How should a company determine whether or not to bet on a deal? Corresponding to Garrett (2007) bid/no-bid decision making is a two-part process. First, the contractor has to evaluate the solicitation and the competitive environment. Second, the contractor has to assess the opportunities contrary to the hazards for the potential contract. Successful contractors are suffering from tools and techniques to evaluate the hazards and opportunities of an potential contract. One of the tools sellers can use to assess risks and opportunities is Garrett's Contract Management Risk and Opportunity Analysis Tool (CMROAT) that allows an individual to assign beliefs to ten weighted risk factors and ten weighted opportunity factors, and then use the final scores to look for the prospective contract's degree of opportunity and risk. Surveys, checklists, and other tools provide the retailer with a level-headed, logical approach of making the decision; however, owner can overrule the studies of the research and checklists based on its experience and its own dependence on work. A team of individuals from a number of technological disciplines should be doing bid/no-bid decision making process and the final decision should be produced by the team. The bid/no-bid decision making process is an important process that the seller should take very seriously. Otherwise owner may underestimate the risks or opportunities of the prospective contract, and set itself up for inability or miss a profitable home based business.
The Bid/No-Bid Decision Making Process
How should a company determine whether or not to bid on a agreement? Relating to Garrett (2007) bet/no-bid decision making is a two-part process. First, the company has to measure the solicitation and the competitive environment. Second, the company has to evaluate the opportunities resistant to the hazards for the possible contract. All too often contractors do not devote enough time and attention to evaluating the potential risks before they put together bids and proposals. However, assessing the potential hazards is critical to the contractor's success in the competitive procurement environment. Successful contractors have developed tools and ways to evaluate the dangers and opportunities of the potential deal (Garret, 2007). A number of the tools try to assign numeric values to these dangers and opportunities. Should the retailer rely on quantitative steps or on experience and gut instinct as a means to reach the bet/no-bid decision? This newspaper will walk the reader through the bid/no-bid decision making process, with an emphasis on risk and opportunity analysis, and ultimately help the audience determine how to make the final bet/no-bid decision.
The objective of this paper is to go over the bid/no-bid decision making process, which includes evaluation of the solicitation and competitive environment, and risk and opportunity analysis. This newspaper will concentrate on examining Garrett's Contract Management Risk and Opportunity Assessment Tool as a means to quantify the potential risks and opportunities of an prospective agreement. Then, it will consider other factors and alternate means of making the bet/no-bid decision such as experience and gut instinct. Finally, the paper will conclude with my professional opinion regarding steps to make the final bet/no-bid decision.
Statement of Limitations
This newspaper will be limited by addressing the bet/no-bid decision making process from the seller's point of view. Owner is a company who's deciding whether or not to submit a bid or a proposal within a competitive contracting process. With regard to simplicity, the buyer is the Federal Government, rather than commercial company. Although there are a variety of tools and techniques that a contractor can use to weigh the risks and opportunities of the prospective agreement, this paper will give attention to Garrett's Agreement Management Risk and Opportunity Assessment Tool and then consider other factors and choice method of making the bid/no-bid decision.
Why a Service provider Should Not Bid on Every Possible Contract
Every business has limited resources, including personnel, time, and money. A rule of thumb is that organizing a bet costs 0. 25% to 1% of the full total bid price of the agreement (El-Mashaleh, 2010). Contractors fighting for a agreement often must put together voluminous proposals and proposal revisions, make oral presentations, and write replies to buyer inquiries (Garrett, 2007). "Submitting a great deal of burning off proposals may damage a contractor's reputation" and is also a throw away of resources (El-Mashaleh, 2010. ) If the contractor will not properly weigh the risks and opportunities, it may find itself bidding too low on a company fixed price deal or missing out on an chance to extend its business. Also, a builder may spend your time and money bidding for a deal which it is not technically qualified to perform or that this cannot perform at a cost comparable to its competition. "Additionally, a job that is inconsistent with an organization's long-term goals or current and near-term resources will limit the organization's extended expansion and success" (El-Mashaleh, 2010). Therefore, bet/no-bid decision making can be an important contract management process which should not be disregarded.
Evaluation of the Solicitation and the Competitive Environment
The first area of the contractor's bet/no-bid decision making process is to evaluate the solicitation and the competitive environment under which it is functioning. There are numerous inputs in the bet/no-bid decision making process that owner should consider in its evaluation. This newspaper will address each of these inputs, one at a time.
The first type for bet/no-bid decision making is the solicitation or another procurement file, such as a Obtain Proposal, Obtain Price, Invitation to Bet, etc. The solicitation will tell the seller what specific goods and/or services that the customer wishes to procure, the form of bid or proposal the buyer is seeking to obtain in response, and what contracting method will be utilized to prize the contract. In case the solicitation uses the terms bid or quotation, then price is really the only criterion that'll be used to choose the foundation among contending, prequalified sources. On the other hand, the word proposal or sensitive will signify nonfinancial things to consider such as complex skills, procedure, or past performance will play a substantial role in source selection. Furthermore, the solicitation includes the affirmation of work and the mandatory conditions and conditions. The solicitation could also include evaluation criteria used to credit score the proposal, particularly if competitive proposals or negotiations are going to be used for source selection (Garrett, 2007).
Buyer Specific Information
The second input is buyer specific information including the buyer's budget, plan, and tactical and long-term ideas. Owner must learn about the buyer's business, group, history, people, culture, and plans. The seller must be proactive in obtaining information from the customer in order to determine what the buyer really needs (Garrett, 2007).
Competitive Analysis Report
The third insight is a competitive analysis survey, which is compiled by owner and compares the seller's advantages and weaknesses to its rivals. The seller must measure its products and services against its challengers'. The seller should think about the costs, market share, features, and trustworthiness of each company. The research should focus the distinctions between each company in relation to its potential to meet up with the buyer's needs (Garrett, 2007).
Seller's Strategic Targets and Plans
The fourth type is the seller's strategic objectives and programs. In an ideal world, the buyer's needs will line up with the seller's tactical objectives and ideas. However, if indeed they do not, then your seller must think about the opportunities and hazards of the potential agreement (Garrett, 2007).
Using the solicitation, the customer specific information, and the seller's proper objectives and strategies, the seller should establish a firm knowledge of the buyer's needs and its ability to meet those needs. However, the competitive environment includes the customer, the seller, and the seller's competition. Therefore, the seller should use the competitive research are accountable to identify its advantages and regulate how to eliminate and neutralize its weaknesses (Garrett, 2007). If during its evaluation, the seller establishes that it's unable to meet the buyer's needs or that the buyer's needs land outside the proper objectives and programs for the business, then the owner should make a no-bid decision. The competitive environment may be challenging, if the seller wants to continue, then it is time for the next phase in the bid/no-bid decision making process.
Tools and Approaches for Risk and Opportunity Assessment
Now that the seller has assessed the solicitation and the competitive environment, the next phase in the bet/no-bid decision making process is to assess the risks and opportunities of the potential deal. "Sellers must identify, analyze, and prioritize the potential risks associated with a potential job" (Garrett, 2007, p. 96). There are a variety of risk diagnosis tools available for the seller to use including surveys, checklists, models, records, and software programs. These tools contain both quantitative and qualitative measures that owner can use to evaluate its risk. Similar types of tools and steps can be found to evaluate the opportunities of the potential contract. There may be both short-term and permanent opportunities designed for the seller, because carrying out this contract may start the gates to future opportunities both with this buyer and another buyer (Garrett, 2007).
Should owner identify each risk and opportunity and then rate each item utilizing a numerical scale as a way to decide if to bet on a agreement? Or will bet/no-bid decision making be more effective if the seller identifies and analyzes the potential risks and opportunities, but ultimately depends on experience and gut instinct? In World Class Contracting, Garrett advocates using the Agreement Management Risk and Opportunity Analysis Tool (CMROAT), a tool that his self-named consulting practice developed, in which the consumer assigns a numeric value to various risk and opportunity factors. This paper will take a look at Garrett's CMROAT tool as a way of identifying the potential risks and opportunities of your potential deal from the seller's point of view. But then the newspaper will consider choice methods to make your final bid/no-bid decision.
Contract Management Risk and Opportunity Analysis Tool
First, the user has to select either the customer or retailer version; we will target our evaluation from the seller's perspective, CMROAT-SP.
Second, the user must answer ten questions for the chance analysis, each about a different risk factor. The CMROAT has each question weighted on the scale of one to five, where a weighting of one means the question has a low importance while a weighting of five means the question has a high importance. An individual must assign a number ranging from one to four to each risk factor based on his/her collection of one of the numbered multiple choice answers provided for each and every risk factor, with choice one being minimal high-risk and choice four being the most risky. Then, the user multiples the weights by the chance value to reach at the risk score for every single question, and sums the risk ratings for each of the ten risk factors to arrive at the total risk which he/she records on an overview scorecard.
Third, an individual must answer ten questions for the ability analysis, each in regards to a different opportunity factor. Each question is weighted predicated on importance in the same manner as the risk factors. Likewise, each multiple choice answer has a numeric value between one and four, with one being a lesser opportunity and four being a greater opportunity. An individual multiplies the weights by the ability value for each and every question, and amounts the opportunity results to arrive at the full total opportunity which he/she files on an overview scorecard.
Finally, the user maps the full total risk and total opportunity on risk and opportunity matrix. Where the total scores fall on the matrix can be an indication of the amount of opportunity and risk that the prospective deal has for the user. Grand total risk scores below 64 are categorized as low risk, while ratings above 64 are believed high risk. In the same way, grand total opportunity results above 60 are grouped as being a good opportunity, whereas, ratings below 60 are considered to be a marginal or lesser opportunity (Garrett, 2007).
Garrett advocates that the CMROAT is employed with a team of representatives from all the functional areas in charge of the prospective contract. After the CMROAT's conclusion, the team can meet to review the results and possibly identify ways to help expand increase the opportunities and reduce the dangers of the agreement (Garrett, 2007). Now, we will consider the precise risk and opportunity factors recognized by the CMROAT.
The ten risk factors within the CMROAT-SP (Seller's Perspective) are buyer commitment, contract timetable, agreement duration, past seller's experience, the seller's involvement in contract explanation, external source coordination, requirements evaluation timeframe, technology and product maturity, geographic circulation, and contract supervisor assessment of the deal. We will solve each one of these risk factors in additional depth (Garrett, 2007).
Buyer commitment refers to the degree of importance that the buyer will put on the deal. A determined buyer will assign resources, in the form of both money and staff (i. e. an application Administrator and his/her personnel), to the contract. "A dedicated buyer is less inclined to change or cancel the agreement, and therefore symbolizes less risk" (Garrett, 2007, pg. 236). Amount of buyer commitment is regarded as to be an important risk factor; therefore, it is allocated a weight element in the CMROAT of five (Garrett, 2007).
The contract timetable identifies the start date and completion night out for the deal. "The capability to meet the deal timetable requirements is highly reliant on the magnitude of the deal and the availableness and coordination of the right skills and resources" (Garrett, 2007, pg. 237). Agreements with flexible start schedules and completion schedules provide the less risk to the seller. Meanwhile, a timetable placed by owner which is not negotiable, and that there are penalty clauses if the seller will not meet milestones, is risky for the seller. Contract timetable received a weight of four (Garrett, 2007).
Contract period is the length with time of the agreement. The longer the deal duration, the higher the risk that personnel, customer environment, and business climate will significantly change. Contract duration has a weight of three, making it reasonably important (Garrett, 2007).
Previous Seller's Experience.
Previous seller's experience is the power for the seller to meet up with the agreement requirements using products, technology, or skills that the seller used in past contracts. Greater retailer experience on similar agreements results in less risk because of this prospective contract. It is important for owner to consider how much it will have to develop to meet the agreement requirements, and the seller's experience with needed suppliers and their products, as well as with subcontractors if possible. Earlier seller's experience has a weight of four (Garrett, 2007).
The Seller's Involvement in Contract Classification.
Often times, the customer will develop the contract requirements including timetable, technology, product selection, etc. without insight from the sellers. Lesser retailer participation in agreement definition results in greater risk for the potential agreement. The seller's participation in contract meaning has a weight of three (Garrett, 2007).
External Tool Coordination.
Contracts providing a personalized solution often require coordination with the buyer as well as resources from one or more organizations which are external to owner, for example, subcontractors such as professional service providers and consultants or suppliers of hardware and software. A lot more external organizations engaged, the greater the seller's risk. Exterior source of information coordination has a weight of three (Garrett, 2007).
Requirements Analysis Timeframe.
The requirements evaluation timeframe is enough time between the bet request and the deadline for when the response should be published to the requestor. The shorter the turnaround time, the greater the seller's risk, because owner may not have sufficient time to do a thorough analysis of the request. The weigh because of this risk factor is a three (Garrett, 2007).
Technology and Product Maturity.
Mature products or systems that are greatly used today or have been in use for yearly or more tend to be more reliable and less risky than newly released or pre-released products and leading edge technology. The weight because of this risk factor is a two (Garrett, 2007).
Greater geographic dispersion of the contract to multiple areas and countries ends in greater complexity and risk to the seller due to distance, time area differential, and dialect barriers. This risk factor has a weight of two (Garrett, 2007).
Contract Manager Diagnosis of the offer.
The Contract Administrator can offer an overall opinion on the riskiness of the agreement including feasibility and the power of the potential seller to control customer requirements including the scope and terms of the deal. The agreement manager's assessment may include additional risk factors which may have not been previously considered such as economical or politics instability. This risk factor has a weight of three (Garrett, 2007).
There are also ten opportunity factors in CMROAT-SP. These opportunity factors are promotes seller's strategic way, revenue produced within a year of award, margin technique for first a year after award, future business probable, provides added experience and/or new skills, learning resource utilization, buyer favors the seller, products and services content is all the retailers, presale expenditure, and agreement manager's assessment of the opportunity. Again, we will solve each of these opportunity factors in additional detail (Garrett, 2007).
Promotes Seller's Strategic Direction.
While all opportunities will promote the seller's reputation and image if they're properly performed, opportunities that are in line with the seller's main business and proper direction are much more valuable to the seller because they can serve as an example of the type of business the seller wants and can provide as a reference point for future contracts. This opportunity factor has a weight of five (Garrett, 2007).
Revenue Generated within 12 Months of the Prize.
During the chance assessment, owner has not arranged a precise price yet. Nevertheless the seller can estimate the quantity of expected revenue if they're awarded the deal. It's important that this estimate is based on the scope of services because of this contract and does not include potential income beyond the range of the deal. Greater revenue produced within a year of the award leads to a greater opportunity. This opportunity factor has a weight of four (Garrett, 2007).
Margin Technique for First twelve months After Honor.
For this factor, the seller must calculate the gross margin ratio which will be became aware on the revenue produced by the agreement. Owner likely has percentage margin goals in its gross annual plan. However, competitive stresses may cause the seller to consider breaking even or going for a loss on the deal, especially if this agreement is likely to lead to additional high income business in the foreseeable future. But for this opportunity factor, the seller must only consider the profit percentage for this particular deal. Margins add up to or greater than those explained in the seller's total annual plan represent a larger opportunity to owner. This opportunity factor has a weight of four (Garrett, 2007).
Future Business Potential.
Future business potential is the impact of the deal on the seller's ability to get future contracts with this buyer and other customers. Would this agreement introduce the customer to the seller? Would this contract be essential for the customer and seller to maintain their current method of trading? This deal may impact the seller's capacity to get considered for future business, or on the converse, this contract may have little to no bearing on future business. The weight for this opportunity factor is three (Garrett, 2007).
Provides Added Experience and/or New Skills.
Contracts which will help the seller to improve its existing skills and develop new skills and knowledge present a greater opportunity to the seller. This opportunity factor has a weight of three (Garrett, 2007).
A agreement is more appealing if it offers good use of the seller's underutilized belongings and resources. For the converse, if the resources and resources are already being fully utilised, the agreement may drain resources assigned to other projects unless the seller can obtain additional resources. This opportunity factor has a weight of three (Garrett, 2007).
Buyer Favors the Seller.
The buyer may judgemental for the seller or one of its rivals for a specific contract predicated on factors such as reputation, earlier performance, technological advancement, etc. A predicament where the owner is well-liked by the customer, or at least will not favor a rival, presents a greater opportunity for the seller. This opportunity factor has a weight of two (Garrett, 2007).
Product and Services Content is all the Vendors.
Many agreements require the seller to subcontract with suppliers for some products. As external learning resource coordination is a risk, a contract where all of the required products and services can be provided by the seller represents a larger opportunity. This opportunity factor has a weight of two (Garrett, 2007).
The amount of presale price for each bet can vary greatly depending on whether the retailer has provided similar products and services to the buyer or another buyer before. Presale expenditures could be significant if owner must obtain outside the house resources, to plan for services and services, and has to demonstrate a benchmark system to the buyer. More desirable deals require a reduced amount of presale price. This opportunity factor has a weight of one (Garrett, 2007).
Contract Manager's Examination of Opportunity.
The Contract Administrator should be able to provide an overall judgment on the opportunity provided by and the need to win the possible contract. The agreement manager's evaluation may focus on the tangible areas of the opportunity and could include additional opportunity factors that have not yet been considered. This opportunity factor has a weight of three (Garrett, 2007).
There are various other surveys, checklists, and other tools designed for sellers to make use of when making the bet/no-bid decision for a prospective contract. There have also been numerous studies of sellers in which research workers motivated which factors were the most significant to make the bid/no-bid decision and created models that they used to forecast retailers' decision making. Now, this newspaper will discuss many of these other factors identified by researchers as being significant in the bid/no-bid decision making process.
The Dependence on Work
The dependence on work refers to the vendors' level of desperation in getting a new agreement. This ties back again to the competitive environment in which the seller is functioning and is also influenced by market conditions. Research workers have found that sellers are less inclined to bet on any given deal during the "good years" when the current economic climate is good and there are a lot of projects available, while they will bid through the "bad years" (Oo, Drew, & Lo, 2008). If the financial condition of a seller is so that it will not be able to preserve itself unless it is victorious another agreement soon, then your owner may feel compelled to bid and undertake the risks of agreements without considering through them clearly. Also, the greater desperate owner to gain a contract, the more likely owner is to send a bet with an abnormally low markup on cost given the level of risk it must take on for the given contract (Chua & Li, 2000). However, if there are very few buyers requiring the merchandise and services proposed by the seller for just about any reason, even if it simply just the limited usefulness of the seller's products and services, then your seller can and really should be more likely to bet on a agreement when you are available. A good healthy builder in a good environment will want to get a new contract to work with its resources as they free up from existing deal work.
In situations where a seller gets the opportunity to bet on a agreement, a follow-on contract is possible, and the builder winning the original contract has an gain in negotiating the price for the follow-on deal, owner may be tempted to bid low to get the initial agreement. However, tactics such as these are a slippery slope. The seller must take precaution because follow-on contracts are never assured and the seller may need to negotiate a huge upsurge in price for the follow-on contract just to achieve an average of the seller's overall rate of go back on both agreements (Brooks, 1978). Furthermore, 48 C. F. R. Subpart 3. 5- Other Improper Business Routines, areas that buying-in, thought as "submitting an offer below anticipated costs, planning on to- (1) improve the contract amount after prize (e. g. , through unneeded or excessively listed change orders); or (2) obtain follow-on contracts at artificially high prices to recuperate losses incurred on the buy-in contract", is illegal (Acquisition. gov).
Experience and Instinct
To what extent should sellers use research and checklists to credit score a prospective deal and use that as the foundation of earning the bet/no-bid decision? Research, checklists, and other tools provide the owner with a level-headed, logical approach of earning the decision, and are surely less reckless than having the seller bid on all potential contracts in its field of work or making the bidding decision on a whim. However, somewhat, I believe that these research and checklists should you need to be a means for the seller to ensure they have considered and weighed all the risks and opportunities of any prospective contract. The seller can overrule the results of the studies and checklists based on its experience and its own dependence on work. The seller's experience or gut instinct may lead it to a new bet/no-bid decision, and it could proceed cautiously, so long as it has discovered the potential risks and opportunities.
Making your final Decision
I believe that one of the very most important elements necessary in the bet/no-bid decision making process is the utilization of teamwork. A team of key organizational personnel from a variety of complex disciplines should be analyzing the solicitation and the competitive environment, selecting the survey/checklist or identifying its own factors, performing the chance and opportunity examination, and in the end the team should be making the ultimate bet/no-bid decision. Perhaps one person in the team could take the business lead in summarizing the solicitation and competitive environment, and the chance and opportunity factors determined by the team. Then each one of the team members could add his or her final responses, and each of the associates can anonymously vote to bid or never to bid for the prospective contract, with each team member's vote taking the same weight and the majority making the ultimate decision. I believe this, or an identical, process would cause well-planned bet/no-bid decision. The outputs of the bid/no-bid decision making process are the final bid/no-bid decision and a justification report which points out the seller's known reasons for causeing this to be decision on the precise prospective deal (Garrett, 2007).
Having only performed for the government, I often find it difficult to put myself in the contractor's shoes. I came across it interesting to believe and to learn about the seller's process of making the bid/no-bid decision for a possible contract. You will discover many more things to consider when making this decision than I recognized, in particular I did so not expect that there would be as many risks and explanations why to make a no-bid decision. Given the competitive environment that is Federal Government contracting and the existing economic point out, I ponder how often retailers choose never to bid on a prospective deal. Nevertheless, I believe the bid/no-bid decision making process is an important process that the seller should take significantly. Otherwise owner may underestimate the potential risks or opportunities of any prospective deal, and established itself up for failing or miss a profitable business opportunity.
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