Health February 17, 2020
All that glitters is not gold

By Mike Hobbs - World Healthcare Journal

With a little practice, there are many easy tests to quickly tell the difference between pyrite, fool’s gold, and gold.

Filtering out bid opportunities with value from those of less value is no different. These simple tests are referred to as selectivity.

Selectivity processes are the opportunity to align the future contract portfolio with an organisation’s business plan. It’s the difference between doing lots of stuff and being focused. The former is characterised by metrics about numbers of EOIs and tenders submitted, the latter by success rates and the quality of contracts secured.

When tender opportunities are originated there is a natural tendency to focus on the positives, to focus on the customer’s ambition, to focus on the technical characteristics, to focus on big headline revenue values. Such characteristics are important in selectivity. However, they are all on the opportunity side of the risk and opportunity equation.

If there is a genuinely strong customer relationship, factual information should be available to make a balanced assessment between risk and opportunity. Customers promote projects, therefore opportunity level information is more readily available. Information on risks is less readily obtained. Gaining it requires a depth of relationship, especially with decision-makers in a procuring organisation.

It is often argued that the information can’t be obtained as the customer can’t disclose commercially sensitive information. This may well be correct. However, most customers will provide information in ranges. Such ranges are sufficient for selectivity processes. In fact, information with spurious levels of accuracy raises questions about data validity. It is about tests of materiality rather than absolute data values.

Assessing the opportunity

The opportunity criteria are also worthy of validation. Is the contract value a maximum value, including potential future works. What is the core value that will be the contract sum? Is the core value at the level of a prime, or relevant to the scope being tendered for? Is the core value per year, for the initial contract term or does it include assumptions about contract extensions?

The revenue line is headline-grabbing. Business sustainability is driven by cash and profit. What is the payment risk? What is the currency and exchange rate risk? Are there multiple bidders with competitive tensions suppressing margins and stressing risk appetite?

Even the technical understanding of an opportunity should be checked. An asset management opportunity could be everything from a financial portfolio, through strategic built environment asset management; to a maintenance service. In segments such as digital health, there is even more opportunity for a lack of alignment between customer need and bidder offers.

For tendering in international markets additional factors may be relevant. Factors such as economic outlook and political stability, anti-corruption indices, human rights indices.

Timing of when the opportunity is expected to enter contract is also important. Dates often slip by months and even years. The impact is on bid costs, on resource allocation and on revenues, cash and profit flowing later in the business plan period. There are a number of tests of reasonableness that can be used to establish the robustness of dates. These also include whether entering contract is dependent on securing funding and/or financing, rather than it already being in place.

And of course, there is the cost of tendering for the opportunity - both the financial and opportunity costs.

Synthesising information

Firstly, much of this information will be needed to support a high-quality tender response. Secondly, a well-structured selectivity matrix will be based on structured data sets, with as many data fields self-populating as possible. For example, entering the country for an opportunity can, using lookup tables, self-populate: political, economic, anti-corruption and a number of other metrics.

Selectivity matrices can be used to assess a range of risk and opportunity metrics. Algorithms that are calibrated to the tendering organisations, business plans and risk profile generate broad assessments of: Definitely Bid, Definitely No Bid, and Needs Consideration.

The algorithm calibration should not result in the majority of assessments resulting in ‘Needs Consideration’. There is a strong case for the algorithm not being visible to users, to remove bias from the data set. Also, the calibration should be reviewed regularly to update it based on the current position against the business plan.

Selectivity matrices need to form part of a disciplined selectivity process. The discipline should not tolerate No Bids being pursued on a “by exception” basis. No Bid means no bid.

Neither should selectivity be seen as an assessment at a single point in time. Rather a series of Gateways, with increasing depth to data sets being used for the assessment.

The principles of selectivity apply regardless of scale. Modest opportunities can carry disproportionate levels of risk. Levels of risk can be organisationally destabilising. Going back to the gold analogy, it is as important to distinguish between small pieces of fool’s gold and actual gold as it is between large nuggets of both.

For many things in life, the attractive external appearance of something is not a reliable indication of its true nature. The same is true for tender opportunities. Robust, factually-based, selectivity processes are an essential business tool that increase the probability of successful tenders being the business equivalent of gold.


Contact:

Mike Hobbs, Consultant

E: mike.hobbs@primeperformancepartners.co.uk


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