Client Activity:

Petro – Chemical / Energy

Headline :

Profitability swing of £75 million within 12 months

Background:

A petro – chemical producer with turnover in excess of £1.7 billion employed 2,500 office based designers who had a 10 year history of working on cost reimbursable projects.
Their record for delivering high levels of customer satisfaction was excellent.
Over a very short period of time, the basis of their contracted work changed from 100% cost reimbursable to 20% cost reimbursable and 80% fixed term.
As soon as the balance shifted in favour of fixed term contracts, there was a very noticeable degree of ‘scope creep’ and an almost inevitable erosion of margin.

Action:

A gap analysis was used to look across various disciplines in order to identify significant swings in spend and scope creep or change.
It became evident that the structural team was contributing most to the problem. Quite simply, they did not have the tools to calculate the price impact of their actions. However, with some basic data analysis instruction, a developing appreciation of how the business made money and knowledge of where the key contractual clauses lay, they soon became skilled in the early recognition of shifts.
This enabled the business to negotiate more effectively with the client and feed back change impact to the business.

Result:

The business recovered a potential adverse profitability swing of £75 million within 12 months.

It became clear to us during this work, that the design team have a depth of understanding for the business. They are an excellent and untapped source of development ideas.
In recognition of their project work on fixed term contract performance, they are now actively encouraged to put forward their ideas.
A management system for idea capture and response, coupled with a generous reward scheme is now paying rich dividends.
To date, ten business development / improvement ideas have delivered over £15 million in cost reduction and additional income for the business.