As a Government Contractor, you can gain some of your best strategic intelligence from a standard business task: project reporting. Smart companies take advantage of the information gathered for project performance to gain valuable strategic insight and plan their next steps. We recommend reviewing a succinct one-page project performance report each month that shows all of your projects, their associated revenue, costs, and profit margins. Then, you can focus on the projects that need improvement and how they are impacting the overall company performance.
When looking at a project with performance concerns, here are some areas to focus:
Gross Margin – The first step is to monitor your gross margin—the difference between the revenue generated by the contract and the direct costs associated with fulfilling that contract. A gross margin of 45 percent or higher represents a healthy return on the direct costs for most service-based organizations.
The gross margin is indicative of the quality of your bid and how it affects your performance. If your gross margin is low, you need to investigate pricing associated with your bid that is eroding your profit and course correct throughout project performance. This can be done on a T&M project through adjusting the resources used on the project or other potential labor categories that could be used by existing staff to boost rates. If it is a fixed-price project, you could also look at efficiency of resources on the project to boost margins.
Contract Mix and using Subcontractors –Take a look at your direct cost break out and monitor your use of subcontractors. A high volume of subcontractors can adversely impact your gross margin if their cost is not adequately priced. Workshare may be a pre-determined factor in your bid, and you may not have the flexibility to change that. But you can ensure you are adequately pricing your subcontractors. Ensure that you are using appropriate burdening on your subcontractors to provide the best return on your direct dollar as possible.
The bottom line is your company must closely follow project reports so you can interpret the best project performance and underperforming projects and use that information to plot the most profitable strategy.
The government accounting and finance experts at CAVU Advisors can help you get the most out of your project reporting, starting with your accounting system and ensuring that it produces meaningful project reporting. Schedule a call with us today.