6 Significant Risks your ERP System can Mitigate
The harsh economic conditions we are currently faced with are impacting almost every industry, however none more so than the Australian construction industry. With times as tough as they are, there is no room for error, waste or inefficiency; and there is certainly no room for mistakes that can cause real disasters. With this in mind, it makes sense that Australian construction companies are focusing more than ever on minimising their exposure to risk.
One place to turn for effective risk mitigation is your software systems. Many construction companies are utilising these slower times to invest in end-to-end, industry specific ERP software systems to drive efficiency and reduce cost. Importantly, the same systems are also highly effective for minimising your exposure to the construction-specific risks you have to deal with as well as regular business risk. Here are some of the risks that your ERP software systems can help you mitigate:
1. The risk of exceeding project budgets and timelines
ERP systems accurately track all costs associated with your projects, and with comprehensive cost forecasting functions, provide real-time information on the latest estimated cost of the project. With disciplined application, you are informed of actual and potential cost over-runs, providing the opportunity to take immediate action to address the margin impacts before they occur.
This capability not only works to protect your profit margins but can deliver a construction company a real competitive advantage.
2. The risk of overpaying sub-contractors
Construction-specific ERP systems contain the proper controls around subcontract assessment and payments. These controls ensure your company’s compliance with Security of Payments obligations, ensure the currency of sub-contractors’ insurances and significantly reduce the risk of overpaying your sub-contractors or making payment where documentation is incomplete.
3. The risk of not complying with OH&S requirements
Your ERP system will ensure that employees’ and contractors’ licenses and qualifications are constantly tracked. Alerts are generated when qualifications and licenses have expired. Reporting and analysis tools will assist to ensure employees’ and contractors’ licensing meets the requirements of specific projects. This functionality ensures that Occupational Health and Safety obligations are complied with.
4. The risk of fraud
Proper, accepted accounting practices are built into all good ERP systems. These accounting systems are designed with all the necessary controls and auditing in place to minimise the risk of fraud occurring.
Security levelling and authority limits facilitate sound procurement practices that minimise the risk of embezzlement. System auditing performs critical functions, for example, when programs are opened and closed and when records are created and edited, the user ID, the date, the time and what occurred is recorded in the background of your system. This information is accessible through audit reporting. This means that, should something happen, you know what’s happened, when it happened, and who to talk to.
5. Risks to your system’s security
ERP systems will have built-in security permissions systems, parameter settings and highly configurable user interfaces. These mechanisms provide the platform for the controls contained in the business’ operating policies and procedures to be embedded in the system, in turn ensuring your staff are working in a system aligned totally with organisation strategy. Not only does this optimise efficient process, there are natural risk mitigators in such an approach.
6. Mitigating risk through sound corporate governance
At a corporate level, all of these preceding factors work to ensure good corporate governance practices are in place in your organisation. They culminate to deliver real time information and timely and accurate reporting of the highest integrity. This means that you can have full confidence in your reports to provide the information and insights that enable you to act rapidly to address business issues as they arise.
Therefore if risk mitigation is becoming a focus for your company, it is definitely worth turning to your ERP system for solutions. As well as the cost-saving, efficiency-driving and profit-increasing potential these systems possess and deliver to those who use them, they are also incredibly powerful risk –mitigators and work to raise the general level of corporate governance.