Monday Dec 23, 2013

Unlock the cash trapped in your contingency budgets

It is generally accepted that more companies fail due to lack of cash flow than for want of profit. This is an inevitable position because whilst profit is a vital indicator of performance, its generation does not necessarily guarantee an organization’s growth, development, or even in some cases, survival. For the C-level executive, cash flow also has a particular impact in the planning of short or long-term investment strategies, where decisions are more often focused on anticipated funding requirements rather than projecting levels of profitability. Capital budgeting is the process for managing cash flow, where the basic unit of analysis is the investment project. From a finance perspective, projects and programs represent a series of contingent cash flows over time, whose amount and timing are only partially under the control of the executive. The amount of expenditure these consume directly influences the level of available working capital, which is the primary benchmark for measuring a company’s operational liquidity. The eternal challenge for organizations is keeping this liquidity in the positive position needed to support day-to-day operations – i.e., to service both maturing short-term debt and upcoming operational expenses – and for maintaining the flexibility to respond to emerging opportunities. 

Read this complimentary paper and explore the ability of organizations to augment cash flow in their operations by addressing a key area of stagnant cash reserves – contingency budgets. It will argue that the collective pot of contingency monies is conservatively estimated at between 5-10% of total project operating costs across the portfolio. To free up even a small portion of these budgets can therefore enable organizations to expand their portfolios to decisive effect. Finally, it will also detail the way forward, and how a more flexible approach to setting contingency budgets requires the adoption of a portfolio approach to risk management.

Tuesday Dec 10, 2013

A Look Ahead at Global Construction Through 2025

The recently released Global Construction 2025 report, the third in a series of major global studies of the construction and engineering industry published by Global Construction Perspectives and Oxford Economics, provides accurate and reliable forecasts to 2025 for the global construction and engineering industry as well as for key regional and country markets.

Sponsored in part by Oracle, the report estimates the global value of construction output will increase by 75% between 2012 and 2025, with the U.S. among the top three largest construction markets, despite depressed numbers in the last seven years.

Garrett E. Harley, director of Engineering & Construction Strategy for Oracle Primavera, says, “From a global perspective, the long-term investment volume and potential release of capital should make any construction company smile. However, the challenges and lessons exposed in the recent downturn still weigh heavily on the minds of public and private leaders and will continue to shape business strategies for both owners and contractors. It’s imperative that owners, their consultants and their contractors transform their business operations and delivery capabilities to maximize value and reduce risk.”

While the long-term forecast is optimistic, the short term

U.S. economy is expected to expand at a slow, but steady pace of 2.7% over the forecast period, which should reduce the unemployment rate to around 5%, but probably increase the rate of consumer price inflation to around 2.2%. Looking at specific markets, the report estimates that housing and non-housing sectors will grow at about 5%, while infrastructure—which includes transportation, highways, water and waste—will grow at half that rate over the next 12 years. Demand for public sector construction (schools, hospitals, etc.) is likely to increase, due to both the expected increase in the U.S.’s population and the higher proportion of elderly people. The high level of U.S. debt will likely make financing needed public construction work difficult.

Read the complete article here.

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Tuesday Dec 03, 2013

Driving a Shared Vision with Enterprise Project Portfolio Management

Written by: Guy Barlow, Director of Industry Strategy at Oracle Primavera

“Write that down!” the CIO of an Indian Oil & Gas company exclaimed. Honestly I was caught off-guard when he hollered this to his reports during our discussion. So what was he so excited about? Simply put, he saw how his team could provide a solution to improve a key business metric; a single number that could not only strengthen the business but also his team’s relationship with operations. Not a bad thing.enterprise project portfolio management best practices

A shared vision, that’s what it is really all about. When an IT leader understands the key business metrics they can instill those metrics in their team to forge the much-needed connectivity between IT and business. The CIO was making a point to ensure his team “got it”. He certainly did.

In our client interactions we’re seeing a rapidly growing trend towards this shared vision and purpose. In some cases it’s by proactive design – the CIO comes from the business – or in others it’s borne out of a reaction to market necessities, like a declining share price, poorer KPIs, or regulatory scrutiny. Crises are great catalysts for initiating change. Similarly, the infusion of technology-thinking into the business is making for much more savvy executives on the operational side of things. In the end this is all good.

So what does this have to do with enterprise project portfolio management (EPPM)? As it turns out, quite a lot. Whether it’s a failed IT implementation for a bank, a cost blowout for a petrochemical facility or a late-to-market delivery of a new vehicle, these are all critical initiatives to the performance of their respective businesses. And guess what? They’re projects – big, small, complex, simple, local, and global. Manage them, by aligning technology and business, and you’re managing your enterprise more effectively.

This link between technology, the business and EPPM is naturally of keen interest to our clients and us. The ability to drive transformational change through greater innovation, efficient operations, a heightened risk and financial management approach is top of mind. Composed of business leaders and academics, the EPPM Board* was formed to explore these types of ideas and communicate to business leaders some of the latest thinking and innovation via research and thought leadership.

Take some time to review these reports generated from the EPPM Board; Hedging your Bets, Stock Shock and In the Firing Line and I guarantee you’ll “get it” too. And more is on the way. Enjoy.

P.S. So what was that number the CIO was interested in? What generated the excitement was, LPO, or lost production opportunity, and for the energy sector it’s a powerful metric. If a facility is down for maintenance it’s not making money. EPPM can reduce maintenance time via a number of areas and by doing so you reduce LPO…and increase revenue.

*The EPPM Board is a prestigious international steering group from Oracle. It brings together senior figures from leading organizations to discuss the business critical role of Enterprise Project Portfolio Management (EPPM) and establish how the challenge can be better tackled from the top.

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