In our first blog in this series, we talked about the necessity of introducing innovation into your business - to improve efficiency, profitability - to stay competitive. Companies that don’t evaluate how they are doing business, and where they need to improve, are being left behind. Introducing innovation doesn’t have to be overwhelming or complex, and doesn’t have to result in spending a whole lot of money – in fact, the best ways to innovate are to look for ways to simplify and streamline your existing business processes.
In this second blog, we’re going to show you how one of our customers, Company A, started to do just that. Company A took a look at a key process – their project cost management - analyzed how they were managing their project costs, how they wanted to manage their project costs and what kind of information they wanted from their project cost management system...and what changes they could make to improve this process. And in future blogs, we’ll see how Company A uncovers inefficiencies in their process, and the result of improvements that they made.
Company A has been in business for a number of years, and has been running labor and materials projects that have been fairly similar in nature. They’ve been successful in that key respect that many small business owners benchmark success by – there was cash in the bank at the end of the month. So, all in all, their projects were running profitably – but the question is....how much more profitable could they be? How much more cash-flow could be generated from their projects? Were there trends developing that would signal areas to improve efficiency, shore up the bottom line?
As we talked about in our first blog, your evaluation has to start with the very first of the W5 – the “What” questions:
- What does the current process look like?
- What is the process and its resulting information intended to do, or provide an answer to?
So, what was Company A’s current project cost management process? Well, like many other small, mid- and large-sized organizations, it was a variety of applications all cobbled together. When they broke down their project cost management process, this is what it looked like:
- Prepare project plan
- Prepare project estimate
- Prepare requests for quotes (RFQ)
- Update project estimate
- Prepare project bids/quotes
- Prepare project purchase orders
- Prepare project cost tracking and project reports
- Prepare project invoices and revenue charge
Now, the next step Company A took was to look at each of the steps in the process further. How was each step performed? What tools and information were needed? Who performed these steps? After looking at each of the steps, Company A discovered there was a multitude of applications and numerous hours required to generate the information needed for their project cost management, and to manage their project costs:
- Excel to prepare project plans, estimates, purchase order listing, progress reports, performance reports
- Word to prepare RFQs, POs and quotes
- Financial system to prepare customer invoices and revenue charges
- Invoices received from subcontractors and suppliers
- Paper timesheets for employees
- Work tickets provided from field for materials used
And the final step – to value the cost of this process. Understanding the cost of the process as a whole, and the individual parts of the process allowed Company to not only identify inefficiencies in their project cost management process – but how much that inefficiency was costing them.
So, after Company A broke down their project cost management process, they could now look at the second part of that first question - what do we want the process to do? What kind of information should the process provide?
Well, from a high level, Company A needed their process to provide them with accurate, verifiable and reliable project cost management. Makes sense. They knew their existing process was weak in areas, but when they started digging down, they realized there was much more information they required from their project cost management system, for both project management and business growth objectives. Along with providing them with an accurate and reliable project cost management system, they required:
- Viewing historical and current project performance, for all projects – currently not an easy undertaking with numerous Excel spreadsheets
- More real-time visibility into current project performance, without having to wait for all of the information from different applications
- Faster ability to track committed vs. actual costs received
- Timely reporting of project performance to management and external stakeholders
- Projecting expected cash flow on current projects
- Supplier history by a variety of different filters – by type of project, costs of materials over a time period, costs of specific materials
- Customer analysis – which customers created the most revenue and which created the most profit, how many projects did a customer generate, which industry segment/geography/project type created the most revenue
- Resource utilizations to understand the impact of underutilized resources on revenue, when and why are resources underutilized
We leave Company A at this step in the process. They’ve evaluated their cost management process, understood why each step was needed and who and what were involved to perform that step. And they understood what the cost of that step was. In our next blog, we’ll take a look at the second question in the W5, which will lead Company A further into using innovation to reduce inefficiencies and cost….
Why is this part of the process needed? What decisions do they affect?