This article is reprinted from The Consulting Journal
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Bid management: Budget and risk
by David Blakey
Two major elements can be examined now: the budget and the risks. These are for the bid itself, rather than for the actual work.
[Monday 6 May 2002]
We have now reached the stage of completing the initial evaluation (described in my previous article). You have just closed the first evaluation meeting.
We need to make some assumptions.
So, most of the evaluators have reported that they can respond to the bid. Others may have reported problems that can be resolved easily. The decision has been made to proceed with a bid, at least until the next evaluation meeting.
This will be the pattern of a bid. It remains viable only until the next evaluation meeting. The people at each evaluation meeting will need to approve the continuation of the bid. If they cannot approve continuation, then other steps should be taken to re-evaluate the bid.
There are two things that the bid manager should do now.
The bid manager needs to get a budget for the bid.
This actually presents the bid manager with a ‘loop’ of budgeting. One of the objectives of the bid process is to ensure that the bidder can make a sufficient margin on the work that they are bidding for. It is not sufficient to win the bid, which is certainly one of the targets. The work that is won must be profitable. This is a second target, which is just as important as the first. The bid manager must continually ensure that the margins on the work are sufficient. If they are not, then the bid might be stopped. It is one of the rules of bid management that it must identify
The bid manager will have different methods of handling each kind of bid. These methods may differ between bids. Some bids may be worth pursuing even at a loss because it will move the client into a new line of business and the expense will be an investment. These are sophisticated decisions for later stages of the bid management process.
One of the costs that should be included when calculating margins is the cost of the bid. If margins are already tight, then the additional cost of justifying the bid may further reduce the margins.
In some ways this can make life easier for the bid manager, as a number of marginal decisions can be decided in advance. As we shall see, some budget decisions can be set up in the organization's bid management policies and procedures. For this first bid, the bid manager will have to use skill, judgement and guesswork.
The bid manager will begin identifying the risks to completion of the bid.
It is important to focus on the bid rather than on the work that the bid is intended to win. The members of the bid management team will each identify risks to completion of the work, because that is one of their tasks in preparing the bid response. As well as monitoring these risks, the bid manager will analyze and manage the risks to the bid itself.
In this article, we have not moved forward with the actual bid. We have, however, identified the two major influences on the bid, the budget and the risks, and we have begun to get a view of the way that bids will be managed.
The opinions expressed are solely those of the author.
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