In the tenth and final part of our Bidding Insights series brought to you by Construction Data Company (www.cdcnews.com) in cooperation with the Stevens Construction Institute, (www.stevensci.com), we focus on aligning work acquisition with your field staff. Just as those on the firm’s management team must reach a consensus when it comes to the ideal – “perfect” – locations, clients, and work types, the focus of the field staff and the focus of the firm’s work acquisition efforts should be aligned. The way to do this is through a metric that compares the Gross Margin Produced by Field Operations to the Gross Margin Predicted by the Estimating Group. (See: Gross Margin Comparison of Field Performance vs. Estimating Prediction)
Another key metric a firm can utilize in aligning its work acquisition efforts and its field staff is that of backlog. The backlog measures the amount of future work in the pipeline. (See: Labor Hours Backlog) This approach smoothes out the labor hours by demonstrating how labor hours are trending and allows the field staff to properly schedule. An example of this metric in effect can be seen through the Associated Builders & Contractors. Their national organization has created a construction backlog indicator which they utilize to gauge the health of the construction industry. According to the ABC, this is a “forward-looking national economic indicator that reflects the amount of work that will be performed by commercial and industrial contractors in the months ahead.”
The final metric, or rather series of metrics, measures work acquisition success. A firm can select any number of available ways to measure their success rate. One method is hit rates – the number of jobs won divided by the number of projects bid. Another option is to measure the gross amount of contract value in a given year and compare it to previous years. Either way, being able to evaluate performance is a powerful tool.
The Stevens Construction Institute has created one index that will assist firms in measure their work acquisition activity – the Bidding Power Index. This index measures, on a graph, the two related metrics in the work acquisition process – bidding hit rate and percentage of gross profits.
Ideally, a firm will see its hit rate increase and its percentage of gross profits increase as well. However, this is not always the case. Other scenarios include:
Hit Rate Percentage Up / Gross Profit Percentage Down – This indicates that the firm may be sacrificing margins to win a greater number of clients.
Hit Rate Percentage Steady / Gross Profit Percentage Down – This indicates the firm may have a problem with craft skill or estimating cost.
Hit Rate Percentage Down / Gross Profit Percentage Down – This may be an indication of a worsening economy. If the economy is stable, then this may be a reflection of poor craft skill. To compensate for this problem, the firm has been forced to cut margins and it’s still not winning their normal share of bids. This is the worst of all work acquisition outcomes.
Hit Rate Percentage Up / Gross Profit Percentage Up – This is an envious position for the firm. The firm is winning more work and increasing gross profit margin at the same time.
Bidding & Estimating are processes that need to be data driven in order to obtain the success (profitability) a firm seeks. The owner and management team of the firm need to devote the time and resources to developing these metrics.
Sun Tzu recognized this concept centuries ago when he wrote, “The good fighters of old first put themselves beyond the possibility of defeat, and then waited for an opportunity of defeating the enemy.”
By utilizing data to develop a firm’s overall marketing, selling, estimating, and bidding strategy, firms win long before their non-data driven competitors decide whether or not to bid a project.