How Risk Management Helps You
Win More Capital Project Bids
February 22, 2022
It’s been a common expectation in our construction culture that the lowest dollar figure generally wins the capital project bid battle. One reason for this: accounting for risks that could inflate that figure has not always been seen as a wise business move. Considering that winning construction bids is what keeps construction companies’ lights on, this would seem to make logical sense.
However, there’s been a gradual shift from favoring low-bid practices toward actually preferring more risk-adjusted, reality-based bids. Why is this? More and more contractors have adopted digital technology that is introducing a new level of accuracy and transparency into the bidding process. With scheduling and estimating software in particular, they’re better able to anticipate and plan for the risks that often have gone unacknowledged. And it’s resulting in more thorough bids and greatly improved cost certainty — something to consider for contractors and owners alike with growing portfolios of capital projects, including often massive new infrastructure projects.
So how can accounting for risks help increase your odds of winning construction bids?
Risk identification based on prior project data
The past can give clues of what to anticipate for future builds, especially if they can impact the project’s final cost and completion date. This is where those software options figure in. Using the digital technology chosen to house your projects’ historical information, you can now review the data from similar projects you’ve done. Note all the risk factors that surfaced, both internal and external — such as scope creep, economic conditions, inclement weather, material unavailability, safety issues and lack of backup plans. Based on this rearview perspective, it’s easier to then identify the risks that are likely to occur with this prospective project.
One thing not to overlook: human input. While past data is invaluable in revealing the measurable impact of risks that actually occurred, it doesn’t negate the lived experience that the project team brings surrounding risk management. Invite the different disciplines to weigh in. Their unique insights on other possible threats, mitigation strategies and risk prevention feasibility can add even more realism to the bid development process.
Development of contingency plans
Identifying risks is the critical first step. But then the question becomes, how do you plan to address them? Owners want reassurance in your bid that you can successfully manage their project around or through them. From a practical standpoint, when risks do occur, there may be little time to effectively strategize next steps to mitigate their impact. And that doesn’t make for effective risk management, especially if you factor in the effects of heightened tension and stress levels.
This is where careful, data-driven contingency planning demonstrates how you intend to navigate through each risk to preserve timelines, quality standards and costs.
Look at the performance metrics for insight into your projects’ actual progress, job efficiency and how well those risks were managed. As you assess them, consider: Did the cost performance index (CPI) respond to any of those risks by exhibiting any subtle or strong fluctuations? How did the schedule performance index (SPI) fare? What risks were held at bay or mitigated by monitoring the CPI and SPI? Build any resource cost increases into your bid so you don’t wind up taking the financial hit of those price swings. And make sure likely schedule-impacting risks are accommodated. The idea is to eliminate as many surprises as possible.
If you go back to those risks you noted from past projects, which of them had contingency plans? For those that did, what does the data show of how successfully they worked? What would’ve made them more effective? For those that didn’t, why were no backup plans created? How could the effects of these risks be averted or mitigated in the future? If your software has forecasting capabilities, test the potential outcomes of various risks and how corresponding contingency plans help alleviate the severity of the impact. Figuring in these data-driven backup plans will continue building an accurate, reality-based, risk-adjusted bid.
Increased transparency reduces cost and scheduling surprises
Winning construction bids depends in part on demonstrating to the owner your understanding of the bidding documents and project scope. It also depends on establishing their trust in your ability to complete the project according to the owner’s requirements. Incorporating your data-driven, risk-adjusted cost and schedule forecasting into the bid does both and introduces transparency into how you intend to achieve project outcomes.
Think back to how part of the sticker shock from cost overruns in the lowest-bid-wins capital projects came from not knowing or being able to plan for the corresponding financial impact of unaddressed risk factors. There was no transparency. But bringing those risks out of the closet into the open and addressing their potential cost and schedule impact upfront means there are fewer surprises and tense conversations throughout the build. Clients now know what to expect. And with the level of project and cost certainty they gain from a more comprehensive bid, they’re likely to be more confident in it and in your ability to manage their project.
Solid risk management is a must for producing winning construction bids
In the end, simply submitting a bid without a comprehensive risk management plan is the biggest risk of all. If you’re looking to increase your win rate and project certainty, look to InEight scheduling and risk management to be the cornerstone of your winning construction bids. Request a demo to see how this blend of planning, scheduling and risk analysis can help strengthen project certainty from the bid phase to closeout.