Infrastructure projects give impetus to EAS

The government, public sector units and even the private sector are spending heavily on enterprise application software for tracking expenditure incurred on infrastructure projects across sectors such as power, highways, shipping, railways and telecom. This software reduces the complexity in managing projects and budgeting across multiple locations, and shrinks project-cycle time and cost overruns. AKHTAR PASHA says that this trend is expected to push up the total enterprise application software spend by three percent this year

RAVI KATHURIA says that customers often fail to factor in wastage at the time of estimating project costs, but they need to do it to calculate the profit that they can make from the project

A COUPLE of months back, in the Express Computer anniversary special issue (March 29, 2004), we stuck our necks out and made a few predictions about enterprise application software (EAS). We said that infrastructure spending would power EAS’s growth in 2004. This is coming true with industry heavyweights such as L&T, ABB, BHEL, Reliance, ONGC, Indian Oil and Tata Power investing in EAS to reduce the complexity involved in managing projects running across multiple sites.

A change in mindset

The way that companies look at project management software has changed thanks to the infrastructure focus of central and state governments, large public sector units and private players. Since these projects have high upfront costs and long payback periods, there are real cost savings to be gained by executing projects rapidly—even a small overrun can mean the loss of crores of rupees.

(See Functional Flow Chart for the Construction Industry)

Finally, a focus on infrastructure

The Indian government is expected to spend Rs 60,000 crore on creating infrastructure in areas such as roads, power, railways and shipping in the next two to three years. These gigantic projects require micro-monitoring of small individual projects across multiple locations. Industry players agree that large-scale investment in infrastructure development will boost the overall spend on EAS by three percent in the current fiscal year. (EAS grew by eight percent in 2003.)

Estimate vs Actual

Says G Nagaraj, managing director, Eselen Web Soft Technology, “There are many issues the infrastructure or construction industry must take care of. One is correlating the project cost estimates with the actual cost incurred. From our experience we have seen that the average cost of a project goes up by 30 percent compared to the budgeted cost. If the project size is huge, an increase of 30 percent means an additional burden of several crores to complete it. This is why customers want to capture the expenditure incurred at every stage of the project, and are demanding EAS to integrate construction design with material, equipment, capital and human resources.”

Clear parameters

Construction is a business where success is measured by the ability to complete projects on time and within budget. The majority of today’s players find themselves responsible for the simultaneous management of multiple, interrelated construction projects within a programme, or that of several projects within an agency. This ability to manage multiple projects in a comprehensive manner is referred to as programme management. The management of the construction projects benchmarked and constantly reviewed against a single bottom-line cost and schedule represents the new challenge for project managers.

Explains Ravi Kathuria, general manager, Marketing and Enterprise Solutions, SSA Global India, “Up to 80 percent of inputs into buildings are repeated. Therefore a system (enterprise application) is required to keep track of the past (repository of information). Such a system should give some vital information such as the costs incurred during a particular job in the past, and a list of reputed contractors or subcontractors with different skill-sets. It should also allow for estimating information at the initial stage.” He adds that customers often fail to factor in wastage at the time of making estimates—which is required to compute the profit from the project. Currently, many infrastructure companies use paper-based systems and Excel sheets for project estimates and budgeting.

Ashish Bhatnagar, director, Technical, Navision Software India adds, “Monitoring and controlling costs of projects is a key concern due to their geographical spread as well as temporary or mobile offices. Centralised purchasing becomes difficult [in such situation] resulting in the loss of volume discounts and a higher landing cost of materials.”

Now vs new

Based on estimates, a list of materials required is prepared and a purchase order issued. Construction materials are sent directly to the project site. Subsequently, it becomes difficult to check the inventory and account for materials used. Ideally, inventory levels need to be checked so that the budgeted project cost is constantly and automatically updated. In this way, at any phase of the project, an estimate of the cost (per cost site) can be drawn up and compared to the current cost. Comments Bhatnagar, “An enterprise application will be extremely useful as it links inventory with the budgeting solution. The application gives the project manager a realistic picture of job progress, as well as an integrated view of subcontractors’ activities.”

Another challenge faced by large companies involved in multiple projects that go on simultaneously, is to track their budget provisions and actual expenses across projects and financial years (if the project is spread over more than one year). Alok Srivastava, sales director, Services Industry, SAP India, elaborates, “It is more challenging if a budget provision is made for a specific project in one financial year but it lies unutilised that year. If someone suddenly demands a large sum from that project budget in the next financial year, more often than not, most companies would not have provisioned for the neglected or delayed project. This leads to immense pressure on the company’s cash management.”

Work contract tax

Companies have to respond to increasingly complex data management and retrieval needs driven by varying regional and national requirements relating to statutory provisions. For example, the work contract tax (WCT) for materials and labour is very similar to TDS (Tax Deducted at Source). But in infrastructure or construction projects, the work contract tax is clubbed under sales tax instead of being put down as income tax. When a company files a return the WCT gets reflected as a cost of service. Comments Nagaraj, “Construction companies spend a lot of time checking numerous bills to calculate work contract tax. Hence, they need a system that can simplify the process and automate the deduction of work contract tax at source.”

Two macro trends

The time for project execution is shrinking: Customers want to shrink the project execution window so that they can avoid project (and thereby cost) overrun. Secondly, they are also demanding damages in case of project overruns. Thirdly, because of competition among infrastructure or construction companies, they are forced to look for solutions that can help them speed up project execution.

Implementation of power and telecom projects

Large power companies in India want to halve the time needed for constructing their thermal and hydel projects so that they can commence power production faster.

Going by the kind of spend ing, one thing stands out: infrastructure companies will em-brace technology—in this case, EAS—to speed up project execution and bring their costs under control.

According to ASHISH BHATNAGAR, an enterprise application can give the project manager a realistic picture of job progress, as well as an integrated view of subcontractors' activities

SAP and the Delhi metro project

SAP India partnered with Siemens Information Systems for the implementation of its ERP solution at Delhi Metro Rail Corporation (DMRC); a significant part of the ERP implemented at the DMRC was for project management. DMRC is building a Mass Rapid Transit System (MRTS) in Delhi, the objective being to provide a safe, reliable and integrated transport network that will meet the rising demand for inter-city transport in the capital. An IT system was required to smoothen the flow of information, support planning tools, provide vital reports for decision making, reduce administration time, better utilise the organisation’s resources, and let DMRC concentrate on its core competence.

Project Shikhar to implement an IT system for MRTS was launched in February 2002. The process began with the selection of SAP software after benchmarking it against various ERP packages available in the market to see which of them met DMRC’s requirements; soon after, Siemens was chosen to implement and manage the solution.

Infrastructure project modules

The SAP system deployed by DMRC supports multiple functions such as general ledger, accounts receivable & payable, fixed asset management, project planning, company structure management, funds control, procurement management, real estate management, materials & warehouse management, maintenance and human res-ource management. (See SAP Applications Blueprint)

The systems’ core modules—Financial, Costing, Materials Management, Human Resources, Maintenance, project Systems and Real Estate Management—were tightly integrated and implemented in record time.

The SAP solution went live in nine months by November 2002, as planned. It involved setting up the software to meet DMRC’s requirements and a complete change management process to handle the change in traditional patterns of thought and behaviour at DMRC.

Major benefits

After going live, the entire project is being handled through SAP Project Systems. All the material and labour consumed is accounted for online, and project systems are capable of creating automatic indents for procurement of material and services against existing contracts. DMRC can now have a detailed view of activities and schedules, and it gets advance warning of any slippage on time lines, material or labour so that corrective action can be taken. It also gets an accurate costing of all project elements, and measures budgeted costs against actuals. Finally, DMRC is now able to predict the exact time lines for upcoming phases, and rapidly execute project activities while saving time.

akhtar@expresscomputeronline.com