Consulting Journal: Bid management

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.

We shall assume that this is the first bid that this client has prepared using a bid manager and a bid management process. The reason for this assumption is that the client will be able to build bid management policies and procedures after a few bids. If the client already had these, then you would not need to do much of what is described in this article. Future articles will describe how to develop and apply these policies and procedures.
We shall assume that information has not been collected from previous bids. The information would include internal costs of using people and resources to prepare bids, the amount of time that various people need to complete various tasks, and the flow of the client's bid and approval processes. In future, this information - and more - will be collected from each bid and used in the bid manager's database to plan each new bid.
We shall also assume that the client has not yet formed a method for calculating the amount that can be spent on each bid. This will also be built up over a number of bids, as the impact of bid management on budget and risk management becomes known.
Finally, we shall assume, for this example, that the evaluators have mostly reported that they can respond to the bid. The few problems that they have identified can be managed easily. This article will deal with this situation rather than the situation where a number of problems has been identified that may affect the completion of the bid. I have a reason for explaining the easy way first. As the bid progresses, it will need approval from each of a series of evaluation meetings. At this time, we have completed the first evaluation meeting, but there are more to come. While a negative outcome from any evaluation meeting will be handled in much the same way, a positive outcome will be handled differently for each evaluation. I shall therefore write about the actions that follow each of the positive outcomes first and then conclude with the actions that follow any negative outcome.

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.

Budget

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

bids that have a good chance of winning and will produce an acceptable margin,
bids that have a good chance but will produce an unacceptable margin or even a loss,
bids that have a small chance but will produce an excellent margin,

bids that have a small chance and a small margin.

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.

Risk

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.

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