by Kim KosterVP of Industry Marketing at Unanet
When a government contracting firm’s executive team creates their to-do list for a given year, devising an annual operating plan, or AOP, is likely near the top of that list. So is updating the company’s long-range plan, or LRP. The AOP provides the necessary near-term financial forecast to guide their operational decision-making and target-setting for the year ahead, while the LRP offers a longer-range blueprint for a firm based on financial forecasts for the next three to five years.
There’s another planning item that should be high on that to-do list — one that goes hand-in-hand with a GovCon firm’s AOP, LRP and annual budgeting. It’s called profit planning, and firm leaders who don’t do it set themselves up for some serious disappointment when the firm’s profit and loss statement doesn’t turn out the way they expected.
I recall a story that a GovCon industry colleague recently shared with me. He was sitting with a GovCon firm’s CEO, talking casually about how the business was going for the company. Suddenly the CEO paused, locked eyes with my colleague and said, “’I have 20 project managers and they’re all superstars. They’re great at what they do. So how come my company is losing money?’”
At that point the discussion turned to the dynamics and timing of actual and provisional rates, and other esoteric but meaningful factors that impact a firm’s profit margins both short and long term. My colleague said he thought to himself, “For all the great work this firm does, I’ll bet they don’t do profit planning.” Discretion kept my colleague from asking the CEO if that was the case, and the conversation soon headed off in another direction. But my colleague knew then what the CEO apparently didn’t: that