Outdated ERPs are holding construction back. Here’s how modernization builds resilience by keeping teams connected across the organization.

Uncertainty is the prevailing sentiment amongst construction firms today, as tariffs, labor shortages and wildly shifting material costs expose vulnerabilities in firms’ outdated, poorly integrated and poorly implemented ERP systems. Companies that are feeling the most pain from today’s environment are generally those most in need of modernization, but building a future-proofed system utilizing modern technologies takes time and buy-in that company changemakers must work to make. 

ERPs are the connective tissue of construction firms, integrating every aspect of a project, including design, accounting, labor, equipment and materials.  And while every construction firm has an ERP, they’re not all created equal—something that’s become increasingly apparent as macroeconomic factors become more volatile. 

On a day-to-day basis, companies are experiencing significant fluctuations in material costs and labor availability, both of which are significant cost drivers of a project and heavily impact a company’s bottom line. Without insight into how these swings are impacting project timelines and costs, companies with outdated ERPs are facing shrinking profit margins on their existing projects and getting outbid on the ones they want. 

It’s a dynamic that’s become even more apparent as ERPs have begun integrating artificial intelligence into their offerings. Firms with modernized ERPs not only gain better insight into how shifting dynamics impact their projects, but can also forecast and model the potential impact of variable changes on a project, providing recommendations on necessary adjustments for the company. 

The issue for the industry is that back-end technology systems aren’t a priority for many construction companies, who are estimated to spend less than 1% of their revenues on IT. Construction companies have comparatively low operating margins, and there are plenty of reasons that firms would be reticent about spending money to update their ERPs. 

Though they may not be perfect, whatever system a construction company may be using (which is often a series of spreadsheets), it’s almost inherently accomplishing the bare minimum of what a company needs. That they have a construction business at all is a testament to an ERP system that’s at least allowing them to function.

But companies without modern ERPs often encounter these issues: 

• They’re filled with errors. Spreadsheets are error-prone and static; 94% of business-critical spreadsheets are believed to have errors. 

• They’re inaccessible. Outdated ERPs aren’t cloud-accessible; if an ERP system was established 20 or 30 years ago, odds are it’s only accessible from specific computers—meaning employees, project managers, executives and field employees are missing out on real-time data.

• They don’t reflect current business priorities. If an ERP hasn’t grown with the company, it may not be set up to reflect a shift in business strategy, whether it’s a new territory or a new target sector. 

• They may cost more. As technology companies stop supporting older ERPs, the cost to maintain these systems falls on the firm itself, which has to pay for additional security and maintenance. 

Outdated ERPs may function, but they’re certainly not helping the construction companies that rely on them—and in some cases, they may actually be hurting. While a few years ago, a spreadsheet error or an estimate miscalculation might have been easy enough for a company to swallow, today’s environment isn’t as forgiving, and companies that are eating costs are falling behind. 

Getting real-time data feedback is critical, and a well-built ERP is how companies create the agility they need to react. It’s something the industry is seeing again and again: The greater clarity a company has into its costs, processes and job progress, the greater ability they have to react quickly to something like COVID, tariffs or even a labor strike. 

Take COVID and the PPP loan program, for instance. To apply for a loan, companies needed to provide detailed expense documentation about payroll, contractor costs, job-cost overlap, union costs and consolidated tax filing across any multi-state operations. The first round of PPP loans ran out of funding in just five days; undoubtedly, the firms that were first in the door were those that had clear insight into their data. 

Modernizing a company’s ERP doesn’t necessarily mean taking on a complete overhaul. In fact, effective change management often depends on getting quick wins through minor improvements—focusing on something like improved job-cost estimates or financial forecasting. Pitching these minor improvements is a way to improve buy-in so that all departments get involved, by helping to answer the question that plagues many companywide projects: What’s in it for me? 

The starting point for every ERP update, however, needs to be an assessment not only to understand what the needs of the company are, but also to make sure that the right team is on board with the right success metrics. Too many firms fall prey to selecting a software vendor before anything else, and find themselves trapped in overly large systems that are poorly built and don’t reflect either the company’s needs or capacity. 

Change is hard, and it takes time, but this is a critical moment for construction companies to embrace it. Modernizing ERP systems isn’t just an operational upgrade—it’s a competitive advantage. Firms that invest now won’t just weather today’s volatility, they’ll define the future of construction.

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