Helping to Restore Margin

Issue

This major, pan European provider of transport & distribution services was successfully growing market share but faced flat or declining margins on contracts. They needed help in finding a systematic and scalable means of identifying, measuring and controlling contract risk.

Engagement

Our consulting team worked with members of the group executive, heads of the regional business units and group finance to analyse a representative sample of contracts from the previous two years. The Morgan Hill Financial Model was calibrated to reflect the key financial performance ratios used by the client organisation. Contract data was then passed through the model and value and risk charts for the sample contracts were produced.

This analysis produced clear categories of contracts that consistently underperformed. These categories were then used to derive new contract performance targets. Additionally, using the model the team was able to identify the main areas of risk that were consistently problematic. The Morgan Hill Financial Model value and risk assessment model was installed at the business unit level and used to assess key new contracts. This substantially improved the ability to detect likely areas of risk prior to submitting a new contract for approval. It also graphically revealed which contracts delivered the most value for the capital employed.

Outcome

Working with the client, our consulting team made changes to the group capital approvals process such that the model value and risk output became a key determinant in funding contracts.

We have since helped the client to set up an EPMO and through this to cascade the Morgan Hill Financial Model to business units across Europe. The result has been far fewer contracts failing to deliver against plan as well as a clear mechanism for tracking contract performance over time.