Deltek's Second Bite at the IPO Cherry (Part II)

Well, a few months after Part I of this blog post was published, which focused on Deltek's pre-New Mountain Capital private equity investment era, the time has finally come for us to analyze why being again publicly traded should (or should not) work better for Deltek this time. If one is to judge merely by the most recent financial figures, it would appear to be working well, but my focus here is on some lingering "softer" issues too.

So, when the new management team took the helm at Deltek in mid 2005, it realized that many good things had happened over the previous two decades at the company, but that one can never be too complacent. Indeed, room for improvements existed in many regards, or at least  some challenges could always be turned into opportunities.

Sure, in many project-oriented sectors, such as Accounting & Auditing, Aerospace & Defense (A&D), Architecture/Engineering/Construction (A/E/C), Government Agencies, Government Contracting, Engineering/Environmental, Legal Services, Non-profits, IT & Computer Consulting, Professional Services and Systems Integration (SI), Deltek had penetrated vertical markets with over 100 firms as customers.

While the supremacy within the government contractors has long been established via the Deltek Costpoint [evaluate this product] and Deltek GCS Premier [evaluate this product] products, the "newcomer" Deltek Vision [evaluate this product] product has yet to make such inroads in the sectors like Media Services, Printing and Publishing, Property Management, Research, Advertising & Public Relations, Construction, Contract Manufacturing, Healthcare Services and so on.

In other words, Deltek still needs to expand beyond its above-listed primary industries despite the fact that endorsements like those that  80 percent of the Engineering News Record (ENR) Magazine's Top 500 Design Firms are Deltek customers and 67 percent of Top 100 Federal Contractors are Deltek customers (according to the Washington Technology magazine) continue to speak volumes.

Also, the "project-centric", "project-plus" or "choice of project-based businesses" mantras might have meanwhile run their course (at least as automatic guarantees of success), especially in light of mounting competitive products.  These start from large generic enterprise resource planning (ERP) providers like SAP, Oracle or Lawson, via traditional mid-market ERP providers like Epicor, Microsoft Dynamics and Agresso, to entry level solutions like those from Axium or Microsoft Office Project. In addition, there are point-solution providers like Primavera and Artemis and industry-specific players like Maconomy, Meridian Systems and BST Global.

After thorough analyses and considerations, Deltek decided to tackle both existing and new customers as well as new markets by further penetrating current vertical segments, entering new verticals and via a geographic expansion. But before that could take place in earnest, Deltek also spotted an opportunity of some "greener pastures" in terms of offering new products (capabilities) and expanding their functional footprint, both by pursuing strategic acquisitions and organically developing new products.

To the end of significantly expanding its product portfolio and thus delivering the industry's most robust Enterprise Project Management (EPM) solution through strategic acquisitions, Deltek has since early 2006 conducted three well thought-out acquisitions. It started with Welcom in March 2006, which was the leader in the realms of project portfolio management (PPM) and earned value management (EVM) with established products like Open Plan and Cobra. The company had about 250 renowned clients, including General Dynamics, Lockheed Martin, Boeing and BAE, to bolster Deltek's already formidable client roster in the A&D sector.

The second acquisition was of C/S Solutions Inc. in July 2006, which remains the leader in EVM analytics with an equally established product called wInsight. The company had about 500 clients, including virtually every A&D contractor and government agency, such as NASA, the United States (US) Department of Defense (DoD), Department of Homeland Security (DHS), Department of Energy (DoE) and Federal Aviation Administration (FAA). Deltek bought C/S Solutions because it is the standard for how these government agencies view earned value data.

Last but not least, the AIM (Applied Integration Management) consultancy was acquired in April 2007 as a leading provider of EVM/EPM consulting. AIM had high-profile A&D customers including Lockheed Martin, Northrop Grumman, and Raytheon and some others in the Engineering & Construction sector. Deltek made this acquisition to make sure that EVM experts implemented Deltek EVM solutions to offer the best combination of technology and expertise in the marketplace.

Prior to these additions, the traditional explanations about why Deltek would win against the generic ERP providers had meanwhile gradually lost an edge. Indeed, many of the above-mentioned large ERP providers have lately taken steps to support the unique needs of project-based organizations (where they traditionally fell short) as well as to address the issues of lower total cost of ownership (TCO), ease of deployment and higher return on investment (ROI).

They have done this with more available out-of-the-box functionality for specific project-based business needs that, in turn, results in significantly fewer customizations than “one size fits all” products. They have also made forays into governance via built-in process controls, to challenge Deltek's “Most audited software in the world” theme. In addition, the inflow of incumbent lower-end and mid-market products has neutralized Deltek's justification that high-end generic ERP solutions are also too costly to own and operate.

Therefore, Deltek rightfully realized that its mastery in EVM and PPM should provide it with another quantum leap over the competition. More on the concept of EVM can be found in the IT-Director and ZDNet's respective posts, as well as in TEC's earlier article titled Enterprise Management Software Vendor Welcomes Additions . In essence, EVM is a system for project planning and control used by the US federal government to:

  • Objectively measure a project’s progress;

  • Forecast its completion date and final cost; and

  • Provide schedule and budget variances along the way.

In other words, EVM takes a snapshot view of where exactly a project is against where it should (was planned) to be, but at a far more complex level and with more variables than standard time-based project management (scheduling) tools. EVM also allows project status to be understood with more precision. Namely, whereas many systems tend to just look at how well task fulfillment is going against the plan schedule, EVM looks at more variables, including actual time and budget spent to a specific point (i.e., the BTC [budget to completed] or EAC [estimated at complete] metrics) of the project and actual future resource availability against the planned values.

The recently minted Deltek EPM (Enterprise Project Management) suite [evaluate this product] enables firms to comply with the EVM methodology of project costing and management. Earned value and risk management are increasingly becoming regulatory requirements within the American National Standards Institute (ANSI 748) the US Government Office of Management & Budget (OMB 300) mandates.

Recently, the US federal government mandated that contractors comply with EVM methodology and have begun auditing for compliance. In fact, as of mid 2006, earned value contract requirements thresholds have been lowered to $20 million (from previously $70 million for research & development [R&D] projects and from $300 million for projects involving production) for some agencies.

In plain English, while "Big Brother" might be generous in awarding funds for defense projects, it also wants the ability to conduct an audit at any time and discern the health of the project both in terms of time and money spent (with the prerogative to pull the plug when deemed appropriate).

To the end of being ready for auditors on short notice, the Deltek Briefing Wizard  tool (coming from C/S Solutions) lets the user select a range of EVM metrics and key performance indicators (KPI's) that should be of interest to the auditor, and then the product quickly spits out a Microsoft PowerPoint slide deck.  Seeing this product demo has been the most impressive for me, at least for not expecting this kind of “coolness” from traditionally conservative Deltek.

Therefore, I would imagine a healthy uptake on the EPM suite (and its parts) amongst Deltek’s large government contractor installed based, given the need for compliance with these new, non-negotiable federal mandates that make those "gravy train" contracts a matter of the remote past. The average selling price for an EPM suite ranges from $50,000 to $75,000 and anyone can do the math (given several thousand of "low hanging fruit" existing Deltek customers).

The Deltek EPM suite includes a slew of EVM and PPM tools designed to compliment the core Deltek application suites. The individual EPM products cover the realm of project management (i.e., the WelcomPortfolio, WelcomRisk, Risk+, Open Plan, Cobra and WelcomHome tools) and analytics (i.e., the wInsight, C/S Glue, Briefing Wizard, Connect Modules and Web & Dasboard tools).

Today’s increased project complexity significantly increases risk to costs, schedules, and resources across the entire project lifecycle, which consists of the Visualizing, Identifying, Defining, Initiating, Planning, Executing, Controlling and Closing project phases. Without an effective project management set of tools, according to certain Standish Group and Deloitte Consulting stats, project companies face:

  • Project cost overruns: commonly 150-200 percent over budget;

  • A shrinking resource pool: tens of thousands of project management professionals leaving or retiring in the next several years; and

  • Schedule overruns: often averaging 52 percent.

To address these challenges, Deltek now offers solutions for every above-mentioned stage of the project lifecycle to plan, manage and execute projects to completion. To that end, the unified Deltek EPM suite integrates all critical project management processes, by combining:

  • Portfolio Analysis, which spans from Visualizing to Planning project phases and is covered by the Deltek WelcomPorfolio product;

  • Risk Management, which spans from Visualizing to Controlling project phases and is covered by the Deltek WelcomRisk, Open Plan and Risk+ products;

  • Planning & Scheduling, which spans from Defining to Closing project phases and is covered by the Deltek Cobra and ProjectConnect products;

  • Cost & Earned Value Management, which spans from Defining to Closing project phases and is covered by the Deltek Open Plan product; and

  • Collaboration,  which spans throughout all the project phases and is covered by the Deltek WelcomHome and wInsight portal-like products.

Project-oriented businesses of all size have to be concerned about understanding the entire project management life cycle. Whether a firm has one project or a dozen or 100 to conduct, having all the components that define EPM will be increasingly critical for it to manage the projects and equally important, to position itself for growth.

Deltek EPM was devised to ensure that users are doing the right projects, the projects that best fit their goals, and then to help them manage those projects to maximize the payback. That’s to say that such solutions also help companies maximize the resources deployed on a project while also ensuring a reasonable profit is generated while working on the project. This is particularly true if it all can be done within a single, unified enterprise solution to avoid multiple project risks.

To that end, full visibility of portfolio and project performance KPIs should eliminate surprises, while risks can be minimized through quantitative and qualitative risk analysis (e.g., risk registers, histograms,  completion probability tables, cost probability tables, etc.). Additionally, integrated earned value data gathering, analysis and reporting reduces compliance risks, while cost overruns can be eliminated through more accurate schedules and resource management. Finally, a scaleable multi-user/project platform should standardize best practices and drive enterprise value, visibility, project velocity and repeatability.

Let's see how it all could and should work on a high level. First of all, the output of risk identification and assessment directly affects cost and scheduling.  At the highest level, portfolio analysis should use all of the metrics from cost, schedule, and risk to see the bigger portfolio picture and make informed decisions about the project mix (picking the right, profitable projects only).

The underlying cost and schedule data provide the detailed data that make up the metrics and KPI’s, while a risk management solution should feed from planning and scheduling utilizing the project plan to identify risks against the work breakdown schedule (WBS). Wrapping this all up would provide project collaboration portals allowing all the project stakeholders (Project Managers, Team Members, Customers, Contractors, etc.) to keep them informed about the projects they are involved in.

Again, it is important to understand everything above within the context of EVM and related analytics (to analyze multiple, interrelated project variances), whereby Deltek's related solutions help clients control costs, measure earned value, and comply with a plethora of federally mandated reporting requirements (i.e., ANSI/EIA-748-A-1998, DOD  EVMIG [Earned Value Management Implementation Guide], SOX Section 404, OMB Circular # A-11 Part 7 [Section 300], etc.).

In that regard, Deltek Cobra, after importing project schedules, baselines and WBS, helps with project cost management, change management and forecasting. The solution features integration not only with the Open Plan sibling product, but also with the Microsoft Project/Project Server and Primavera project scheduling products.

These new products certainly can create opportunities for Deltek to capture new customers and new markets, and Deltek intends to do that via further penetrating current verticals, entering new verticals and expanding geographically. The most apparent case for further penetration of existing verticals would be within government contracting, where the expanded EPM product line (through the above strategic acquisitions) present significant up-sell opportunities to current customers.

Part III of this blog post will wrap up Deltek's opportunities, which in great part stem from the latest developments to its traditional breadwinning products, and also analyze some still outstanding challenges for the upbeat vendor. Your comments, opinions, suggestions, etc. are welcome in the meantime.
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