Now that nearly every ERP and accounting app appears to have “AI” as part of the platform, owners are asking me if they can get rid of their accountants. The honest answer: no, but your accountant should be doing things differently than they did two years ago.
AI is very good at specific, repeatable steps while being bad at judgment.
Construction accounting, as any construction accountant will tell you, has plenty of repeatable steps, but they’re buried in a lot of judgment.
Why construction is different
Much of what I see in AI for accounting now is designed for simpler businesses. Construction has an added dimension of accounting that doesn’t exist in many other businesses—jobs.
Here’s an example of what I mean. In most industries, payroll is just payroll. It gets coded to one line item, payroll expense, and you’re done. In construction, that same payroll also has to be coded to the right job. That’s job costing, and the job is the extra dimension. AI is very good at looking at payroll records and pushing them to payroll expense. It is not nearly as good at looking at those same records, figuring out which jobs the hours belong to, and allocating the dollars accordingly.
Change orders are another example of what I mean. The reality is that there’s a fair amount of judgment when it comes to accounting for change orders in various stages of approval. AI isn’t yet good at that kind of nuance.
Does this mean AI in construction accounting is a bust right now? Absolutely not.
Machines on a factory floor
AI in construction accounting is less like a robot that can keep your books George Jetson-style and more like a set of machines on a factory floor. Each machine has a specific, narrow purpose and is calibrated to receive specific inputs and to produce specific outputs. The outputs of one machine feed the inputs of the next. No single machine handles the accounting from end to end.
The key to making the factory floor work is having the right manager in place. The construction accountant doesn’t disappear in this model. They decide which steps get a machine, set it up, feed it the right inputs, and check what comes out.
Here are some examples of machines you could put on your factory floor.
· Pulling vendor invoices, receipts, and pay apps out of an inbox and turning them into coded entries ready for someone to approve, instead of someone keying them.
· Matching bank, credit card, and loan activity to the books and handing a person only the exceptions, so a reconciliation is 20 items instead of 400.
· Taking a first pass at job and cost code coding based on how similar transactions were coded before, and flagging the ones it isn’t sure about rather than guessing.
· Scanning job cost reports every month for the cost codes running hot against estimate and the jobs where billings and costs have drifted apart, before anyone has to go hunting.
· Answering plain-English questions about the data, like what you’ve spent on concrete across all open jobs this year, without someone building a report.
What does it look like when AI in construction accounting is effective?
When a contractor is effectively using AI in their accounting, their accountants spend far more time using their brains than they do using their keyboards.
Historically, day-to-day accounting has involved a lot of data entry and even more reconciliation. With an effective AI implementation, a construction accountant spends far less time on the mechanics and far more time getting your month closed on time, preparing a WIP report you trust, and getting you information about your jobs while it’s still useful.
Two ways to get started
Here are two ways to move forward, depending on what your accounting team looks like today.
If you have strong construction accountants in house but don’t have the expertise or bandwidth to design and implement an AI solution, then engage a partner to train your accountants to set up and utilize AI.
If your accountants are strong on the transactional side but haven’t done effective job costing or WIP, then engage a partner to help you set up and monitor an AI solution.
Ready to explore AI solutions in construction accounting? Let’s meet.
Learn more about our AI accounting for contractors.
