries, leaving companies like Kodak, Xerox and Border Books in the dust.

At the end of the day, software and technology are like any tools that make jobs more efficient. In construction in particular, technology improves projects and companies in the following key categories:

  1. Speed and increased productivity
  2. Financial gains and reduced costs
  3. Scaling and expansion
  4. Competitiveness

The livelihood of construction companies depends heavily on improving these four areas. In today’s construction landscape, you can’t afford to underspend on the tech tools that will ultimately help you to compete and grow. In fact, if you have already started to invest in technology and software, keep it up. If you haven’t, it’s not too late.

Below, we’ll introduce you to the ways construction companies think about software purchases and the various ways to pay for them. If you’re looking to increase your technology and software spend for the next year or project, it starts with an understanding of your company’s construction budgeting structure.

Who Pays for Technology in Construction?

Although tech spending in the industry appears to be stagnant, the real story these days is that software spending in construction companies has actually increased in recent years. The key difference now is that construction companies are not paying for technology and software from their revenue, but they are packaging them as project costs and passing the cost down to the project level.

You may ask, “why would a project owner pay for this?”. So, how can construction companies justify the spend on new tech to their project owners? Simple, because construction software and technology spending are similar to charging an owner for the laptop, operating system or other software that each project management team has and uses to manage the project. Moreover, it’s no different than charging the owner the cost of cell phones these project management personnel use to communicate with each other during the course of a project. In the end, the benefits from increased software and technology spending (increased productivity, lower costs to name a few) are also passed on to the owner so asking them to pay for these costs is justified.

Understanding Corporate vs. Project Level Construction Budgeting

To dive deeper into how money is spent on construction software and technology, we must first understand the difference and similarities between corporate level and project level construction budgets. In general, three key differences that influence a corporate vs. project level budget:

Influence and Duration of Investment

One of the main key differences is the influence and duration of impact of such investments. For instance, at the corporate level, investments in software and technology are made on products that will apply to the company as a whole (i.e., company standard, long-term). On the other hand, at the project level, software and technology product investments apply only to the project in question (i.e., project standard, short-term). At the end of a project, the project team gets disbanded and more often than not, the technology is also terminated or not-renewed. Whereas, software and technology products that are implemented at the corporate level tend to last years or until it’s been removed or replaced by another option.

Accounting and Budget Tracking

The accounting and tracking of the various budgets between the corporate level and project level construction budget are very different. When tech spending trickles down to the project level, it gets increasingly more difficult to find data on the amount of total spending because the data becomes more “hidden” and difficult to access. One contributing factor to this is that the data has been disseminated into a myriad of projects; each with its own accounting structure and tracking system. A company’s CFO can no longer provide a single invoice to tell us how much they spent on a particular software or technology project. When spending is down at the project level, more times than not, the CFO does not have the “in-depth” information on the actual spending of all items at that level.

Budget Flexibility

Finally, the flexibility of the construction budget and what can be allocated as a reimbursable line item can also determine if technology should be corporate or project level. Generally, it’s more difficult, although not impossible, to allocate budget for software and technology at the project level when compared to the corporate level. For obvious reasons, budget allocations at the corporate level are easier to establish relative to not having to “gain” approval from the project owner. Setting corporate budgets usually involves the top executives of a construction company, and when that group of individuals decides to invest in a particular software or technology, it becomes part of their corporate budget. Note, however, in some cases, costs invested in software and technology at the corporate level still trickle down to the project level (i.e., Microsoft Office, operating systems, etc.). These software investment have more or less been “accepted” by project owners as legitimate and reimbursable project costs. The challenge arises when a company is looking to set a technology construction budget at the project level. At this level, the budget is usually scrutinized to some degree by the project owners or third-party consultants. At the same time, more budget line items at this level effectively “mask” some of these technology budgets. So, there are more opportunities to allocate budget for certain software and technology within this myriad of budgets at the project level.

How to Make the Spend on a Construction Budget

With a better understanding of how project and corporate level budgets work, you can start to understand where your new technology purchases should originate. Now, looking at your own company or project’s construction budget, can you make the upfront cost, squeeze or do you need to cut? Below, here’s how you can start to make it work no matter your financial situation:

The Upfront: Invest Now for the Future

Now that you either allocated a construction budget or created new line items for project software and technology at the corporate or project level what is next? For companies that have just started to spend money on software and technology, consider some upfront investments in cloud technology. This software will increase collaboration, organization, and provides real-time access to data to all team members; reducing rework as a result. This investment has been found to pay for itself in costs savings and increased productivity. In fact, according to a recent study from PlanGrid, 32% of construction productivity software users saved an average of five or more hours per person each week. And imagine where this time saved can be put back to use in moving the project forward?

Nonetheless, if you have the budget but need to make a solid case for the final approval, consider investing first in a smaller batch of licenses before rolling out company-wide. By showcasing just how much workflows and efficiency can improve, even with limited usage, you’ll be able to make a sound case for a larger spend.

The Squeeze: Finding Room in the Budget

With a limited construction budget for software and technology, you can now go on a product spending spree, right? Not entirely. As all good budget keepers know, it’s as much about spending as it is about spending wisely. To do this, you must know best how to squeeze the most value out of the budget you have. For construction software, you should understand your true technology needs and balance that with the budget you have. To start, ask the following questions:

  1. What are the processes you want technology to improve? Prioritize them because there will be a lot.
  2. How many people (licenses) will need access to software?
  3. Do they need mobile devices (tablets, smartphones)
  4. Do you anticipate an annual cost of maintenance on these devices?
  5. Will you need IT staff to manage?
  6. Can you outsource anything?
  7. What are your competitors using?

With a smaller budget, you might be hesitant to spend unless you find the absolute best software for your company. Looking for the perfect software solution for your company? The bad news is, there might not just be one. There are countless construction software and technology out there, and like anything else, you must do your research to find a good-fit for you and your company. If a software you are considering offers demos, free consulting or trials, take them to see if they’re a good fit. Just like in any industry, there is no one-size-fits-all answers, so take the time and don’t skimp on the research if you want to make the most out of your spend.

The Cut: Do What It Takes and Be Creative

Many companies claim they won’t make the spend for new technology because it’s simply, “not in the budget”. However, there are usually innovative ways to find room in the construction budget by making cuts. Before you start shaking your head, it may be easier than you think. For instance, at the end of the project (or fiscal year), do you have budget leftover? If yes, great, you should look to maximize that budget into another process on your list to improve. If you don’t, then can you do a partial spend for this project or fiscal year or defer spend to the start of next project or year?

A slightly more drastic option is to cut the budget from one line item to fund another. If you are anticipating savings on a project level budget, start to allocate some of that savings to invest in other construction software and technology that will benefit the team and project. The extent to which this option can be exercised is contingent on the project owner and/or the owner contract. For instance, does your contract allow you to reimburse software costs? If so, you’re getting closer to getting more technology that will benefit your project and company. Don’t give up even if a contract isn’t explicit on technology spend. Most contracts are generally vague or haven’t caught up to the recent advancements of technology in the construction industry.

Cuts don’t have to be so scary; just take a careful look at how you’re spending to begin with and bring a little creativity to the table with the intention of making it work.

Improve Your Bottom Line by Investing in Technology

An owner that understands that better technology translates to cost savings through enhanced collaboration and increased productivity is half the battle in helping you make the technology spend for your company or project. If a construction company can justify the investment and show that it benefits the project, then they will have no problem submitting these software and technology costs as reimbursable items. In today’s construction industry, companies cannot afford to lag in advancing along with technology. Without technology, your business could soon become obsolete. Instead, plan to make the spend on software in your construction budget and help the construction industry push towards technological innovation.

Kevin Cheng

Kevin is a Product Strategist at PlanGrid on the Product Team. Kevin has over 13 years of experience in the construction industry. He joins PlanGrid from Level 10 Construction where he worked as a Sr. Project Manager. Prior to Level 10, he was a Sr. Project Engineer at Rudolph and Sletten. He is passionate about creating a product that truly works for the construction industry and he hopes to bring his background and expertise to work with the team at PlanGrid to achieve that feat.

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