The software options available for the construction industry have traditionally been all-encompassing legacy software solutions such as on premises Enterprise Resource Planning systems (ERPs). These systems boast that they help manage projects from start to finish but in reality, many don’t do any part of the process particularly well. With the growing popularity of new lightweight and mobile-focused solutions, some companies are finding it more cost effective to abandon their initial investments in legacy systems and adopt newer, more user-friendly point solutions. Companies that have been using the same software for more than three years, or who are having problems with user adoption, should re-evaluate to see if they are in fact dealing with a sunk cost.
In theory, these all-encompassing legacy systems offer highly accurate information, available across all functions of a project. While some older software systems have been able to keep up with the fast-paced changes in technology and are still viable solutions, many have not fared quite as well. Although the rapid changes in technology and growing popularity of smartphone applications may have threatened some older solutions, they also opened up the market for newer and more pointed solutions to emerge. These new construction software options could be the perfect fit for your company.
Evaluating Sunk Costs
Even with so many great construction software options available, some companies continue to use software that doesn’t suit their evolved business needs. But why? Certainly not because it is easier.
One common reason for not switching software is that companies have already made a significant investment (both in terms of time and money) to implement their existing system. This initial investment, coupled with a lack of budget currently assigned to software makes it difficult to justify spending on new solutions. When conducting an ROI analysis, most would have assumed their chosen system would last several years, which helped justify the high price tag and the long hours it took in training and set-up. The idea of then abandoning this scale of commitment is a difficult pill to swallow.
When evaluating which technology to adopt today, previous investments must be treated as sunk costs in order to select the alternative that will give the greatest benefits. By doing so, we avoid a phenomenon known as the ‘sunk cost fallacy’, which is loosely defined as continuing on with an investment regardless of the fact that the cost of continuing outweighs the benefit.
Are you dealing with a sunk cost? Here are four big questions to ask your team:
- What additional resources will you need to incur to make the existing software work?
It’s easy to forget that just because a tool has already been paid for it doesn’t mean it won’t require additional resources moving forward. Many systems require on-going upgrade and maintenance fees to keep them operating smoothly. Other resources to consider are time and the amount of training it will take to achieve full adoption of the existing software.
- What are your end-users saying about your existing software?
Although many software options offer a wide variety of features that appear useful, if these features cannot be practically deployed they might as well not exist. Ask your end-users how they honestly feel about the system, what features they actually use, and what features they think are missing.
- What are your team’s top priorities for software?
To be able to evaluate if your current system is meeting your team’s priorities, try creating a list of features you believe are important such as mobile access or team collaboration. It can be useful to collect feedback from your full team (from decision maker to end user) on what matters to them when using software, and then agree upon a list of priorities to benchmark against.
- What are the marginal benefits of all alternatives?
Now that you know the true cost of your software and the priorities of your team, you are fully equipped to compare your system with other software systems. Calculate the marginal benefit of all alternatives (remember to exclude the sunk cost of your initial investment) and determine what tool lines up best with your team’s current priorities.
After asking your team these questions as objectively as possible, you will be in a good position to determine whether or not you should stay the course or begin looking for alternatives. The decision to stay the course or investigate new software should be done without the consideration of the initial (sunk) investment. Of course, you will only be able to finalize this decision once you fully evaluate the new software options. We recommend keeping your “short list” of new software options to three.
It’s important to remember that what is now true about best practices in construction technology was not true five years ago. Companies that can adapt to the ever-changing technology environment will without a doubt reap the benefits as software becomes increasingly more valuable with each passing day.