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This powerpoint represents a semester long consulting project carried out by myself and 4 other students for a local construction management firm named PJ Dick. Our project and presentation involved analyzing PJ Dick\’s proposed new business venture and recommending proper course of action through strategic analysis. This was then presented to the company\’s executive board.
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PJ Dick CompanyConsulting Field Project
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Meet the “Consultants”
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Meet the “Consultants”
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Company Overview
• PJ Dick operates as a general contractor, construction manager, and design builder.
• Operates in commercial, institutional, and government related projects.
• Privately held company who reaches market through PJ Dick-Trumbull-Lindy Paving conglomerate.
• Large presence in Western PA, headquartered in Pittsburgh. Growing market share in Ohio, DC Metro, Eastern PA, and West Virginia.
• Notable Projects: Consol Energy Center, Three PNC Plaza, UPMC Children's Hospital, David Lawrence Convention Center, North Shore T-Line (tunnel).
PJ Dick’s current regional territory
Consol Energy Center
Go or No Go??
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In building a self performing activity group, does Drywall belong?
Rewards Risks
YesWith mode of
entry dependent on PJ Dick’s risk taking capability
Topics of Discussion
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Project Overview
Financial Analysis
Scenario Analysis
Summary & Recommendation
Approaching the Problem
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Project Overview
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Incorporating a framework
Financial Analysis
SWOT Analysis
Market Analysis
Industry/ Competition Analysis
Vendor Relationships Matrix
Merger/Acq./JV/Self-Perform
Value addition to customers
Synergy with current resources
Economic Factors
Strategic Factors
Synergies with existing business
No
Should PJ Dick self-perform the dry wall activity?
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Defining the Project Scope
Market Analysis
Vendor Relationship
Synergies
SWOT Analysis
Industry/Comp. Analysis
Financial Analysis
Economies of Scale Mode of Entry
IMPA
CT
FEASIBILITY
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2006 2007 2008 2009
-40.00%
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
% Market Change
PJ Dick Change
Western PA Total Change
2006 2007 2008 2009$0
$500,000,000
$1,000,000,000
$1,500,000,000
$2,000,000,000
$2,500,000,000
$3,000,000,000
$3,500,000,000
Local Market Comparison ($)
Western PA Total
PJ Dick Total
Market Data ( Source: M.B.A. & PJ Dick)
What numbers say about the market
YearTotal Western PA.
General Contracting for
Non-Res. ($)
Total PJ Dick General
Contracting ($)
Total Drywall Subcontracted
Value ($)
2005 $2300M $209.5M $9.3M
2006 $2655M $189M $11.2M
2007 $3506M $180M $6.5M
2008 $3470M $285.5M $8.9M
2009 $2390M $252M $16.9M
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What experts say about the market
Although 2010 does not look promising, the industry is expected to rebound starting 2011 and continuing in 2012
Economic conditions will dictate responses from subcontractors and competitors
Expert Quote, “Earning a 5% margin today is as good as earning a 15% margin 5 years ago.”
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a
PJ Dick’s
Position
Economic
Recovery
Expert Opinio
n
A window of opportunity!!
Industry
PJ Dick has weathered the storm and has performed better than the rest of the market
The industry experts believe that the market should recover soon
Therefore, we believe that there is a clear window of opportunity for PJ Dick to enter the drywall market in the present situation
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Low
Medium
High
Self - Perform
Joint Venture
How should PJ Dick enter into
the Drywall industry?
Acquisitions
Low
Medium
High
Low
Medium
High
Modes of EntryDegree of Participation
Scenario Modeling
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Financial Analysis: The Assumptions
Profit margins are 8% and 12% for the self performing, JV and Acquisition scenarios respectively.
Ramp up % in JV and Acquisition increases as a result of increased synergies due to expertise, benefits of scale received from the partner company
Ramp up % in acquisition is higher than JV because of the single entity factor and better management prospects.
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Financial Analysis: The Scenarios
PV of Sub-contracted cash flows
Acquisition JV Self perform
PV of Cash flows $32.02m $22.47m $8.27m
$ 0.35m $0.91m
Total PV payoffs
$0.54m
$32.37m $23.01m $9.17m
•The discount rate is 6 % as provided by PJ Dick.
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Self performJV
Acquisition
05
101520253035
6%8%10%P
ayof
fs in
$m
Discount rates
Discount Rate Vs. Scenario Payoffs
Numbers can change!!
Factors
`
Degree of Participation
Future BenefitsRelationship
RiskNPV ($M)
Other Risks (Operation, Failure)
Mode of Entry
Joint Venture
Low
Small work portfolio (both internally & externally)
Low Disruption, High Acceptance <23
Low failure risk, simple to implement, low entry barriers
Medium
Moderate market share target, mix of both internal and new external work
Low Disruption, act as new entrant under existing name through JV
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Low failure risk, low entry barriers, alignment with current targets
High
Target aggressive growth, seek new business all size jobs
Moderate disruption, target subs mkt. share, possible retaliation
>23
Moderate risk failure, but aggressive behavior carries intangible knowledge
Factors
`
Degree of Participation
Future Benefits Relationship RiskNPV($M)
Other Risks (Operation, Failure)
Mode of
Entry
Acquisition
Low
Small work portfolio (both internally & externally)
Low Disruption, Moderate Acceptance, possible retaliation
<32
Moderate risk failure, modest complexity
Medium
Moderate mkt. share target, mix of both internal and new external work
Moderate disruption and relationship loss, probable retaliation 32
Moderate risk failure, high complexity, moderate resources needed
High
New work&aggressive mkt. share growth, future M&A possible
Extensive disruption, loss of relationship w/ subs, probable retaliation >32
High risk failure, high complexity, significant resources needed
Factors
`
Degree of Participation
Future BenefitsRelationship
RiskNPV ($M)
Other Risks (Operation, Failure)
Mode of
Entry
Self Perform
LowSmall work portfolio, Small labor force
Low Disruption, High Acceptance <9
Low failure risk, simple to implement
Medium
Incremental work portfolio, established market presence
Moderate Disruption, Possible Retaliation 9
Moderate risk failure, modest complexity
HighExtensive work portfolio, large mkt presence
Likely retaliation, Loss of relationship w/existing subs >9
Moderate risk failure, high complexity, needs largeresources
Scenario Analysis: The Framework
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Factors:Future Benefits
Relationship Risk
Net Present Value
Other Risks (Operation,Failu
re)Weights (%): 0.15 0.35 0.35 0.15
Criteria:Low , 3 ptsMed, 6 ptsHigh, 9 pts
Low, 9 ptsMed, 6 ptsHigh, 3 pts
(≤$15M), 3 pts (≤$15M), 6 pts (>$15M), 9 pts
Low, 9 ptsMed, 6 ptsHigh, 3 pts
Degree of Participation
Modes of
Entry
Self Perform
Low 3 9 3 9Medium 6 6 3 6
High 6 3 3 3
Joint Venture
Low 3 9 6 9Medium 6 9 6 9
High 9 6 6 6
AcquisitionLow 3 6 9 6
Medium 9 3 9 3High 9 3 9 3
Quantitative Scenario Model
Rew
ards
Rew
ards
Risk
s
Risk
s
50% Risks, 50% Rewards
The model is built. Let’s interpret this graphically!!
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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
SPL
SPMSPH
JVL
JVMJVHAQL
AQH
AQM
Scenario Selction Chart
Scenarios
Quadrant Lines
Lack of Risk (%)
Rew
ard
%Scenarios Weighted Average
(3 low - 9 high)Lack of
Risk(x)
Reward(y)
SPL 6 100% 33%SPM 4.95 67% 43%SPH 3.45 33% 43%JVL 7.05 100% 57%JVM 7.5 100% 67%JVH 6.45 67% 77%AQL 6 67% 80%AQM 6.6 33% 100%
AQH 6.6 33% 100%
Scenario Model Detail
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Scenario Decision Matrix
x
Risk
Rew
ard
Low High
Low
High
y
I II
III IVSPM
JVM
JVH
SPH
SPL
JVL
AQL
Looking for Scenarios with Low Risk / High Reward
AQM
AQH
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Risk Reward
Scenario Summary of Results
Scenarios Overall Rank
Risk Rank
(x)
Reward Rank
(y)
Joint Venture Med. 1st 1st 5th
Joint Venture Low 2nd 1st 6th
Acquisition Low 2nd 4th 3rd
Joint Venture High 4th 4th 4th
Acquisition High 4th 7th 1st
Self Perform Low 6th 1st 8th
Acquisition Med. 7th 7th 1st
Self Perform Med. 8th 4th 7th
Self Perform High 9th 7th 7th
Scenarios From Quadrant 1.....
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Summary & Recommendation
• Joint Venture High
• Joint Venture Medium
• Joint Venture Low
• Acquisition Low
▪ #4 Overall Choice
▪ #1 Overall Choice
▪ #2 Overall Choice
▪ #3 Overall Choice
Low RiskHigh Risk
Key
Low Rewardto
High Reward
Risk AverseRisk Seek
Risk Averse choice
Risk Takers choice
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PJ Dicks Requirement XYZ Co.
Revenue ~ $ 20MM $ 23 MM
Profit Margin 8-15%2.5% (2008)8% (2007)
12%( 2006)
Strategy Alingment
Low Risk/ Optimal Reward/ Good Management
Low Risk/ High Reward/ Superior
Management
Net Worth/Credit Rating
Positive/Good $3.8 MM/Good
Line of Business
Dry Wall Dry Wall
Synergies/Target Companies
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Client’s Reaction
Before:Was convinced that
self-performing is the best mode of entry
After:Has reconsidered their
bias towards self-performing and is
considering acquisition now
Before:Was planning on
entering the industry in a very small scale
After:Has understood that
scale is a critical factor for success in the
industry. Therefore, entering as a large
scale option is the only option.
Before:Was working on the
basis of intuition, without any calculated
research on the industry
After:Has a robust framework
to complement intuition and expertise which can advise as to what is the best mode
of entry
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Questions & Comments?
