Kim Koster , Vice President of Industrial Marketing at Unanet
Fall is the time when many government contractors prepare their annual operating plan, or AOP. As you plan strategically for the coming year, assess the state of your business and determine the path forward. Of course, circumstances often change these plans and require adjustments.
Now that the calendar has turned to 2024, it's adjustment season: It's time to review your AOP to determine if changing circumstances warrant revision. Maybe the contract you thought you won in November 2023 was won in January 2024. Or maybe the lease negotiations didn't go as planned, meaning you'll be paying your contractor more next year.
In a business as volatile as government procurement, many internal and external factors can change without notice. This is why you need a flexible AOP that can be customized as needed.
You'll need to look at performance metrics or key performance indicators related to profitability, revenue, cash flow and pipeline to see where your company will be in 2023 and how those current numbers compare to assumptions and projections that you have built into your AOP for 2024. . . If there are significant discrepancies, you will need to update this plan.
Which key performance indicators should be considered in terms of their impact on the PAP? Here are some of the top contenders.
Types of contracts
Is your company doing the "right" job? Some companies are only evaluating the number of contracts they can compete for and win. But while larger volumes can be beneficial, sometimes fewer contracts that provide the best strategic solution for your organization result in greater long-term sustainability.
Take a deep look at your company's order book, analyzing the specific types of contracts you're bidding on and the strategic reasons for winning them.
Make sure the sales team is involved in the analysis of the type of deal you are closing.
Government customers
Determine the actual number of customers. This will help you better understand your company's strengths and potential weaknesses.
You can also use this analysis as a relationship-building opportunity, encouraging your sales and support teams to regularly consult and visit customers to gain a deeper understanding of customer pain points and specific needs.
Types of audits
What kind of controls has your company performed (eg cost reports, accounting systems, intermediate charges, etc.)?
Knowing the audits you performed last year and the results of those audits can help you prepare and strengthen your company for future audits.
Earnings before interest, taxes, depreciation and amortization
EBITDA is a widely used metric that helps manage the overall profitability of an organization. If you do the math and understand the factors that go into the calculation, you can set a more realistic goal.
You can calculate this amount in September or October, but it is impossible to get the exact amount before the end of the year. That's why you'll want to take another look after the year is over.
Analysis of income accounts
Your income statement will show how much money your company spent and what it spent that money on. For example, calculate it as a percentage of your company's direct earned income. It's a good idea to check this number regularly to see where your money is going.
subcontractors
Subcontractors are often an important part of any government procurement enterprise, so knowing their value will help you manage them. What percentage of the total cost are subcontractors? Is your company too dependent on them? Do you regularly perform make-or-buy analysis related to your business?
Full-time equivalent
Compare your company to other companies of similar size based on total FTE revenue or number of full-time employees.
If you need help getting started with benchmarking, a great reference tool is the current GAUGE report . Includes reviews from government contractors with a breakdown of back office staff by revenue.
To change your AOP, you need an accurate forecast
At the heart of OAP is the discipline of waiting. Forecasting plays a key role in turning uncertainty into strategic advantage. It also allows companies to predict resource allocation needs, revenue streams and potential business risks, creating informed decision-making processes.
For government contractors, effective forecasting can contribute to successful project delivery, talent retention, competitive advantage and business growth. As important as it is, mastering forecasting can be challenging. This requires harmonious coordination at different organizational levels: from project teams to finance departments.
However, such outreach isn't just about getting everyone on the same page. It's about promoting a culture of open communication, where ideas, data and predictions are shared and discussed openly. It's about equipping teams with the right tools to create reliable forecasts and strong business direction. Most importantly, understand that forecasting is not a one-time activity, but an ongoing process of adjustment and recalibration as the business environment evolves.
Given the dynamism of the business world and especially in the field of public procurement, the prospects cannot be underestimated. Companies that use effective forecasting techniques will be prepared to meet future challenges and position their businesses for success.
Always make sure your AOP is aligned with your overall business strategy.
Remember that your company's AOP should be a reflection of your overall business strategy. Make sure your growth plans are well reflected in the AOP. Ask the right questions. Is our growth strategy focused on organic growth through mergers and acquisitions or both? How well are we managing our pipeline? Looking for a portfolio of projects and clients for maximum impact? Do we value group decisions?
Finally, remember that your revenue plan is a critical component of your AOP. There are many ways to create an effective income plan. Monitor EBITDA growth and trends. Treat your expenses as a percentage of your income. Find out what labor and subcontractor costs are. Analyze outstanding balances not only by contract, but also by year.
I know what you're thinking: didn't we do all of this in the fall? Yes, you did. But remember: the more your AOP reflects your company's current reality and aligns with its strategic goals, the more successful you will be. The world is constantly changing, and so is our AOP. So start the year by resolving to review and review our AOP.
