Case Study
Engineering Group
Case Study by Mike Mattok
Background
Diverse engineering Group which had expanded organically and by multiple acquisitions. Core disciplines mechanical, electrical, control and instrumentation solutions entailing the provision of the following services:
- Design
- Manufacture
- Construction
- Installation
Decline of key Oil and Gas market together with loss of key maintenance contracts resulted in trading losses and increasing pressures on cash flows. Absence of segmental P&L reporting and lack of visibility of cash flow forecasting beyond two months rang alarm bells with the bank.
Major issues
- Nine payrolls with personnel working across various revenue streams
- Expenses and costs not sub analysed
- Multi- site manufacturing
- Multi - site contracts
- Unwieldy project costing system
- Standard “costs” were actually “standard sell prices” – labour and materials
- Lack of visibility of relative profitability of different trading activities
The Assignment
- First phase major data analysis exercise
- Reconciled opening sales order bank and WIP in order to forecast jobs to completion
- Identified £500k over statement of WIP
- Produced forecast project summaries for major works
- Extracted forecasts for new work from Group management
- Allocated personnel on payrolls to revenue streams and major contracts
- Substituted actual costs for standard sell prices for labour and materials
- Modelled a labour capacity planner to allocate costs to forecast contracts
- Demonstrated actual profitability of the various revenue streams/contracts
- Produced 21 business segments with individual P&L, BS and CF
- Produced a restructuring plan with incumbent management
- Presented the plan to the Bank
The Results
- Identified the profitable and unprofitable parts of the Group
- Identified £2m of potential cost savings which are being implemented including the closure of loss making manufacturing operations
- Group gained three mechanical contracts during the process worth £7m
- Group returned to profitability
- Cash flow improved
- Bank agreed to support the company through the restructuring