Contractors know that they accept a certain amount of risk every time they enter into a new contract. However, they are challenged to select projects that their organization will be able to complete profitability. How much risk does each new project represent, and can my current organization absorb that much risk? Can I measure risk in advance? Is there a way to evaluate my organization’s capability of absorbing higher levels of risk?
Two Step Evaluation Process
We recommend a two-step strategic evaluation processthat enables contractors to measure the risk of each new project during the planning stage and evaluate their organization’s ability to absorb that level of risk.
Step 1.Project Selection Tool – developed to assign a value to multiple project risk factors and to compile a cumulative risk score for each impending project.
Step 2.XPD (Best Value) Procurement Method – a “Best Value” procurement method designed for owners and designers to help them identify the most qualified contractor beyond low-bidder.
Project Selection Tool
The Project Selection Tool(found here on the Simplar site is a self-administered questionnaire that isolates and measures the risk factors our research has found to be frequent and impactful. After asking yourself the following yes or no (sample) questions, a numeric value is assigned to each answer that then adds up to a risk score telling you what degree of risk your organization will be absorbing if you take on the project in question.
- Has your firm ever completed projects of this size, type, in this geographic area, by this owner, using this GC and designer? (Y or N)
- Have your estimators ever estimated a project of this type and size?
- Has your field supervision team ever built a project of this type and size in this geographic area?
- Is there sufficient labor available to complete a project of this type and size?
- Have you ever worked with the other subs who will be on this job?
- Are there unusual access, room-to-work, parking, dust, noise, storage space, traffic, etc. issues?
- Are there unusual design elements?
- Is the project owner’s financing in place?
- Is this owner/GC a good payer?
- Are the contract terms reasonable?
- Are there any unusual payment provisions, retainage issues, or liquidated damages that will affect cash flow?
- Any unusual bonding requirements?
- Do you have a competitive edge?
- Does your entire organization want to pursue this project?
- Do you have a negative or positive “gut feel” about this project?
Each yes or no question is assigned a value for likelihood and impact. After working with the project selection tool for a while, the degree of risk inherent in any project your firm is considering becomes remarkably clear. Find the Project Selection Tool here on the site and apply it to any project you are considering. It will open your eyes and perhaps explain why some past projects were not profitable.
How Much Risk Can My Organization Handle?
The researchers at the Simplar Institute developed and refined Expertise Project Delivery (XPD) over the past 20 years, to increase the probability of owners hiring thehighest performing vendors. The primary goal of the best value XPD™ approach is to clearly differentiate expert vendors from their competitors based upon price & performance criteria.
The interesting twist here is that a vendor can use the same method to evaluate himself.
In other words, by asking himself the same questions that the owner or GC will ask about him, he can evaluate whether his firm is capable of absorbing the level of risk he has identified with the Project Selection Tool.
The Self-Administered XPD Approach
What are the best criteria used to differentiate vendor (in this case your own) expertise?
The data is clear: project performance is primarily driven by the capability of key individual project team members and their ability to identify, prioritize, and minimize project risk. Using the method developed by the Simplarresearchers, you can get the same unbiased evaluation of your capability of taking on the project being considered.
- Identify and Evaluate Key Personnel
Research has found that successful projects and services have a common theme –the expertise and quality of the individuals (the actual people) that were assigned to the project or service.
- Submit Anonymous Proposals
If you are picked after submitting an anonymous proposal you know that the owner believes that you are truly the best qualified for the job and your self-evaluation is confirmed. His evaluation is completely unbiased.
- Compose Limited Pages
In the XPD™ approach, the evaluated proposals are limited to 2-5 pages. This allows the evaluators to actually read the entire proposal and also provides an advantage to the higher-performing firms. In other words, by limiting long-winded bragging narrative you help evaluators narrow their focus to important qualifications.
The Project Selection Tool and XPD Procurement Methodare two tools that can be used to help contractors evaluate the risk factors inherent in projects under consideration and carefully judge their organization’s ability to successfully absorb those risks. Take a look at both tools here on the Simplar site. You will thank me for this tip.