Commercial Gains through Process Mapping

February 4, 2016

I thought I would share with you all the experience gained and the commercial benefit realised when conducting a detailed business process mapping exercise.

 

The Scenario;

 

A global client was experiencing serious levels of revenue erosion on large multi £million contracts as the project neared completion. The forecasts throughout the project detailed excellent margin for the project but this was regularly lost within the last few months of the project.

 

The Detailed Process Mapping Exercise;

 

As part of a detailed route cause analysis I conducted a detailed mapping of the overall process steps from bid development, through project booking and hand over and throughout the project delivery phase. With consultation to all the key stakeholders at each phase of the project we detailed down each individual step of the process, highlighting the decision points and who carried out each step. Once all of these steps were detailed we analysed a particularly poor project to trace through each step and identify what was the cause of the high losses at the end of the project.

 

The Findings;

 

Product Risk – At no point during the bid phase had anyone highlighted whether the product being offered was either well within its known performance criteria or whether the project was outside of the products working range. Product experts had not been involved in the sign off of the bid prior to issue.

 

Contingency Management – Bid Engineers had built in hidden contingencies within their overall costings. There were no open and highlighted contingency for risks such as material cost fluctuations, potential project delays, foreign currency movements, etc.

 

Cash Flow Management – The expense / cost profile had never been compared to the income profile for the project. As a consequence the Project was operating at a severely cash negative position leading to increased financing costs. At the bid phase you have the potential to negotiate payment terms so that any negative cash position can be mitigated. You do not have this luxury once the Contract has been signed.

 

Client Risks – Contracts were accepted from new clients without having undertaken a full credit referencing process to see if they have the means to remain financially liquid for the duration of the project. Blue chip and historical clients post less of a commercial risk than unknown new clients.

 

Geo Political Risks – A number of the contracts undertaken were located in countries where the political situation was somewhat unstable. There had been no allowance for the management of risk throughout the project to ensure that if the project ended the company was still in a positive cash position.

 

Health, Safety and Environmental Management – Since these contracts were being undertaken across the globe there was no understanding of that the local Health, Safety and Environmental requirements were. This lead to increased costs as in the example project analysed there had been no allowance for a full time on site H&S manager which was a local legislative requirement.

 

The Conclusion;

 

Taking all of these route cause findings into account it was agreed to reinforce the Bid Management process with the inclusion of a Project Risk Profile process where all of the key risk areas could be highlighted and the contingency measures detailed. These could be a financial contingency, a re-negotiation of the contract, a schedule / project programme contingency, etc. The highlighting of all of these in a single process step meant that senior and corporate management had a much clearer understanding of the risk of the project and could make an informed decision as to whether the contract should be accepted or not.

 

Have you had a similar experience? Do you have examples of where Process Mapping has seen clear business gains? Please feel free to contact me and let me know.

 

Regards

 

Jonathan

 

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