Working Consultants
Hello folks! I have been a lurker for awhile. Figure, I would start a topic.
I was wondering if current consultants would provide their thoughts on the most critical/impactful skills, tools, frameworks, etc. that they most frequently use when working with clients?
A little background. I am VP of my family business. We are a small-medium size company that works in heavy industrial services throughout the US and occasionally in South America. In researching ways to improve our company strategy, structure, etc. I came across this website. There are lots of great contributors here, a great resource. You guys have a cool job, one that I envy at times.
Appreciate the insight.
Do you really know where you make money, and where you don't? Are you allocating costs in a way which show the true profitability of your customers/segments, etc?
Great questions.
Where we make money.....Honestly, I do not think we know exactly where we make money. We are the right track over the last year, however, I think we need to go further. Over the last year, for example, we have just started to segment projects according to industry and types of work performed. Previously we didn't do this. We also had the luxury of a robust market, an owner who had good market feel/gut instinct. This instinct doesn't work for those of us who have not worked in an industry for years, we need data and analysis.
Do we allocate costs properly.....We allocate costs to projects or specific GL accounts. The financial manager and I have a tenuous relationship. I believe businesses need overall budgets (and departmental budgets) regardless of how cyclical the respective industry is and how difficult it is to know when revenue will actually be received. We are a bid based business with shifting schedules. Part of the problem with allocating costs better has to do with the poor accounting software that is currently used as well as the poor philosophy, in my observation.
Somewhat of a "set in their ways" type of group who almost will not change regardless of what you show them data wise. Definitely have to sell it to them and show them what's in it for them.
How do you suggest costs be allocated, if it is different than what I outlined?
One thing I've found in family-run firms is - are you aware of the politics within the firm? Does someone run an unprofitable line of business that you just won't divest or cut because of their familial influence?
Thank you. There probably were some unprofitable areas. I feel we have gotten rid of most of that. We have one area that qualifies as a cash cow.
Understand the cash flow of your business, diagram process flows of service lines to understand bottlenecks and locate critical paths in order to optimize. Understand your cost structure and the drivers for each area of your business. What is it macro environment of your industry and where are your customers and what do they want (also how to reach them) ? Start with a simple SWOT analysis and really look at all the facets of your firm. Observe what is happening and not what is suppose to happen to find areas of improvement. Send me a PM if you want more to provide more specific insight
Hockey, our value chain breaks down as follows:
Sales&Mktng --> Bid Request --> Concept Engineering --> Bid --> Project Engineering --> Logistics --> Ops
Re: The idea of using a 6 month average rolling costs is a great idea. I have looked at implementing a 13 week cash flow forecast and we are close.
We have done a SWOT exercise a few times, but I felt the rest of our guys engaging in it just didn't get it. I have looked at our industry using Porter's 5.
Basically we work for:
Large EPC firms - KBR, Fluor, Bechtel, Shaw, CBI Utility (Power) Owners Oil & Gas - Exxon, BP, Chevron, etc.
I'll shoot you a pm.
for cost allocation specifically..is there a way to do a trend analysis and use a rolling 6 month average of costs in order to better forecast future costs and this would also allow you to just true-up additional costs after the month close.
Sounds like a great job with opportunity....although all I really learned consulting was never work for a family run business if you're not family.
People: Who are your best talent. Are they compensated (cash, development/progression) appropriate to if they were at a competitor. Generally your best people do most of the work. What is your "Employment Value Proposition" (this will save you ~20% when poaching key talent)
Processes: Half the time just "walking" through the end to end of your major processes and talking to the people at each step is huge. Gives you a good look at how things are, then you can use the various LEAN / Kaizen methods to fix the main value-adding ones.
Activity Based Costing & Profitability Analysis: Understand your costs at every major stage in a process, then figure out which product mix maximizes your profit. Be aware of strategic products (halo products, future markets etc.)
Technology & Systems: Do you have the tools to support your jobs (data management, costing, process controls etc.)
Strategy: There is so much on this, but the heart is who buys your products, what do they want, and what will you choose to do to meet that need, and more importantly what will you choose not to do.
Structure: Does your organizational design support your strategy, business model and overall business context. Does it interfere with any processes? Look at RACI tables to help look at roles, who has the "D" (decisions).
Then again - I don't know what you mean by medium business, this could all be way too much work. In that case, just be aware of what you actually do day to day (process maps, LEAN accounting, costs) and be clear about where you're going and how to get there.
Good luck,
TT
Do you have a solid system for doing project economics? Margin on bids, accuraccy of your final numbers etc? (Even a simple grading of A,B,C based on how close actuals are to final costs?) A good idea of internal costs. Even trying to allocate 5% administration into the projects?
TT
Tyler, I tried to respond to your first post but I got a message response that said spam. I will try to pm it to you.
Re: project costing. Yes we have a very detailed estimating template that is cost based. Surprisingly or maybe not so surprisingly most in EPC or related fields estimate using market rates as opposed to cost. They then add a margin on top of their rates, rates which already have some arbitrary margin included. This harms their ability to get really competitive and know their true costs. We base our bids on costs plus a gross margin. In the current market I have been pushing very hard to get sales volumes above fixed costs for the quarter/year as soon as possible explaining to sales that unit contribution then becomes very much a key.
The sincereity of posts in this thread are nice and all, and OP, I hope your family and the business the best, but for someome to actually give good advice ("consult") much, much more would be needed to make appropriate suggestions - detailed business model/plan, history, financial statements, etc.
Blind suggestions and generalities probably won't get you very far, but I guess that at least some helpful ideas will be generated here.
I certainly understand the need for real data for accurate assessments. I took the thread as being about generalities.
Basically, when you started consulting have you used or noticed something that is key when analyzing businesses, anything new that you didn't use when studying for case interviews.........
Maybe something like the book McKinsey Way already covers this from a general perspective. I haven't read it.
Thanks
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