AKT Construction: New day new strategy June 2, 2011 FMI presentation

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  • 1. CONSTRUCTIONThe AKT Construction Team works withcontractors and firms of all types and sizes, providing innovative solutions and the highest caliber service.
  • 2. serving the built environmentThe Construction Group provides comprehensive financial At AKT, we understand that theservices to contractors, developers, architectural and construction industry endures cyclicalengineering firms. Our team of advisors and financial experts business ups and downs, and we are herebring more than business acumen, each member of our team to make sure our clients can thrive in anybrings experience working in and for industries that shape our environment. We take pride in our personalbuilt environment—with an average of 20 years experience in and local services, along with our personalthese fields. commitment to help you succeed. And we have an extensive network of professionalsOur Construction Services Group serves nearly 200 general and firms worldwide to address your needs.contractors, subcontractors and developers, ranging from smallproprietorships to large, multi-state contractors. Some have The members of our Construction Industryrevenues between $25 million and $200 million, annually. As Team receive at least the minimum 40-houra result, we know that business cycles come with the territory. professional requirement of continuingThat’s why AKT offers comprehensive services that can education each year, with a focus towardaccommodate your every stage of business development. From accounting and auditing standards, tax law,addressing income tax issues to information systems, financial and other issues facing the constructionreporting or bonding needs—AKT is committed to building industry. Each year our professionals attendlong-term client relationships. We take the time to get to know local and national seminars or conferencesyour business and shape our services around your goals and needs. sponsored by the various construction organization and associations listed above.Our firm understands the financial reporting services required This commitment to be leaders within theby sureties and lenders. These include but are not limited to construction industry sets us apart from otheraudits, reviews and compilations of financial statements with firms that may offer similar services.detailed contract schedules and expanded financial disclosures.Our management consulting services include bonding andloan assistance, job costing, overhead analysis, internal controlstudies, lease versus buy analysis, cash flow analysis, budgeting,and many others. Our team is also well versed in the federal andstate tax laws, including multi-state tax compliance.examples of how we assistcontractors include:p Financial statement services, including audit, review and compilationp Tax planning and preparationp Cash flow analysisp Overhead rate analysis, job costing and accounting systemsp Strategic business planningp Succession and transition planningp Benchmarking portland, or salem, or carlsbad, ca escondido, ca san diego, ca anchorage, ak www.aktcpa.com 1-877-620-4489
  • 3. New Day, New Strategy:Repositioning After the January 13, 2011 Great Recession June 2, 2011
  • 4. Key Discussion Topics• Planning for the Future• Differentiating Yourself• Future Hot Markets• New Normal Buying Behaviors 1© 2011 FMI Corporation
  • 5. Construction Put In Place Construction Put in Place, Estimated for The United States $700,000 $600,000 Millions of Current Dollars $500,000 $400,000 $300,000 $200,000 $100,000 $- 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total Residential Total Nonresidential Buildings Total Nonbuilding Structures 2© 2011 FMI Corporation
  • 6. U.S. Construction Forecast Construction $ Put in Place 700,000 600,000 500,000 Millions Current $ 400,000 300,000 200,000 100,000 - 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 Year Recession Residential Nonresidential Buildings Nonbuilding Structures 3© 2011 FMI Corporation
  • 7. 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 Total Put in Place: – Conservation & Development (27%) Year % – Amusement & Recreation (5%)• Weakest percentage losers in 2010 2010 -7 – Lodging (-43%) – Office (-29%) 2011 3 – Commercial (-28%) 2012 8 – Manufacturing (-28%) 4© 2011 FMI Corporation
  • 8. Jobs and Unemployment Construction Unemployment Rates 1951-2010 25.0% Construction National 20.0% Unemployment Rate 15.0% 10.0% 5.0% 0.0% Source: U.S. Department of Labor 5© 2011 FMI Corporation
  • 9. Contractor Profit Before Tax Contractor Pre-Tax Return on Sales 7 6 5 Percent 4 3 2 1 0 1985 1986 1987 1988 1989 1990 1992 1993 1994 1995 1996 1997 1998 2000 2001 2002 2003 2004 2005 2006 2008 2009 1991 1999 2007 Electrical Commercial Heavy Const Paving HVAC Utilities Source: Risk Management Associates, Philadelphia, PA Annual Statement Studies 1985-2009 Recession Periods Are Shaded Red 6© 2011 FMI Corporation
  • 10. Construction Categories Ranked by 2010 Volume Construction Put in Place Estimated for The United States Millions of Current Dollars 4th 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% *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. 7© 2011 FMI Corporation
  • 11. Construction Put in Place Estimated for The United States Millions of Current Dollars 4th Quarter 2010 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015RESIDENTIAL BUILDINGSSingle Family 434,912 417,518 306,990 187,648 106,021 105,677 121,528 147,049 183,811 215,059 247,318Multi Family 48,699 54,324 52,570 48,083 33,177 22,229 23,340 29,875 34,356 37,792 41,193Improvements* 133,896 147,973 140,909 122,016 114,085 123,212 129,373 134,548 139,929 146,926 155,741Total Residential 617,507 619,814 500,468 357,747 253,283 251,117 274,241 311,472 358,097 399,777 444,253NONRESIDENTIAL BUILDINGSLodging 12,840 18,139 28,706 35,806 25,064 14,287 14,144 15,134 16,193 17,489 18,713Office 45,763 54,187 65,259 68,563 52,108 36,997 36,257 38,069 40,354 42,775 45,341Commercial 70,242 76,713 89,684 85,200 55,380 39,874 37,880 39,774 42,160 45,533 49,631Health Care 34,430 38,472 43,766 46,902 44,557 44,780 45,227 49,298 54,721 61,834 69,873Educational 79,687 84,928 96,758 104,890 101,743 94,621 96,514 102,305 110,489 120,433 132,476Religious 7,735 7,749 7,540 7,225 6,286 5,909 5,968 6,147 6,270 6,520 6,846Public Safety 7,314 7,768 10,201 13,083 13,475 12,397 12,521 12,897 13,413 14,084 14,788Amusement and Recreation 15,236 19,033 21,212 21,829 18,773 19,712 20,106 20,910 21,746 23,269 24,898Transportation 25,052 27,964 31,877 34,746 36,831 38,304 39,453 41,820 44,748 48,775 53,165Communication 18,906 22,219 27,580 26,487 19,336 18,562 19,490 20,465 21,693 22,994 24,374Manufacturing 28,568 32,677 40,633 53,234 58,557 42,161 34,151 33,468 35,810 38,675 41,769Total Nonresidential Buildings 345,773 389,849 463,216 497,965 432,110 367,603 361,710 380,286 407,596 442,381 481,874NONBUILDING STRUCTURESPower 38,371 42,244 66,055 81,075 89,405 88,511 92,936 101,301 111,431 125,917 143,545Highway and Street 64,139 72,040 76,682 81,361 82,028 83,669 85,342 89,609 94,089 98,794 102,746Sewage and Waste Disposal 19,867 23,186 24,872 25,696 24,925 25,922 26,959 28,307 30,005 31,806 33,714Water Supply 14,028 14,960 15,798 16,752 15,561 16,028 16,509 17,499 18,724 20,222 21,840Conservation and Development 4,453 5,130 5,260 5,234 5,624 7,142 7,857 8,171 8,498 8,753 9,015Total Nonbuilding Structures 140,858 157,560 188,667 210,118 217,543 221,272 229,603 244,887 262,748 285,491 310,860Total 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 *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. 8 © 2011 FMI Corporation
  • 12. Construction Put in PlaceEstimated for The United StatesMillions of Current Dollars4th Quarter 2010 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015RESIDENTIAL BUILDINGSSingle 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 BUILDINGSLodging 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 STRUCTURESPower 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% *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. 9 © 2011 FMI Corporation
  • 13. 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© 2011 FMI Corporation
  • 14. NRCI Second Quarter 2011© 2011 FMI Corporation
  • 15. NRCI Second Quarter 2011 NRCI Component Indexes— Comparisons of Results: Q3, 2010 to Q2, 2011 NRCI NRCI NRCI NRCI components Q3, components Q4, components Q1, components 2010 2010 2011 Q2, 2011 The overall economy 53.7 54.0 74.7 74.7 The overall economy where panelists do business 52.3 50.0 67.5 72.9 Panelists construction businesses 53.7 53.4 57.1 63.4 Nonresidential building construction market where 43.6 43.5 54.0 60.6 panelists do business 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© 2011 FMI Corporation
  • 16. NRCI Second Quarter 2011 NRCI Components - Business Outlook Summary by Market Sector Results 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© 2011 FMI Corporation
  • 17. NRCI Fourth Quarter 2010: Delays and Cancellations© 2011 FMI Corporation
  • 18. NRCI First Quarter 2011 What changes do you foresee in the number of F/T direct employees in your organization for 2011? (Excluding natural attrition, retirements etc.) 40% 37% 35% 29% 30% 27% 25% 24% 25% 19% 20% 20% 17% 16% 17% 15% 13% 11% 10% 7% 7% 7% 6% 5% 4% 4% 5% 2% 0% 0% >10% decrease 5% to 10% 0 to 5% No changes 0% to 5% 5% to 10% >10% increase in in F/T direct decrease in F/T decrease in F/T anticipated at increase in F/T increase in F/T F/T direct employees direct direct this time direct direct employees employees employees employees employees Q1, 2009 Q1, 2010 Q1, 2011 15© 2011 FMI Corporation
  • 19. NRCI First Quarter 2011 Of planned new hires, what percentage do you expect will be employees rehired after recession layoffs and what percentage new employees? Rehires (%) New Employees (%) 17% 83% 16© 2011 FMI Corporation
  • 20. Population Growth (1 of 3) WA, 2.7 mil. NV, 2.3 mil. VA, 2.7 mil. CA, 12.6 mil. NC, 4.2 mil. AZ, 5.6 mil. GA, 3.8 mil. TX, 12.5 mil. FL, 12.7 mil. 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 Source: U.S. Census Bureau 17© 2011 FMI Corporation
  • 21. Population Growth (2 of 3)• 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%) – 25 to 44 year-old age group will increase by 12.1 million (14.6%) – 45 to 64 year-old age group will increase by 3.3 million (4.1%) – 65+ year-old age group will increase by 31.9 million (79.2%) Source: U.S. Census Bureau 18© 2011 FMI Corporation
  • 22. Population Growth (3 of 3)• 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 2000 NM 44.8 10.2 WY 46.4 10.2 MT 46.0 8.5 ME 46.9 8.3 WV 46.7 7.8 DE 43.6 7.6 ND 43.2 7.0 FL 45.4 6.7 VT 43.9 6.2 PA 42.1 4.1 Source: U.S. Census Bureau 19© 2011 FMI Corporation
  • 23. Population Growth by State (1 of 2) States Ranked by Percent Change in Population 2000 – 2030 120% 110% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% TX ID TN AZ UT VT MT HI NJ NC OR NH MD SC MN AR FL CO NV GA VA AK CA DE WA -10% -20% -30% Source: U.S. Census Bureau 20© 2011 FMI Corporation
  • 24. Population Growth by State (2 of 2) States Ranked by Percent Change in Population 2000 – 2030 120% 110% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% IN IL CT IA RI MI SD OH ND DC AL MO NM OK KY ME MA KS MS LA NE PA NY WI WY WV -10% -20% -30% Source: U.S. Census Bureau 21© 2011 FMI Corporation
  • 25. Megapolitans Source: Metropolitan Institute at Virginia Tech • Ten megapolitan areas will have populations of at least 10 million each by 2040. 22© 2011 FMI Corporation
  • 26. 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© 2011 FMI Corporation
  • 27. 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© 2011 FMI Corporation
  • 28. 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© 2011 FMI Corporation
  • 29. Strategies Should Reflect a Good Understanding of Context Strategy Context 26© 2011 FMI Corporation
  • 30. Performance Problems Will Emerge When Context Changes but Strategy Does Not Old Strategy New Context 27© 2011 FMI Corporation
  • 31. Transitioning to Public Work, Think Again! 28© 2011 FMI Corporation
  • 32. The ―4 Cs‖ of 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 Context 29© 2011 FMI Corporation
  • 33. Context Matters – Understand the Whole Picture… 30© 2011 FMI Corporation
  • 34. Performance Will Improve When the Old Strategy is Retooled to Fit the New Context Strategy New Strategy New Context 31© 2011 FMI Corporation
  • 35. Contingency Plan Framework for Turbulent Times 2011 Mission Business Operations Human Scenario Plans Development Financial Plan Plan Resource Plan Plan • How long and • Find the right • Execute all • Cash is King! • Communicate – how deep? projects with the projects Who needs to tell • Challenge right clients at flawlessly! what to whom • Determine budget the right price. and when? trigger points • Drive operational assumptions. and actions. • Deputize non- best practices • Scale the business • What gets traditional BD based on • What is our new • Insist on measured, gets resources. dispassionate Context? compliance done. view of the facts. • Analyze how BD • Improve • Know your time is spent • Get rids of the productivity breakeven point imposters! 32© 2011 FMI Corporation
  • 36. Market Realities1. 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© 2011 FMI Corporation
  • 37. Key Discussion Topics• Planning for the Future• Differentiating Yourself• Future Hot Markets• New Normal Buying Behaviors 34© 2011 FMI Corporation
  • 38. 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© 2011 FMI Corporation
  • 39. NRCI Second Quarter 2011 What percentage of your business would you estimate is What percent of your from loyal/repeat customers? business is referred to (Loyal customers as % of total you by current/past annual revenue.) customers? Median 70% 50%© 2011 FMI Corporation
  • 40. NRCI Second Quarter 2011 Has the recession economy changed the ratio of repeat or loyal customers to new customers in your backlog? 45.0% 39.7% 41.1% 40.0% % of Total Response 35.0% 30.0% 25.0% 19.1% 20.0% 15.0% 10.0% 5.0% 0.0% No change. Yes, we have more work from Yes, we have more work for loyal/repeat customers now new customers now than than before the recession. before the recession.© 2011 FMI Corporation
  • 41. NRCI Second Quarter 2011 If you have fewer loyal customers now than before the recession, what do you think are the primary reasons for that loss? 60.0% 55.5% % of Total Response 50.0% 40.0% 30.0% 26.4% 20.0% 6.4% 8.2% 10.0% 3.6% 0.0% Customers business Customers lost to We did not maintain Customers have Other failed or went competitors with our relationships canceled building bankrupt. lower bids. very well. plans for the near future.© 2011 FMI Corporation
  • 42. NRCI Second Quarter 2011 When business improves, do you expect to again have more business with loyal customers, or with new customers? 70.0% 58.7% 60.0% % of Total Response 50.0% 40.0% 30.0% 26.1% 20.0% 11.6% 10.0% 3.6% 0.0% More with loyal More with new Dont know Other customers. They will customers. Loyalty is come back. harder to maintain in this market.© 2011 FMI Corporation
  • 43. Yesterday’s Market Dynamics # of Projects (real) in your pipeline Suspects1 Prospects2 Historically “Live” Prospects3 Bids/Proposals & Presentations4 Contract Awards5 # of Projects won 1 out of 4 – 5 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© 2011 FMI Corporation
  • 44. Today’s Market Challenge # of Projects (real) in your pipeline Today Suspects1 Prospects2 Historically “Live” Prospects3 Bids/Proposals & Presentations4 Contract Awards5 # of Projects won 1 out of 9 – 10 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© 2011 FMI Corporation
  • 45. 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© 2011 FMI Corporation
  • 46. 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© 2011 FMI Corporation
  • 47. 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© 2011 FMI Corporation
  • 48. Deputize Operational Resources as Business Developers and Manage the Sales Process Like you Would a Project…Account Name:Name of Proactive BD Action1Decision-Maker Intro Home Project Key Meeting(s) Regional Owner/ Dev. Mtgs: Architect Client RFP Proposal Formal Meeting Office Visit Site Client w/ Key President CEO Specific to Meetings Entertain- Develop- Submittal Present-Or Visit Visit Ops Meeting Meeting Topics of ment ment ationInfluencer Resources Interest Events Meetings ¹For each activity, document objectives, dates accomplished and results. ALWAYS explore for reasons to conduct a NEXT STEP/Proactive BD Action. 45© 2011 FMI Corporation
  • 49. 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© 2011 FMI Corporation
  • 50. 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© 2011 FMI Corporation
  • 51. 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© 2011 FMI Corporation
  • 52. 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© 2011 FMI Corporation
  • 53. 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© 2011 FMI Corporation
  • 54. How Field Employees Spend Their Time in the Construction Industry Recoverable Lost Time (32%) Waiting for information, materials, Primary Time (42%) equipment, tools, manpower, or other trades. Installing units of work for Rework on items already installed. the first time. 32% 42% 26% Secondary Time (26%) Planning, scheduling, material handling, lay-out, set-up, mobilization, etc. 51© 2011 FMI Corporation
  • 55. Building Blocks of Productivity Feedback Process Measurement Management Material Productivity Fabrication Process 52© 2011 FMI Corporation
  • 56. 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© 2011 FMI Corporation
  • 57. The Importance of Productivity Improvements (1 of 2) 2.5% Productivity Standard Case 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 54© 2011 FMI Corporation
  • 58. The Importance of Productivity Improvements (2 of 2) 2.5% Productivity Standard Case Improvement Variable Costs (incl. 94% 91.7% variable overhead) Contribution Margin 6% 8.3% Breakeven Sales $75,000,000 $54,217,000 Required Sales Required to meet $175,000,000 $126,500,000 ROE goal 55© 2011 FMI Corporation
  • 59. Understand Incremental Economics MATERIALS & EQUIPMENT DIRECT LABOR CONTRACT COSTS (90%) SUBCONTRACTS OTHER CONTRACT COSTS OVERHEAD (8%) NET PROFIT (2%) 56© 2011 FMI Corporation
  • 60. Key Discussion Topics• Planning for the Future• Differentiating Yourself• Future Hot Markets• New Normal Buying Behaviors 57© 2011 FMI Corporation
  • 61. 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© 2011 FMI Corporation
  • 62. Target Markets 1 of 4• Healthcare – Hospital/MOB – Pharmaceutical/biotech – Assisted living• Infrastructure – Transportation – Water – Technology 59© 2011 FMI Corporation
  • 63. Target Markets 2 of 4• Federal agencies – DOD – GSA – DOE• PPP – Scale – D/B/F/O• Data centers – Technology driven 60© 2011 FMI Corporation
  • 64. Target Markets 3 of 4• Energy – Renewables – T&D – Power generation – Energy efficiency• International – Europe – Japan/China/India/Korea – Concessions 61© 2011 FMI Corporation
  • 65. Target Markets 4 of 4• Geographic targets – Texas – West Coast – Greater New York – Washington D.C. 62© 2011 FMI Corporation
  • 66. Despite The Gloom; Long-Term Opportunities are AvailableMarket Driver• Power • Demographics/environmental/ infrastructure• Energy • Politics/environment/economic growth• Water • Demographics/infrastructure• Environmental • Politics/environment• Telecommunications • Technology/consumer demand• Health care • Demographics/consumer demand• Transportation • Infrastructure/demographics• DOD/Public Safety • Security/politics• Education • Demographics/infrastructure 63© 2011 FMI Corporation
  • 67. 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© 2011 FMI Corporation
  • 68. Key Discussion Topics• Planning for the Future• Differentiating Yourself• Future Hot Markets• New Normal Buying Behaviors 65© 2011 FMI Corporation
  • 69. If This is the New Normal; are you Prepared? $1,200 $1,000 Billions (2000) $800 $600 ??? $400 $200 Cycle 1 Cycle 2 Cycle 3 Cycle 4? $0 64 67 70 73 76 79 82 85 88 91 94 97 00 03 06 09 12 15 18 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 Note: This is not a forecast and is for illustrative purposes only. 66© 2011 FMI Corporation
  • 70. Strategic Thinking for 2011 Follow the funding. Anticipate the funding. Help facilitate the funding. 67© 2011 FMI Corporation
  • 71. 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© 2011 FMI Corporation
  • 72. Strategic Thinking for 2011 Your markets’ glass is 80% full, or more, but understanding the ―new normal‖ is of critical importance. 69© 2011 FMI Corporation
  • 73. Performance Problems Emerge When Context Changes but Strategy Does Not Old Strategy New Context 70© 2011 FMI Corporation
  • 74. The ―New Normal‖ Government Regulation Old Strategy Use of Leverage Competition New Context Litigiousness Surety Market Turbulence 71© 2011 FMI Corporation
  • 75. 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© 2011 FMI Corporation
  • 76. 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© 2011 FMI Corporation
  • 77. Strategic Thinking for 2010-2011 Develop contingency plans in turbulent times. 74© 2011 FMI Corporation
  • 78. Contingency Plan Framework 2010/2011 Mission Business Scenario Operations HR Plan (i.e., Development Financial Plan Plans Plan People) Plan • How long and • Find the right • Execute all • Cash is King! • Communicate – how deep? projects with projects Who needs to tell • Challenge the right clients flawlessly! what to whom • Determine budget at the right and when? trigger points • Drive assumptions. price. and actions. operational best • Scale the • What gets • Deputize non- practices. business based measured, gets traditional BD on dispassionate done. resources. view of the facts. 75© 2011 FMI Corporation
  • 79. Strategic Thinking for 2011 A focus on core operational efficiency is paramount. 76© 2011 FMI Corporation
  • 80. 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© 2011 FMI Corporation
  • 81. 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© 2011 FMI Corporation
  • 82. Strategic Thinking for 2011 Honest Evaluation of your Company 79© 2011 FMI Corporation
  • 83. 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© 2011 FMI Corporation
  • 84. 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© 2011 FMI Corporation
  • 85. How to Prepare for this FutureThe 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© 2011 FMI Corporation
  • 86. How to Prepare for this FutureThe 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© 2011 FMI Corporation
  • 87. 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© 2011 FMI Corporation
  • 88. Self Reflection • 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? ___________________________________________ ___________________________________________ ___________________________________________ ___________________________________________ ___________________________________________ ___________________________________________ ___________________________________________ ___________________________________________ ___________________________________________ 85© 2011 FMI Corporation
  • 89. Thank You Jason M. Baumgarten Western Consulting Group Manager FMI Corporation 210 University Boulevard Suite 800 Denver, CO 80206 Direct: 303-398-7226 Email: jbaumgarten@fminet.com www.fminet.com 86© 2011 FMI Corporation
  • 90. ABOUT FMI Founded in 1953 by Dr. Emol A. Fails, FMI provides management consulting and investment banking for the worldwide construction industry. FMI delivers innovative, customized solutions to contractors; construction materials producers; manufacturers and suppliers of building materials and construction equipment; facility owners, managers and developers; engineers and architects; surety companies; and industry trade associations. FMI’s experienced professionals assist businesses with strategic planning, leader and organizational development, business development, research, mergers and acquisitions, peer groups, private equity placement, project execution and training. 87© 2011 FMI Corporation