By Paul Skurpski, PVBS Vice President of Sales and Marketing
Government Contractors Need to Ask, “Am I Lean Enough or Do I Need to Get Leaner?” And if you need to ask, you can probably get leaner.
In a webinar series we recently completed on government contractor profitability, another major theme that emerged was how increasingly automating accounting and finance processes can lead to a richer bottom line. Managed properly, deeper automation will help create a sleek infrastructure that sets your business up for faster, more profitable growth.
Government contractors, as well as most commercial companies, continue to look to do more with less people. So really it’s about “how do you automate manual tasks and streamline existing business processes?” Forward-looking companies are looking for best practices to implement. The companies that are just doing things the same old way are the ones that seem to suddenly just disappear. You need to always be looking to evaluate and improve business processes because the competition is.
I had a conversation recently with a government contractor who said that he learned that one of his main competitors had a wrap rate of 1.4! Companies are running so lean these days that you need to be conscious of this and find ways to tighten your belt. Will investments in automation get you this? The investment in making your infrastructure leaner will allow you to propose more competitively.
Reduce Your Margins or Your Operating Costs
In the contracting world, in the LPTA (low price, technically acceptable) environment, you have two options when it comes to bidding on opportunities. You can either (a) reduce your margins or (b) you can reduce the operating costs associated with the management and delivery of these contracts. Long term, of course, if your rates aren’t competitive, winning new awards without reducing your back-office costs is going to lead to disaster. I can’t imagine why companies wouldn’t want to focus on the latter, whether the contract is time & materials or firm-fixed price. Any opportunity you have to drive costs out of the back office will have a positive impact on your bottom line.
Now when it comes to automation of manual operating and accounting tasks, a major challenge is that a large number of people are involved in the process today that do not need to be. Let’s take invoice generation, for example. It starts at the front end, where people want to automate the collection of time. For sure, there have been electronic time-keeping systems out for a long time, but a challenge is the handshake between the time collection and the labor distribution. Companies are looking for ways to eliminate the manual steps in those processes. And across the entire invoice collection process, there seem to be approvals at each stop along the way…and then some.
Am I Lean Enough or Do I Need to Automate More to Get Leaner?
Many of the government contractors I’ve worked with want to understand how well they are doing, from a systems perspective, compared to their counterparts. Depending on what type of company it is determines the back office staff that is needed. For example, some companies have project accountants that manage the financial aspects of the project. Some companies put that burden on the PMs, and often they’re really not equipped to handle this function. They really don’t have the training for some of those elements. Depending on the type of work you do and the size of the organization, it determines what the right staff mix is.
Am I lean enough, they want to know. It’s a challenge because it’s not always a black and white picture. Companies are trying to figure out, am I too lean or too fat? I think companies always realize this, but sometimes when you’re just trying to save money by being lean, you wind up losing money because you’re not analyzing the business the right way. It’s a hard concept for people to grasp.
Automation Will Help Project Managers Perform Better
A great example of additional steps in the approval process is that many project managers are now approving invoices. It’s a trend we’re seeing because government contractors are now empowering project managers to make midcourse decisions to improve their projects. They want to make sure that there are no issues with the government client so they have added this step. So automating and integrating that approval process as part of invoicing has become a big initiative. Companies that have figured out how to streamline this process without the tedious and manual efforts of PDF’ing invoices and emailing them have reduced the risks of things not getting done properly.
Another piece to consider is the oversight. As part of your business process, implementing a strategy of management by exception could solve this. We had a client that wanted to have a report of exceptions, for everything from approval of time off (to make sure employees are satisfied) to approval of invoices. They wanted to identify all of the approval processes to see which ones are hung up within the process and only focus on those. By focusing on the exceptions, they were able to continuously improve their processes and tighten operations.
Integrating Documentation throughout the Process
The other area of automation that people are looking at is the integration of documentation within the business process, for example in managing funding. Managing funding is critical because when you’re over the funded value, you’re at risk with the government. I have seen situations where people are not getting paid because they don’t have the source documentation, such as expense reports. Integrating documentation gives the right people access to critical information across the entire process.
There are great technologies out there to help do that such as the Microsoft SharePoint document management and collaboration system. SharePoint is now integrated with the Microsoft Dynamics ERP system so the approval process is hastened.
Going back to the funding example, when you get the funding, you also need a lot of back-up contract and rate documentation. Having that all in one place reduces the amount of time to go and get the answers related to it. In the past, everything would be stored on paper and in files, which is time-consuming and unwieldy.
Automation of manual tasks and streamlining the business process is another initiative companies have to take to improve profitability. Companies look to systems oftentimes as a way to do this, but companies also have the opportunity to continue to—even if you’re not changing your system—to continue to evaluate your business process and look for ways to cut out steps or reduce the manual interchange between people to reduce errors and get tasks done quicker.