akt construction: new day new strategy june 2, 2011 fmi presentation

CONSTRUCTION

The AKT Construction Team works with contractors and firms of all types and sizes,

providing innovative solutions and the highest caliber service.

serving the built environment

The Construction Group provides comprehensive financial services to contractors, developers, architectural and engineering firms. Our team of advisors and financial experts bring more than business acumen, each member of our team brings experience working in and for industries that shape our built environment—with an average of 20 years experience in these fields.

Our Construction Services Group serves nearly 200 general contractors, subcontractors and developers, ranging from small proprietorships to large, multi-state contractors. Some have revenues between $25 million and $200 million, annually. As a result, we know that business cycles come with the territory. That’s why AKT offers comprehensive services that can accommodate your every stage of business development. From addressing income tax issues to information systems, financial reporting or bonding needs—AKT is committed to building long-term client relationships. We take the time to get to know your business and shape our services around your goals and needs.

Our firm understands the financial reporting services required by sureties and lenders. These include but are not limited to audits, reviews and compilations of financial statements with detailed contract schedules and expanded financial disclosures. Our management consulting services include bonding and loan assistance, job costing, overhead analysis, internal control studies, lease versus buy analysis, cash flow analysis, budgeting, and many others. Our team is also well versed in the federal and state tax laws, including multi-state tax compliance.

examples of how we assist contractors include:

p Financial statement services, including audit, review and compilation

p Tax planning and preparation

p Cash flow analysis

p Overhead rate analysis, job costing and accounting systems

p Strategic business planning

p Succession and transition planning

p Benchmarking

At AKT, we understand that the construction industry endures cyclical business ups and downs, and we are here to make sure our clients can thrive in any environment. We take pride in our personal and local services, along with our personal commitment to help you succeed. And we have an extensive network of professionals and firms worldwide to address your needs.

The members of our Construction Industry Team receive at least the minimum 40-hour professional requirement of continuing education each year, with a focus toward accounting and auditing standards, tax law, and other issues facing the construction industry. Each year our professionals attend local and national seminars or conferences sponsored by the various construction organization and associations listed above. This commitment to be leaders within the construction industry sets us apart from other firms that may offer similar services.

www.aktcpa.com 1-877-620-4489portland, or salem, or carlsbad, ca escondido, ca san diego, ca anchorage, ak

January 13, 2011

New Day, New Strategy:

Repositioning After the

Great Recession

June 2, 2011

© 2011 FMI Corporation

Key Discussion Topics

• Planning for the Future

• Differentiating Yourself

• Future Hot Markets

• New Normal Buying Behaviors

1


Construction Put In Place

$-

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Mill

ion

s o

f C

urr

en

t D

olla

rs

Construction Put in Place, Estimated for The United States

Total Residential Total Nonresidential Buildings Total Nonbuilding Structures

2


U.S. Construction Forecast

Construction $ Put in Place

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

Year

Mill

ions

Cur

rent

$

Recession Residential Nonresidential Buildings Nonbuilding Structures

3


Overall Industry Outlook

• High volume nonresidential segments in 2010

– Educational ($94.6 B)

– Power ($88.5 B)

– Highway and Street ($83.7 B)

• Strongest percentage gainers in 2010

– Conservation & Development (27%)

– Amusement & Recreation (5%)

• Weakest percentage losers in 2010

– Lodging (-43%)

– Office (-29%)

– Commercial (-28%)

– Manufacturing (-28%)

Year

2010

2011

2012

%

-7

3

8

Total Put in Place:

4


Jobs and Unemployment

Construction Unemployment Rates

1951-2010

Source: U.S. Department of Labor

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Un

em

plo

yme

nt

Rat

e

Construction National

5


Contractor Profit Before Tax

Source: Risk Management Associates, Philadelphia, PA

Annual Statement Studies 1985-2009

Recession Periods Are Shaded Red

0

1

2

3

4

5

6

7

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

Perc

en

t

Contractor Pre-Tax Return on Sales

Electrical Commercial Heavy Const Paving HVAC Utilities

6


Construction Categories

Ranked by 2010 Volume

*Improvements include additions, alterations and major replacements. It does not include maintenance and repairs.

Source: Building permits, Construction Put in Place and trade sources. This report is based on multiple sources, prepared

and believed accurate by FMI, but accuracy is not guaranteed by FMI nor by its employees.

Construction Put in Place

Estimated for The United StatesMillions of Current Dollars4th Quarter 2010

2009 2010 2011 % of Total 2010

Improvements* 114,085$ 123,212$ 129,373$ 14.7%

Single Family 106,021$ 105,677$ 121,528$ 12.6%

Educational 101,743$ 94,621$ 96,514$ 11.3%

Power 89,405$ 88,511$ 92,936$ 10.5%

Highway and Street 82,028$ 83,669$ 85,342$ 10.0%

Health Care 44,557$ 44,780$ 45,227$ 5.3%

Transportation 36,831$ 38,304$ 39,453$ 4.6%

Commercial 55,380$ 39,874$ 37,880$ 4.7%

Office 52,108$ 36,997$ 36,257$ 4.4%

Manufacturing 58,557$ 42,161$ 34,151$ 5.0%

Sewage and Waste Disposal 24,925$ 25,922$ 26,959$ 3.1%

Multi Family 33,177$ 22,229$ 23,340$ 2.6%

Amusement and Recreation 18,773$ 19,712$ 20,106$ 2.3%

Communication 19,336$ 18,562$ 19,490$ 2.2%

Water Supply 15,561$ 16,028$ 16,509$ 1.9%

Lodging 25,064$ 14,287$ 14,144$ 1.7%

Public Safety 13,475$ 12,397$ 12,521$ 1.5%

Conservation and Development 5,624$ 7,142$ 7,857$ 0.9%

Religious 6,286$ 5,909$ 5,968$ 0.7%

7



Source: Building permits, Construction Put in Place and trade sources. This report is based on multiple sources, prepared and

believed accurate by FMI, but accuracy is not guaranteed by FMI nor by its employees.

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

RESIDENTIAL BUILDINGS

Single Family 434,912 417,518 306,990 187,648 106,021 105,677 121,528 147,049 183,811 215,059 247,318

Multi Family 48,699 54,324 52,570 48,083 33,177 22,229 23,340 29,875 34,356 37,792 41,193

Improvements* 133,896 147,973 140,909 122,016 114,085 123,212 129,373 134,548 139,929 146,926 155,741

Total Residential 617,507 619,814 500,468 357,747 253,283 251,117 274,241 311,472 358,097 399,777 444,253

NONRESIDENTIAL BUILDINGS

Lodging 12,840 18,139 28,706 35,806 25,064 14,287 14,144 15,134 16,193 17,489 18,713

Office 45,763 54,187 65,259 68,563 52,108 36,997 36,257 38,069 40,354 42,775 45,341

Commercial 70,242 76,713 89,684 85,200 55,380 39,874 37,880 39,774 42,160 45,533 49,631

Health Care 34,430 38,472 43,766 46,902 44,557 44,780 45,227 49,298 54,721 61,834 69,873

Educational 79,687 84,928 96,758 104,890 101,743 94,621 96,514 102,305 110,489 120,433 132,476

Religious 7,735 7,749 7,540 7,225 6,286 5,909 5,968 6,147 6,270 6,520 6,846

Public Safety 7,314 7,768 10,201 13,083 13,475 12,397 12,521 12,897 13,413 14,084 14,788

Amusement and Recreation 15,236 19,033 21,212 21,829 18,773 19,712 20,106 20,910 21,746 23,269 24,898

Transportation 25,052 27,964 31,877 34,746 36,831 38,304 39,453 41,820 44,748 48,775 53,165

Communication 18,906 22,219 27,580 26,487 19,336 18,562 19,490 20,465 21,693 22,994 24,374

Manufacturing 28,568 32,677 40,633 53,234 58,557 42,161 34,151 33,468 35,810 38,675 41,769

Total Nonresidential Buildings 345,773 389,849 463,216 497,965 432,110 367,603 361,710 380,286 407,596 442,381 481,874

NONBUILDING STRUCTURES

Power 38,371 42,244 66,055 81,075 89,405 88,511 92,936 101,301 111,431 125,917 143,545

Highway and Street 64,139 72,040 76,682 81,361 82,028 83,669 85,342 89,609 94,089 98,794 102,746

Sewage and Waste Disposal 19,867 23,186 24,872 25,696 24,925 25,922 26,959 28,307 30,005 31,806 33,714

Water Supply 14,028 14,960 15,798 16,752 15,561 16,028 16,509 17,499 18,724 20,222 21,840

Conservation and Development 4,453 5,130 5,260 5,234 5,624 7,142 7,857 8,171 8,498 8,753 9,015

Total Nonbuilding Structures 140,858 157,560 188,667 210,118 217,543 221,272 229,603 244,887 262,748 285,491 310,860

Total Put in Place 1,104,138 1,167,223 1,152,351 1,065,830 902,936 839,992 865,554 936,645 1,028,441 1,127,650 1,236,987


Estimated for The United StatesMillions of Current Dollars

4th Quarter 2010

8



Source: Building permits, Construction Put in Place and trade sources. This report is based on multiple sources, prepared and

believed accurate by FMI, but accuracy is not guaranteed by FMI nor by its employees.


Estimated for The United StatesMillions of Current Dollars

4th Quarter 2010

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

RESIDENTIAL BUILDINGS

Single Family 15% -4% -26% -39% -44% 0% 15% 21% 25% 17% 15%

Multi Family 18% 12% -3% -9% -31% -33% 5% 28% 15% 10% 9%

Improvements* 13% 11% -5% -13% -6% 8% 5% 4% 4% 5% 6%

Total Residential 15% 0% -19% -29% -29% -1% 9% 14% 15% 12% 11%

NONRESIDENTIAL BUILDINGS

Lodging 4% 41% 58% 25% -30% -43% -1% 7% 7% 8% 7%

Office 8% 18% 20% 5% -24% -29% -2% 5% 6% 6% 6%

Commercial 5% 9% 17% -5% -35% -28% -5% 5% 6% 8% 9%

Health Care 7% 12% 14% 7% -5% 0% 1% 9% 11% 13% 13%

Educational 7% 7% 14% 8% -3% -7% 2% 6% 8% 9% 10%

Religious -5% 0% -3% -4% -13% -6% 1% 3% 2% 4% 5%

Public Safety 4% 6% 31% 28% 3% -8% 1% 3% 4% 5% 5%

Amusement and Recreation -9% 25% 11% 3% -14% 5% 2% 4% 4% 7% 7%

Transportation 0% 12% 14% 9% 6% 4% 3% 6% 7% 9% 9%

Communication 22% 18% 24% -4% -27% -4% 5% 5% 6% 6% 6%

Manufacturing 22% 14% 24% 31% 10% -28% -19% -2% 7% 8% 8%

Total Nonresidential Buildings 7% 13% 19% 8% -13% -15% -2% 5% 7% 9% 9%

NONBUILDING STRUCTURES

Power 8% 10% 56% 23% 10% -1% 5% 9% 10% 13% 14%

Highway and Street 9% 12% 6% 6% 1% 2% 2% 5% 5% 5% 4%

Sewage and Waste Disposal 11% 17% 7% 3% -3% 4% 4% 5% 6% 6% 6%

Water Supply 11% 7% 6% 6% -7% 3% 3% 6% 7% 8% 8%

Conservation and Development 10% 15% 3% 0% 7% 27% 10% 4% 4% 3% 3%

Total Nonbuilding Structures 9% 12% 20% 11% 4% 2% 4% 7% 7% 9% 9%

Total Put in Place 11% 6% -1% -8% -15% -7% 3% 8% 10% 10% 10%

9


FMI Nonresidential Construction Index, (NRCI)

Second Quarter 2011

Overall Economy

Overall Economy Where We Do Business

Our Construction Business

Nonresidential Building Construction Market Where

We Do Business

Our Expected Backlog

Cost of Construction Materials: Higher

Cost of Labor

Productivity


NRCI Second Quarter 2011



NRCI

components Q3,

2010

NRCI

components Q4,

2010

NRCI

components Q1,

2011

NRCI

components

Q2, 2011

The overall economy 53.7 54.0 74.7 74.7

The overall economy where

panelists do business52.3 50.0 67.5 72.9

Panelists' construction

businesses53.7 53.4 57.1 63.4

Nonresidential building

construction market where

panelists do business

43.6 43.5 54.0 60.6

Cost of construction materials* 43.3 39.6 15.5 6.6

Cost of labor 43.2 44.2 42.9 38.5

Productivity 56.3 56.4 53.5 56.6

Expected change in backlog 42.7 50.0 58.7 58.2

Median Median Median Median

Approximate current signed

backlog in months 9.0 8.0 8.0 9.0

NRCI Component Indexes—

Comparisons of Results: Q3, 2010 to

Q2, 2011



Sector 3 Months 1 Year 3 Years

Commercial 50.9 62.8 83.3

Education 47.5 51.7 67.8

Health care 62.9 75.2 80.3

Lodging 49.5 59.9 71.7

Manufacturing 58.3 68.8 77.7

Office 42.6 52.1 74.8

Other 60.7 70.7 79.3

Results Q2, 2011

NRCI Components - Business Outlook

Summary by Market Sector


NRCI Fourth Quarter 2010:

Delays and Cancellations


25%

19% 20%

16%

7% 7%5%6%

17%

29%27%

17%

4%

0%2%

7%

11%

24%

37%

13%

4%

0%

5%

10%

15%

20%

25%

30%

35%

40%

>10% decrease

in F/T direct employees

5% to 10%

decrease in F/T direct

employees

0 to 5%

decrease in F/T direct

employees

No changes

anticipated at this time

0% to 5%

increase in F/T direct

employees

5% to 10%

increase in F/T direct

employees

>10% increase in

F/T direct employees

What changes do you foresee in the number of F/T direct employees in your organization for 2011? (Excluding natural attrition, retirements etc.)

Q1, 2009 Q1, 2010 Q1, 2011

NRCI First Quarter 2011

15


Rehires (%) New Employees (%)

17% 83%

Of planned new hires, what percentage do you expect will be

employees rehired after recession layoffs and what percentage

new employees?

NRCI First Quarter 2011

16


Population Growth (1 of 3)

Change in Population, 2000 to 2030 (absolute numbers)

< 500,000

500,001 - 1,000,000

1,000,001 - 2,000,000

2,000,001 - 4,000,000

4,000,001 - 6,000,000

6,000,001 - 13,000,000

WA, 2.7 mil.

CA, 12.6 mil.

NV, 2.3 mil.

AZ, 5.6 mil.

TX, 12.5 mil.

NC, 4.2 mil.

VA, 2.7 mil.

FL, 12.7 mil.

GA, 3.8 mil.

Source: U.S. Census Bureau 17



• Baby boomers are currently the largest segment of the

U.S. population. There are 78 million baby boomers who

comprise 28% of the U.S. population.

• Between 2010 and 2030, Census Bureau data indicates

that:

– 15 to 24 year-old age group will increase by 5.4 million (12.3%)



– 65+ year-old age group will increase by 31.9 million (79.2%)

Source: U.S. Census Bureau

18



• Elderly population in every state will grow at a faster rate

than the total population.

• Growth rate in the 65 and older population will be about

3.6 times the growth rate of the nation.

• In 2030, 10 states will have more people 65 and older

than under 18.

State Median Age in 2030 Change from 2000NM 44.8 10.2WY 46.4 10.2MT 46.0 8.5ME 46.9 8.3WV 46.7 7.8DE 43.6 7.6ND 43.2 7.0FL 45.4 6.7VT 43.9 6.2PA 42.1 4.1

Source: U.S. Census Bureau19


Population Growth by State (1 of 2)

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

NV

AZ

FL

TX

UT ID NC

GA

WA

OR

VA

AK

CA

CO

NH

MD

TN

DE

SC

MN

AR HI

VT

NJ

MT


States Ranked by Percent Change in Population

2000 – 2030

20


Population Growth by State (2 of 2)

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

NM

MO WI

OK

KY IN

ME

MA RI

AL

KS

MS

CT IL MI

LA

NE

SD

WY

PA

NY

OH IA

WV

ND

DC


States Ranked by Percent Change in Population

2000 – 2030

21


Megapolitans

• Ten megapolitan areas will have populations of at least 10 million each by 2040.

Source: Metropolitan Institute at Virginia Tech

22


Key Indicators

• Architectural Billings Index (ABI) – 47.6 in April 2011

– Had 5 consecutive months 50 or higher

– Dropped three points in April

– New Project Inquiries down 3.7 to 55

• FMI Nonresidential Construction Index– 58.7 (Q2, 2011)

• Commercial Real Estate

– $530 billion of commercial mortgages will come due for

refinancing in the next three years (Foresight Analytics, LCC).

– About $160 billion maturing in the next year (Foresight Analytics,

LCC).

• 17.8% Construction Unemployment (April 2011)

– 4% lower than April of 2010

– Third straight monthly unemployment gain

– Since April 2006, the industry has lost 2.2 million jobs (29%)23


Surety Overview(Based on FMI’s recent Surety Industry Survey – 249 responses)

• Only 25% of survey respondents believe their clients are

well positioned to succeed in the marketplace over the

next 3-5 years

• Why?

– Contractors have failed to bring down overhead in conjunction

with declining revenue and backlog

– Contractors have strayed too far from their areas of competency

– Contractors have taken on unacceptable levels of risk in bidding

new work

24


But Wait!

“I am shocked at the number of people who are still worrying about their strategic plan for 2009. We canceled all that stuff – all of it.”

Jamie Dimon, CEO, J.P. Morgan Chase

25


Context

Strategies Should Reflect a Good

Understanding of Context

Strategy

26


Performance Problems Will Emerge When

Context Changes but Strategy Does Not

New Context

Old Strategy

27


Transitioning to Public Work, Think Again!

28


The ―4 Cs‖ of Context

Context

• “Climate”: External factors and forces, e.g., economic

forecasts, surety capacity, deleveraging trends, commodity

prices, politics, demographics

• Customer/Market: Everything about customers, e.g.,

changes in buying behavior, unmet needs

• Competitors: Everything about competitors, e.g., entry/exit,

strategies, management, aggressiveness

• Company: Internal considerations, e.g., value drivers,

strengths/weaknesses, aspirations, resources

29


Context Matters – Understand the

Whole Picture…

30


Performance Will Improve When the

Old Strategy is Retooled to Fit the New Context

31

New Context

Strategy New Strategy


Contingency Plan Framework for

Turbulent Times

2011 Mission

Scenario PlansBusiness

Development Plan

Operations Plan

Financial PlanHuman

Resource Plan

• How long and

how deep?

• Determine

trigger points

and actions.

• What is our new

Context?

• Find the right

projects with the

right clients at

the right price.

• Deputize non-

traditional BD

resources.

• Analyze how BD

time is spent

• Execute all

projects

flawlessly!

• Drive operational

best practices

• Insist on

compliance

• Improve

productivity

• Cash is King!

• Challenge

budget

assumptions.

• What gets

measured, gets

done.

• Know your

breakeven point

• Communicate –

Who needs to tell

what to whom

and when?

• Scale the business

based on

dispassionate

view of the facts.

• Get rids of the

imposters!

32


Market Realities

1. There are always contractors making (and losing)

money.

2. Companies trend independent of the market.

3. Following the crowd is a sure fire way to lose money.

4. Your firm is perfectly designed to get your current results.

5. Construction spending in 2011 will be the same as in

2002 (2006 for Nonresidential Buildings)

6. Just as many contractors go bankrupt in good times as in

bad

33







34


Answer the Questions

• Are you just a number? If so, what are you really doing to

differentiate yourself?

• What do your customers like about you? What don’t they

like about you? Do you really know or do you NOT want

to know?

• What do you really know about your competition? What is

their “value proposition?”

• Are your proposals, presentations, bids, etc. the same

regurgitated/reconstituted summary of your resume’? Do

your proposals ever take into consideration what is

important to your customer?

35



What percentage of your

business would you estimate is

from loyal/repeat customers?

(Loyal customers as % of total

annual revenue.)

What percent of your

business is referred to

you by current/past

customers?

Median 70% 50%



39.7%

19.1%

41.1%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

No change. Yes, we have more work from

loyal/repeat customers now than before the recession.

Yes, we have more work for

new customers now than before the recession.

% o

f T

ota

l R

esp

on

se

Has the recession economy changed the ratio of repeat or loyal

customers to new customers in your backlog?



3.6%

26.4%

6.4%

55.5%

8.2%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Customers' business

failed or went bankrupt.

Customers lost to

competitors with lower bids.

We did not maintain

our relationships very well.

Customers have

canceled building plans for the near

future.

Other

% o

f T

ota

l R

esp

on

se

If you have fewer loyal customers now than before the recession, what do you think are the primary reasons for that loss?



58.7%

26.1%

11.6%

3.6%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

More with loyal customers. They will

come back.

More with new customers. Loyalty is

harder to maintain in this

market.

Don't know Other

% o

f To

tal R

esp

on

se

When business improves, do you expect to again have more business with loyal customers, or with new customers?


Yesterday’s Market Dynamics

Historically

# of Projects (real) in your pipeline

# of Projects won

1 out of 4 – 5

Suspects1

Prospects2

“Live” Prospects3

Bids/Proposals &

Presentations4

Contract Awards5

1 Everybody who has bought or could buy construction services in a given market

2 Potential buyers of your services who meet customer criteria

3 Project chase or customer development

4 Ask for the same

5 Secure the contract

40


Today’s Market Challenge

Historically

# of Projects (real) in your pipeline

# of Projects won

1 out of 9 – 10

Today

Suspects1

Prospects2

“Live” Prospects3

Bids/Proposals &

Presentations4

Contract Awards5

1 Everybody who has bought or could buy construction services in a given market

2 Potential buyers of your services who meet customer criteria

3 Project chase or customer development

4 Ask for the same

5 Secure the contract

41


Expand Pipeline and Maintain

Go/No-Go Filters…

• Aggressively expand your revenue opportunities

• Accelerate direct selling efforts

• Convert Project Managers into Business Developers

• Investigate alternative markets (carefully!)

• Caveat Emptor – Analyze all unfamiliar opportunities

carefully; and then do it again!

42


Customers (Job or No Job) Yield

the Right Focus

• Pursue customers (long view), NOT just projects!

• Customers are comprised of:

– Decision-makers

– Influencers (internal to their business)

– User groups

– Designers, consultants

– Subs with superior client relationships

– “Connected” suppliers

– Owner reps

43


Multiple Touches for

ALL Customer Components

• Creative initiatives and techniques MUST be developed

and executed

– Reasons to meet, or just talk?

– Remember, GIVE to GET!

• Customer “development” activities, AHEAD of a response

to an RFP or a presentation –

– Key client visits

– Project site visits

– Meetings to discuss OWNER/GC-CM areas of concern

– ADVANCE your targeted relationships

– Be CREATIVE to get access

44


Deputize Operational Resources as Business Developers

and Manage the Sales Process Like you Would a Project…

Account Name:

Name of

Decision-

Maker

Or

Influencer

Proactive BD Action1

Intro

Meeting

Home

Office Visit

Project

Site

Visit

Key

Client

Visit

Meeting(s)

w/ Key

Ops

Resources

Regional

President

Meeting

Owner/

CEO

Meeting

Dev. Mtgs:

Specific to

Topics of

Interest

Architect

Meetings

Client

Entertain-

ment

Events

RFP

Develop-

ment

Meetings

Proposal

Submittal

Formal

Present-

ation

¹For each activity, document objectives, dates accomplished and results. ALWAYS explore for reasons to conduct a NEXT STEP/Proactive BD Action.

45


Re-evaluate Your Estimating Philosophy and

Strategy

• Does your estimating strategy (and resulting processes)

reflect the migration toward hard bid?

• How many times, in the last year, have you said “Those

guys are bidding below their costs.”

• Simply cutting margin is not a bidding strategy.

• If you can’t articulate your competitive edge on this project

(i.e., Win Strategy); DON’T BID IT!

46


Estimating: It’s a Hard, Hard, Hard (Bid) World

• Significant increase in hard bid work (even by clients who

“prefer” negotiated-type contracts)…construction is “…on

sale, so we’ll just allocate some of the 25-30% savings for

legal services we know we’re going to need…”

• Government “Best Value” procurement processes too

convoluted now…so even they are turning to LOW

DOLLAR

• Cutting margin…NOT a bid strategy

• Evaluate your estimating to:

– Increase efficiencies

– Maximize productivity for better throughput

– Develop aggressive creativity, applied to extensive technical

knowledge

47


What You Should Expect from Your Estimating

Department

• Cost certainty

– Knowing the costs through take-offs and historical data

• Scope clarity

– Fully understanding the job’s complexities and margin gain

opportunities

• Subcontractor quality

– Evaluating the partners who can help you be successful

• Overhead efficiency

– An estimating department that is appropriately sized, staffed and

resourced

• Multiple “edges” (1, or even 2, no longer functional) on bid

day

48


Potential ―Edges‖

• What alternative crew compositions could we use?

• What different equipment can we use?

• Can we find replacement materials at a lower price or

easier installation?

• Can we supervise or manage the project with different

resources?

• Is there something we can self-perform or subcontract

that would give us a competitive advantage?

• Do we have subcontractors or suppliers that we can

partner with to get preferred pricing?

49


Know Your Cost Drivers…

• Field labor productivity – average of 32% of time wasted

(recoverable lost time)

• Materials usage – 37% of all construction material wasted

• Six most expensive words in construction – “Put that over

there for now”

– Average piece of material moved four times after initial delivery

• Equipment utilization – less than 80%? Own/lease

decision making

• Closeout – what does one month of general conditions

cost? One week?

50


How Field Employees Spend Their Time in the

Construction Industry

51

Recoverable Lost Time (32%)

Waiting for information, materials,

equipment, tools, manpower, or other trades.

Rework on items already installed.

42%32%

26%

Primary Time (42%)

Installing units of work for

the first time.

Secondary Time (26%)

Planning, scheduling, material

handling, lay-out, set-up,

mobilization, etc.


Building Blocks of

Productivity

52

Productivity

Fabrication Process

Mate

rial

Manag

em

ent M

easure

ment

Feedback Process


Key Operational Questions

• Is there one project management set of best practices

within your firm or a series of “lone ranger” tactics?

• Is there one set of field-management best practices or

similar lone ranger practices?

• How do you manage consistency?

• Does inefficiency in your firm have a price?

53


The Importance of Productivity Improvements(1 of 2)

54

Standard Case2.5% Productivity

Improvement

ROE Target 30% 30%

Owner’s Equity $20,000,000 $20,000,000

Net Profit required $6,000,000 $6,000,000

Fixed Overhead $4,500,000 $4,500,000

Gross Profit required $10,500,000 $10,500,000


The Importance of Productivity Improvements(2 of 2)

55

Standard Case2.5% Productivity

Improvement

Variable Costs (incl.

variable overhead)94% 91.7%

Contribution Margin 6% 8.3%

Breakeven Sales

Required$75,000,000 $54,217,000

Sales Required to meet

ROE goal$175,000,000 $126,500,000


Understand Incremental Economics

MATERIALS & EQUIPMENT

DIRECT LABOR

SUBCONTRACTS

OTHER CONTRACT COSTS

OVERHEAD (8%)

NET PROFIT (2%)

CONTRACT COSTS

(90%)

56







57


What Drives Construction?

• Demographics

• Politics/societal demands: Environment

• Consumer demand

• Economic growth: Domestic and global

• Technology advances

• Infrastructure needs

• Energy demands

• Security concerns/safety

• Affluence

58


Target Markets 1 of 4

• Healthcare

– Hospital/MOB

– Pharmaceutical/biotech

– Assisted living

• Infrastructure

– Transportation

– Water

– Technology

59



• Federal agencies

– DOD

– GSA

– DOE

• PPP

– Scale

– D/B/F/O

• Data centers

– Technology driven

60



• Energy

– Renewables

– T&D

– Power generation

– Energy efficiency

• International

– Europe

– Japan/China/India/Korea

– Concessions

61



• Geographic targets

– Texas

– West Coast

– Greater New York

– Washington D.C.

62


Despite The Gloom; Long-Term Opportunities

are Available

Market

• Power

• Energy

• Water

• Environmental

• Telecommunications

• Health care

• Transportation

• DOD/Public Safety

• Education

Driver

• Demographics/environmental/

infrastructure

• Politics/environment/economic

growth

• Demographics/infrastructure

• Politics/environment

• Technology/consumer demand

• Demographics/consumer

demand

• Infrastructure/demographics

• Security/politics

• Demographics/infrastructure

63


5 Critical Elements for a Go-To- Market Strategic

Impact

• Clarity: Inside Out

– Can you craft and articulate the strategy internally and externally?

• Speed of Execution

– How fast can you build critical momentum and gain early results?

• Delivered Value

– What is the value gained and results achieved by successful

implementation of the strategy?

• Cultural Integration

– Does this strategy complement existing core competencies and

company culture?

• Uniqueness

– Do customers value the new ideas? Do you bring something

different?

64







65


If This is the New Normal; are you Prepared?

$0

$200

$400

$600

$800

$1,000

$1,200

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

2015

2018

Billio

ns

(2

00

0)

Cycle 1 Cycle 2 Cycle 3 Cycle 4?

???

Note: This is not a forecast and is for illustrative purposes only.

66


Strategic Thinking for 2011

Follow the funding. Anticipate the

funding. Help facilitate the funding.

67


The World has Changed – Long-Term!

• BRIC

• Global warming (climate change)

• Radical Islamists

• Energy costs/availability

• Capital availability

• Immigration/migration

• Aging and growing population

• Global economy

• Technology – internet

• Competition for resources

68



Your markets’ glass is 80% full, or more,

but understanding the ―new normal‖ is of

critical importance.

69


Performance Problems Emerge When Context

Changes but Strategy Does Not

70

New Context

Old Strategy


The ―New Normal‖

71

Competition

Government Regulation

Use of Leverage

Surety Market Turbulence

Litigiousness

New Context

Old Strategy


Market Downturn in Perspective 1 of 2

• Total U.S. construction put in place for 2008 was $1.07

trillion.

• Total U.S. construction put in place for 2009 was $903

billion

• Total U.S. construction put in place for 2010 was $840

billion

• In numbers, that’s $840,000,000,000 in construction value

• Projected put in place for 2011 is $865 billion

– The value of construction put in place in 2002 was approximately

$848 billion

72


Market Downturn in Perspective 2 of 2

• Perspective – There are always contractors making

money.

• Perspective – Were you successful in 2002?

• Construction has rarely been easy; contractors must

become contractors again.

• In other words, there will be opportunities in 2011 and

beyond for good contractors that are prepared for what’s

in store…

73


Strategic Thinking for 2010-2011

Develop contingency plans in turbulent times.

74


Contingency Plan Framework

2010/2011

Mission

Scenario

Plans

Business

Development

Plan

Operations

PlanFinancial Plan

HR Plan (i.e.,

People)

• How long and

how deep?

• Determine

trigger points

and actions.

• Find the right

projects with

the right clients

at the right

price.

• Deputize non-

traditional BD

resources.

• Execute all

projects

flawlessly!

• Drive

operational best

practices.

• Cash is King!

• Challenge

budget

assumptions.

• What gets

measured, gets

done.

• Communicate –

Who needs to tell

what to whom

and when?

• Scale the

business based

on dispassionate

view of the facts.

75



A focus on core operational efficiency is

paramount.

76


Project Management Rules

for Tough Times

• Rule #1 – We work for cash!

• Rule #2 – Companies hoard cash in tight times. Do not

give clients a reason to hold your money due to poor

billing and collection procedures.

• Rule #3 – Never forget Rule #1!

77


Project Management Best Practices

• Verify project funding for all projects.

• Have a detailed budget and cash-flow projections.

• Manage cash flow regularly.

• Aggressively pursue and collect on change orders

• Intensify collection efforts.

• Monitor subcontractors closely.

• Develop margin aggressive project managers

78



Honest Evaluation of your Company

79


Evaluation

• Ask yourself the following questions:

– Are we truly valued by our customers?

– Is a future market a long-term solution?

– Are we developing our people?

– Are we in a strong cash position?

– Do we look at the long-term of our business?

– Do we have depth at all levels of the business?

80


Keys to Success

• Strategy

– Being in the right markets (matching competencies, markets,

capital)

• Execution

– Do the right things right, continue to hone core competencies

• Leadership

– Have visionary leaders/right culture/adaptable/love a challenge

• Pricing/Risk Management

– Right fee for the right owner

• Capital

– Live to fight another day

81


How to Prepare for this Future

The successful future AEC company will

• … be a great relationship builder across interdisciplinary teams and

will have a deep understanding of process design.

• … be innovative, technology-savvy and quick to react to change.

• … have the ability to drive effective processes and place a high

emphasis on project control and financial metrics.

82


How to Prepare for this Future

The successful future AEC company will

• … be a leader in sustainable business practices and will know how to

attract bright individuals from outside the industry.

• … have knowledge of alternative funding sources and will be well

connected with the financial and political community.

• … have strong connections with local suppliers to ensure materials at

“best price.”

83


A Few Final Thoughts

• Act sooner, rather than later

• Get better at the fundamentals – you’re going need them

• Understand your new normal

• Tough times don’t last, tough people do!

84


Self Reflection

85

• How will you manage the business if you have a

significant amount of low margin work on your books and

then start picking up new work with higher margins?

___________________________________________

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___________________________________________


Thank You

Jason M. Baumgarten

Western Consulting Group Manager

FMI Corporation

210 University Boulevard

Suite 800

Denver, CO 80206

Direct: 303-398-7226

Email: [email protected]

www.fminet.com

86

mailto:[email protected]

http://www.fminet.com/

© 2011 FMI Corporation87

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