Dynamic Benchmarking Model [part 2]
Part two: how our Benchmarking approach is different and why it matters.
In our previous post, we introduced our benchmarking concept, highlighting the advantages of a dynamic analysis model. We discussed the value of being able to parse out the best Subcontractors, even in a down market, and the rationale behind comparing Subcontractors rather than just grading them. In this post, we’ll dive deeper into how we utilize benchmarking as a factor when evaluating risk for Contractors in practice.
- Parsing real risks from the red herrings
If we had to describe the vision, or goal, of our product’s analysis approach it would be simply this: provide our clients with a roadmap towards understanding the risks they are taking on before a subcontract award is made.
Early on as we formulated the core services of TradeTapp, we recognized that injecting an enhanced risk management approach into the Subcontract purchasing workflow may seem inconvenient for many Contractors. Their fear is that any interference will make the timetable for buying projects impracticable. With this in mind we set out to focus on efficiency for our product’s fit into this complex decision process, and we began by looking at the delivery of our benchmarking results.
For starters we use our benchmarking model to highlight specific areas where a subcontractor’s performance may be significantly below average when compared to their peers. As a result, we allow our users to spend the majority of time investigating the details of a few potential problem areas rather than trying to absorb an exhaustive amount of data.
Here’s an example: TradeTapp’s output reveals that a company is borrowing at significantly higher rate than other subcontractors in the same region, but is otherwise financially sound. Upon further investigation, the General Contractor discovers that this company is renting a significant amount of equipment (needed for their trade) which, in turn, contributes to a weaker leverage position. End result: a logical risk associated with type of business and ultimately not worth investing resources into mitigation.
Consider using simplistic and traditional spreadsheet analysis instead: the same General Contractor may have first received a generic negative output (such as “RED”/“BAD”/“DO NOT AWARD”), and been forced to spend time finding out what caused this result. Worse yet, they may decide that they simply don’t have time to investigate the reason for the negative result, and applied a risk mitigation plan needlessly — a method we refer to as ‘checking a box’. End result: an administrative burden is placed on the GC and the Sub that wasn’t even necessary to begin with.
The value of a sophisticated tool like TradeTapp is the ability to focus your risk management resources on the risks that actually may impact the project, and ignoring the red herrings of traditional analysis.
- Not just a numbers game
Benchmarking financial and safety health can be a useful thing, but does it tell the whole story? How do we account for other important (sometimes most important) indicators of risk such as backlog position, project history, or markets in which that Subcontractor has prior experience?
Take the current economic environment for example: It makes sense that during market upswings, such as the one we’re in now, default rates tend to rise as subcontractors struggle to manage exceedingly large backlogs. This can be compounded by weak working capital positions following a recession. Indeed, as shown by the graphic below, subcontractor backlogs are up nearly 45% (in months) since 2009.
As a result, it’s more important now than perhaps ever before to utilize a comprehensive approach when analyzing a making decisions. Relying on a spreadsheet created 5, 10, or 15 years ago is a recipe for disaster.
TradeTapp’s evaluation of a Subcontractor is both from an overall perspective as well as an assessment of a specific project fit. To that end, our platform creates an output of key risks associated a specific award package as detailed by the General Contractor. These risks may relate to benchmarking results, or other factors such as backlog position, largest project completed to date, recently completed projects, regions and markets typically served, and other data points. Whatever the risks may be, we organize and order our result based on potential impact to the project.
Here’s the fun part for us. Based on the risks compiled by TradeTapp’s evaluation, we make specific recommendations as to what a GC can do to control and mitigate these risks (more on that in a future post). Enhancing your analysis approach with a focus on risk management shouldn’t add friction or inefficiency to your organization’s exisiting workflow — in fact, we believe that TradeTapp is the win-win tool built with practicality in mind.
If you’re interested in learning more about TradeTapp’s pricing, our progress, or just want to say hey please feel free to reach out to us at info@tradetapp.com.
