How cost simplification and restructuring can enhance competitiveness

Cost simplification and restructuring activities

Well-planned and thoughtful execution of restructuring activities can help contractors avoid unintended consequences and costly mistakes, and better position an enterprise to maximize the intended results. For example, with decisions to consolidate or eliminate departments, segments or indirect cost pools, analyzing the quality and composition of the backlog portfolio and the upcoming bid pipeline can provide meaningful insight into what actions to take. Such an analysis can provide insight into impacts on existing and forecast program performance and allow your restructuring changes to enable your business to go to market efficiently and effectively.

Meaningful areas to consider as part of restructuring activities include:

• Assigning knowledgeable, dedicated resources to the coordination and execution of restructuring efforts
• Developing a communication plan that provides consistent and frequent messaging on restructuring efforts to internal and external stakeholders, including leadership, program teams, external auditors and contracting officers
• Assessing cost accounting practices and indirect rate structures to determine whether the rate structure is consistent with the industry and customer expectations
• Evaluating support functions, including home office, shared services and business functions for possible redundancies and opportunities for cost savings
• Maximizing cost recovery through the use of external restructuring contract provisions
• Understanding the impacts of changes to cost accumulations and allocations to manage administrative requirements associated with changes to cost accounting practices
• Planning, implementing and validating the use and interface of process automation and system changes for future state structures
• Assessing the impact of potential process, system and control changes on approved business systems; evaluating the overall negotiation position of the new enterprise as it relates to its vendors and supply chain
• Measuring the impact of any existing or planned transition and confirming it supports agreements on cost recovery
• Verifying that planned changes are understood by estimators, pricers and others responsible for developing price proposals

When properly assessed, these and other considerations can provide companies with an operational- and regulatory-based pathway to achieve the broader objectives of the organization. They also enable a company to position itself to go to market with a leading-class business model and a cost structure that will allow for more competitive proposals, a growth in market share, enhanced margins and improved operational efficiencies consistent with its strategic plans.

Taking advantage of opportunities to acquire synergistic additions to a company is often part of such plans. Companies considering the acquisition or sale of an entity need to understand the operational implementation of an acquisition and be prepared to comply with government rules to fully evaluate and transact these deals.

While the operational considerations will drive the ultimate decision on how best to proceed with a restructuring initiative, the program and regulatory limitations must be considered to assess whether those objectives can realistically be met.

As such, restructuring efforts should involve individuals who are knowledgeable about business operations, have experience with restructuring activities and understand the regulatory environment in which it operates. These individuals should provide a dedicated focus during the execution of restructuring activities to both advise on key decisions and analyze the results of the decisions.

Efrain Gutierrez, John Gault and Blake McKelvy also contributed to this article.