In Part 1 and Part 2, we looked at projecting the flow work and the backlog, now to get a total picture of 2010, we need to look at work we don't have yet, our pipeline. The pipeline for any company is critical and should be viewed in construction as far out as possible. A lot of times, we as subcontactors are only looking at the projects we are bidding immediately and not at all of the known work out there. This is a critical mistake in our planning cycle.
Why would this interest us? It gives us the first look at what our next year will look like. Depending on the size of the projects and the duration of the schedules, your 2010 may already be set by now. Since most projects take a minimum of 1 year from the conception to start of construction (think about funding approvals, design process, etc.), if you are aware of all of the activity out there you will have a pretty good look at the work that will be awarded over the next 12 months. Where this really becomes important is it allows you to focus your hiring, training, and client prospecting on the types of work that are coming up. If you realize that most of the work coming up in the next 12 months is healthcare, you can get your folks ASHE certified and focus on the general contractors that build healthcare work.
Projecting your pipeline into a financial system is a lot more difficult than looking at flow or even backlog, because you have three critical moving parts: (1) are you going to win it and will it get built, (2) when will that happen, (3) when will the revenue and profit be converted on your books? To accurately project your work, you need to really look deep into each of these issues. Just because you have a pipeline of $10MM and win 10% of the work, does not mean you will get $1MM in revenue in the next year. You may get very little revenue, depending on the schedule and loading of the work around. What should be done is that every job should be listed and manloaded/revenue loaded over the schedule and then reduced by the probability of winning that project. Once this is done if you add up all of hte probability reduced values per month you will have a total. You can do this by hand, utilizing a custom Excel spreadsheet or utilizing a software program like Construction Monkey.
We are almost done at our total look into how to project 2010, in the next installment we will be looking at overhead, indirect costs, calculating profits.
Why would this interest us? It gives us the first look at what our next year will look like. Depending on the size of the projects and the duration of the schedules, your 2010 may already be set by now. Since most projects take a minimum of 1 year from the conception to start of construction (think about funding approvals, design process, etc.), if you are aware of all of the activity out there you will have a pretty good look at the work that will be awarded over the next 12 months. Where this really becomes important is it allows you to focus your hiring, training, and client prospecting on the types of work that are coming up. If you realize that most of the work coming up in the next 12 months is healthcare, you can get your folks ASHE certified and focus on the general contractors that build healthcare work.
Projecting your pipeline into a financial system is a lot more difficult than looking at flow or even backlog, because you have three critical moving parts: (1) are you going to win it and will it get built, (2) when will that happen, (3) when will the revenue and profit be converted on your books? To accurately project your work, you need to really look deep into each of these issues. Just because you have a pipeline of $10MM and win 10% of the work, does not mean you will get $1MM in revenue in the next year. You may get very little revenue, depending on the schedule and loading of the work around. What should be done is that every job should be listed and manloaded/revenue loaded over the schedule and then reduced by the probability of winning that project. Once this is done if you add up all of hte probability reduced values per month you will have a total. You can do this by hand, utilizing a custom Excel spreadsheet or utilizing a software program like Construction Monkey.
We are almost done at our total look into how to project 2010, in the next installment we will be looking at overhead, indirect costs, calculating profits.