By the end of a project with Renoir to identify and rectify the root causes of its margins leakage, the following results were successfully realised:
- Clear expectations and R&R on billing processes and setup needs
- A one-time Cash Flow benefit of $768K by eliminating 1 week from the overall billing cycle
- Reduced margin erosion by over $3m annualised (43% improvement)
Background
The client is a leading provider of technologically advanced welding maintenance, repair and overhaul services and delivers planned and emergency response solutions to a wide range of facilities around the world. They are the industry leaders in providing custom welding solutions in the areas of mechanical integrity services, nuclear field services and innovation and specialty welding.
The Challenge
A key area of concern for the client was excessive margin leakage from operations during the execution of most of its projects. Whilst it was known that leakage was occurring, it was unclear as to the true root causes. Renoir was invited to support them in analysing the root causes and support their efforts to improve profitability.
What We Did
Renoir’s 2-week analysis of the client’s operations was focused on the bid to project closing process.
Current processes were mapped and analysed, along with an assessment of how well they were being executed. Opportunities were identified in the following processes:
- Sales: Bidding and estimating.
- Projects: Planning, management, reporting, billing and close-out.
- Commercial: Concessions, givebacks and credits.
Sustainable benefits were to come from better margin control, reduction of credits and concessions and improving billing cycle times. One-time benefits could also be achieved by reducing the unbilled revenue cycle time. In addition, reduction of givebacks, credits and concessions were identified as further opportunities. In total, Renoir identified the opportunity to reduce margin erosion by up to 50%.
Project Approach
The project focused on building new and effective ‘bid-to-cash’ processes using joint teams comprising both employees of Renoir and the client. These processes were divided into two separate focus areas:
Bid to Billing Process:
- Install process stage gates and the criteria for critical review, analysis and decision making.
- Implement an early warning system along with those for lessons learned and root cause analysis of issues.
- Create and report on project management KPIs relating to the new stage gate process.
- For sustainability, the client’s team was also coached to become the trainers of the new processes.
Billing and Collection Process:
- Modify collection and billing practice.
- Implement the required interfaces and processes along with a ‘system of record’ for all costs, margins and erosion calculations.
Implementation
Steps taken in the implementation phase within the Bid to Billing focus area included:
- Detailed mapping of the gaps in the current “bid to billing” processes, to isolate the critical issues that needed to be addressed and the leaks in profitability. Additional opportunities during an interactive “Brown Paper” Fair.
- Implementing a new 6-gate project process to ensure required rigor and standardisation for better consistency.
- Building a robust “lessons learned” procedure oriented towards quantitative root cause analysis.
- Reviewing key interfaces between Project Managers and other key project personnel to align skills and capabilities.
The Billing to Collections area improved both internal and external processes to improve cash flow. The joint team achieved this through the review and critique of existing billing and the timecard approval process weaknesses which were negatively impacting cash flow.
In order to improve effectiveness, RACIs were defined covering invoicing and collections. In addition, a tool was implemented to measure cycle times against each role.
Results
The client continued to provide quality construction projects for their clients and wanted to maintain their reputation without loss of profitability from margin erosion.
As such, Renoir supported them by mapping out and critiquing its current processes to build a new, gated bid-to-billing process. The new process, along with a new organisation with clear roles, responsibilities and KPIs, is helping them deliver projects with greater efficiency and profitability.
“We wanted to standardise and improve our wall-to-wall business process to provide standardised Customer Service, ensure better internal communication and accountabilities and deliver improved profit margins. We are accomplishing all three with our new processes.”
Vice President
Key Results
Consistent and rigorous bid estimations
Project scope transparency with margin erosion visibility
Systematic lessons learned culture
Verification and prevention mindset instead of fire-fighting and problem solving
Clearly defined accountabilities and responsibilities
Drive towards clarity of targets, expectations and performance driven management
Improved utility and utilisation of internal Subject Matter Experts
Reduction of Non Value Added and rework in both operations and accounting
Identify the root causes of underlying issues to rectify problems and improve profitability.
