The Prospects and Perils of Project Pursuit

Project Pursuit

It is every manager’s dream to start a new fiscal year with a strong backlog of orders that generates enough sales for the year and beyond. If you are one of the lucky few sitting on a big backlog because of project business, you might consider planning a vacation at the beginning of the year or dropping by Starbucks and enjoying a nice latte before heading to work.

Project pursuit is the process of planning, organizing, coordinating, and controlling the resources to accomplish specific goals of bidding on and winning new projects. This article relates to industrial projects, such as building a power plant or supplying the critical balance of plant equipment to a major oil refinery project.

In the project business, the hunt for the next new project never ends. As the company depletes its backlog, it is critical to replenish it, which is done by being persistent and focused in the approach to seeking new projects. Keeping the book-to-bill ratio greater than 1 is a healthy target to strive for. It takes a different mind-set, business model, and risk appetite to be in the project business.

The definition of project changes from company to company, but in general, it relates to a scope of work that is complex and large in size, requires sourcing material from third parties, manufactures in multiple places, and has a delivery cycle that can go beyond 6 to 12 months. It may or may not involve on-site construction but may include long-term service agreements or field support while products are being installed. The contractual terms, revenue recognition, and resource allocation can be tricky compared with a short-cycle business or direct product sale.

My experience in developing EPC (engineer, procure, and construct) projects in the international markets started more than two decades ago when emerging countries were building power plants to drive their fast-growing economies. Those were the heady days when Western firms would bid on, win, and execute complex infrastructure projects in developing countries. The experience led me to be smart about the project business, and during that time, I learned a couple of tricks of the trade when it came to winning and executing large, complex infrastructure projects.

One cannot underestimate the risks involved in the project business. If the risks, both the known and the unknown, are not managed properly, they can wipe out a company’s balance sheet. A good example of this is the recent spate of nuclear power plants being built in the United States and the United Kingdom where project delays have doubled or tripled the cost of construction and bankrupted a large player in the industry.

If you are not lucky enough to have a customer relationship management (CRM) application to manage new project sales, don’t worry: God created Excel for that. In the absence of a CRM application, one can still manage project sales using a simple MS-Excel worksheet (see template below), although it is not the answer if you want to build a robust project business.

To successfully bid on, win, and execute projects, you have to consider many factors. Here are three important considerations to keep in mind while you are actively chasing projects to bid on and win.

  1. Pick the right project.

No matter where you work, company resources are always constrained. Allocating the best and the brightest members of a team to chase the right opportunities is a critical part of the leader’s job. The decision to invest in bidding on a new project should be made scientifically. It should not be based on emotion or the fact that someone in the organization fell in love with a particular project or customer. The opportunity cost of not working on other profitable projects, which you might have better chances of winning, should be considered in the decision-making process.

One can create a simple point system along five to eight criteria to help decide which projects to pursue. For example, when I was serving the Oil & Gas (O&G) industry, we set up a simple set of five criteria to consider: Lead Time, Compliance with Specifications, Price, Service and Application Support, and Competition. Before we started the bidding process, the sales, marketing, and operations teams together assigned points along those five. If a project’s final score was not above 75 percent—an internal cutoff point to approve new project bidding—we would not invest valuable resources in it.

It is important to think about the strategy to win before investing time and resources in a project. A few years back, a young engineer walked into my office and made a passionate argument in favor of bidding on a project. “Ramesh,” he said, “we are the only company in the world who could make super duplex material [a strong material used in harsh applications], and manufacture and deliver products to the site, in batches, to meet the short lead time the customer is demanding.” This led to several internal strategy sessions. We made a quick decision to bid, and we won the project. That one project alone constituted approximately 30 percent of the annual revenue for that business unit. As leaders, we have to be open minded and opportunistic when there are compelling reasons to chase a strategic project.

  1. Start the missionary work early.

Smart companies start pursuing a project before the specification hits the street, and in many cases, they are involved in the project well before the start of the front-end engineering and design (FEED) process. Major infrastructure projects need project funding, and using this information as a guide, you can start working with various stakeholders to highlight how your products and services differentiate your company from the competition.

More importantly, work with the influencers to support their efforts to reduce project cost, improve efficiency and reliability, and reduce project time with innovative ideas. Writing white papers in industry journals and publishing them in industry conferences to set industry standards on performance levels helps differentiate your offering. Proposing alternative solutions to address various plant performance requirements, while remaining cost competitive, helps differentiate your offering.

Put yourself in the customer’s shoes and think about what a successful project execution looks like for them. Although price and performance are key to customers, having deeper discussions with them may reveal that they need after-sale services, readily available spares, or even project financing.

Nowadays, the specification for a complex project is developed in one country, designed in a second country, and procured in a third country, and the project execution team is based close to the project site. Having the ability to interact and coordinate activities with all these customer touch points is important to the overall success of the project—at both the bidding and the execution stage.

For international projects, work with your country’s consulates abroad, be part of trade missions, and establish relationships with governmental entities that support exporting products—all the steps that improve your probability of winning projects.

When I was involved in developing EPC power projects in Asia Pacific, our company targeted Australia, which had plans to build several power plants. We knew competition from Asian players was going to be intense. As an American company, we started the missionary work in the country with various stakeholders and targeted two projects we had the best chances of winning.

On my first trip to Australia, we spent more than a month meeting all the stakeholders and building brand around our company’s offering. We demonstrated how our technology could help the local EPCs build an optimal plant at the lowest possible cost. We established a small local project office and actively started bidding on those two large EPC power projects. Although we lost the first project, we won the next one, which was worth approximately $110 M for the company.

  1. Manage risks.

By nature, the project business is a risky one, and there are few risk-free projects out there. An unforeseen risk can not only wipe out the profits from the project but also bring the entire enterprise down.

For that reason, many companies avoid the project business and stick to a simple product sales model. And sometimes, it is wise not to bid on a project with significant risks. That being said, companies can become well prepared by being smart about the scope of supply, having the capabilities to assess and manage risks, and building a solid project management team.

Companies that are predominantly in the project business establish a risk management team whose job is to assess potential risks and make recommendations to mitigate them. Project risks can vary from financial (such as the cost of goods or labor going up rapidly during execution) to execution (such as design changes). Developing a good project execution plan, before inking the project, helps address the potential known and unknown risks.

Companies that have developed a well-defined delegation of authority to assign project responsibilities to the right individuals within the company help mitigate potential risks.

In Conclusion

Project business is attractive to some companies because it brings big dollars to the top line, but if not managed properly, it can wipe out all the profits and bankrupt the company. Even a simple project needs to have a good execution plan and a dedicated project management team. Building a professional project management team in-house with professional Project Management Institute certification (PMI) will help you build a solid execution plan.

As industrial companies merge, creating a larger basket of offerings to their customers, getting into the project business is inevitable. Being prepared both at the leadership level and mid-management level to manage these complex sales and their execution is important to the overall success of the company. The Asian EPC houses (Korean, Japanese, Chinese, and Indian) have taken a predominant role in the world’s infrastructure projects, and through learning from their mistakes, they have built competencies to successfully manage complex project business.

The Bottom Line

Let our advance worrying become advance thinking and planning.     —Winston Churchill