Business process for business yet to be won?

While there is plenty of talk of business process as a way to cut cost, increase efficiency, and avoid mistakes, there’s another way customers are using the latest technology in BPM…to price work that hasn’t been won. There are many names for this idea, but in large engineering and design firms, knowing what it takes to get the job done through the component cost of the work is critical to being able to submit a competitive bid. Since a bid is a promise to deliver a specific item at a price, why wouldn’t it be a derivative of an established way to get work done? Until more recently, this was not an easy task.

ABC

Activity-based costing has been cornerstone to business process analysis, but using ABC as a competitive tool is a relatively new use of the capability. What brings this about now are the advances in software technology that allow for discreet processes to be captured, assigned ownership and then managed through process lifecycles in way that keeps it ‘alive’ and not outdated the moment it is captured. Process as owned, versioned data with the ability to mine it when necessary. Suddenly a competitive asset.

The use of activity-based costing as an analytical tool for competitive pricing means an organization has the ability to string together end-to-end process in a way that is also the execution model. So which came first…the execution model or the costing model? It can come from either direction, with one being catalyst for the other. Creating the most competitive bid means deciding to take a process focus from selling to delivering.

The audit benefit

In regulated industries, having a published execution model is a requirement that companies have long satisfied with paper-based ‘systems’ created specifically to pass audits. If this is you, don’t feel singled out…it is common practice. I would argue that these days are passing just as paper ledgers have been crushed under the weight of their own complexity and manpower. Not just in regulated industries, but also in industries that regulate themselves…internal and external audits will increasingly have to be based on tangible reality. Pricing and execution based on reality is tough to prove in a papered-over world.

Dealing with variation

Few pieces of work are carbon copies of another, so well-documented process often runs up against the need to vary the approach, work through the unknown, and at times, create something that’s never been done. This, too, can be managed by a costing model that also represents the way to execute. By determining what must be done, what should be done, and what may be done, costing can be based on a set of assumptions that guides the bid process while allowing for flexibility and ‘permission’ from key stakeholders where and when necessary.

Executing

Imagine winning a piece of business only to find out that the cost of executing the contract to terms is more expensive than thought because of:

  • Assumptions of work duration that were inaccurate
  • Unexpected work that arises because of poor process definition
  • High audit overhead as a result of poor documentation

These are common challenges whether your industry is simple project/program management-driven or full-scale engineering. Successfully delivering what you’re price tagged becomes an art rather than the repeatable science that it needs to be.

Keep in mind that competitive bidding based on a single model for pricing and delivery is a closed-loop system that allows lessons learned to be incorporated and then become part of the next round of competition and execution.

Today this is the direction of a few enlightened companies, but soon will be a basic capability of anyone who wants to survive and prosper.

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Categories: Workplace Reality

Author:Chris Taylor

Reimagining the way work is done through big data, analytics, and event processing. There's no end to what we can change and improve. I wear myself out...

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8 Comments on “Business process for business yet to be won?”

  1. November 2, 2011 at 8:31 am #

    Great post Chris.

    What you write about variations and process variants really resonates. In real life, we often have a process that includes “Musts” or “Shalls” (some parts of the process that is manditory), “Shoulds” (some parts of the process that can be changed, but with some type of governance or approvals), and “Cans” (some parts of the process that are more optional in nature). To really work, the process solution often support each of these and make it clear which activities fall into which category.

  2. November 2, 2011 at 8:44 am #

    Interesting and perplexing that you would consider BPM for scheduling, estimating and cost control.

    Critical Path Method integrates work breakdown structures, cost estimating, project scheduling and resource allocation/leveling and sets the stage for weekly/monthly cost measurement/control and actual + balance-to-go time and cost projections.

    I have never seen a BPMS that can do all of these things.

    Of course, nothing wrong with putting CPM inside of a BPMS (they both work with flowgraphs) but for customers who don’t need the features/functions of CPM you would need to be able to hide a lot of the functionality.

    • November 2, 2011 at 9:30 am #

      Karl, if you consider that the execution of a project is a process, and that process has measurable time frames and people responsible, I’m not sure why you wouldn’t put it inside a BPMS. This is what is being done by major engineering firms (construction, aerospace, etc.) as a way to make a single model for bidding and executing. The CPM items you mention are all valid, but each is a process in itself that summarizes to be the overall process for competing and delivering. There are absolutely BPMS systems that do this, and I’ll leave it to you to figure out which ones…:-)

  3. Stephen Klineberg
    November 2, 2011 at 5:22 pm #

    Hi Chris
    I work in a heavily regulated environment and am also looking at doing more ABC or process-based cost accounting work to be able to accurately cost different distribution channels or business model options and product pricing (eg. direct vs indirect, tender vs normal sales). What tools have you used in the past for this?

    • November 3, 2011 at 11:02 am #

      Stephen, I’ll put you in contact with people I know that are working with customer in healthcare.

  4. November 3, 2011 at 4:28 pm #

    Great article. I have always regarded BPM to be a tool that can provide sustained competitive advantage. It allows IT to move beyond mere automation.

  5. November 8, 2011 at 11:04 pm #

    Great Article Chris

Trackbacks/Pingbacks

  1. How to Use BPM to Accurately Predict Costs for a Bid | TIBCO Blog - November 8, 2011

    […] colleague Chris Taylor wrote a very interesting blog post on using BPM to predict costs in submitting competitive bids.  Even if a bid is won, common […]

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