How Analytics Helps Contractors Select Better Projects
Today’s construction market is healthy, even to the extent that many contractors are turning down work. On the surface, this is great, and it certainly beats the extreme alternative. In an industry with such low margins, contractors are expected to keep their order books filled and play a quantity over quality game.
But this mindset is dangerous.
What if instead contractors had the confidence to pursue fewer projects– not because they didn’t have the resources to take them on– but rather because it didn’t meet their projected “fee-at-completion” threshold? What if every contractor and subcontractor had an ideal owner profile on which they gauged and could score new opportunities?
Trends are showing in the industry that it isn’t necessarily the number of projects that matter, but rather the quality and corporate match of those projects. In other words, are you strategically choosing the right projects based on data analysis, or are you bidding on anything that comes across your desk?
These are exactly the questions Skanska, the Swedish multinational, asked itself in 2018 following nearly $400 million in write-downs and restructuring charges. The company had a dismal performance in 2018, and asked itself a fundamental question: are we choosing the right projects?
“We have better controls now and focus on profitability over volumes. We also have better processes in place to analyze risk, calculate the projects, make sure we have the right staffing and choose the right projects,” says Anders Danielsson, CEO of Skanska AB
Even for one of the industry’s largest players, maintaining profitability on projects is a huge challenge. To solve this, Skanska assessed 10 years of project history and baselined profitability across project size, client profiles, sector niches, and geographies.
With a better understanding of the ideal project profile, Skanska can now prioritize what will keep them profitable. “We have a good view of our sweet spot and we only select projects within that sweet spot.”
The result? While early, it seems the move has worked. The company’s stock is up 19% YTD, and operating margins seems to have recovered from last year’s lows.
Asking your data which projects best-suit your ideal profile, contractors can focus on prioritizing investments in high-performing teams and business units.