Understanding Uncertainty in Account-specific Project ...

Understanding Uncertainty in Account-specific Project Pipeline Management via Milieu Analysis in Engineering Outsourcing Industry Chakradhar Iyyunni and Monika S. Purohith

Keywords: Project Proposal, Uncertainty/Risk Management, Milieu, Engineering Services

I.

ABSTRACT

Project Marketing should go beyond conventional approach of responding to tenders, i.e., "request for quotations" (RFQ). The service provider should develop flexible, adaptive and innovative ways to market project capabilities and operate beyond transactional (logic) response. The pre-sales practices facilitating intense action ‘upstream' of project by anticipating, defining and constructing of project scopes have to be developed. In this paper, we focus on managing relationships and networks during a proposal life-cycle of conceptualization, responding to tenders up to the win/loss decision. This will be studied via categorizing proposal activity on four dimensions: technical (T), financial (F), social (S) and political (P). These attributes characterizing Engineering Service Organizations (ESO) and Customer interaction play a very important role in ensuring robust project portfolio and hence a sustained growth of account teams. This article first identifies and defines the relational and functional characteristics of proposals (T,F,S,P) that the business actors need to constantly nurture during the proposal lifecycle. The milieu can be broken down into internal and external actors who influence the business processes. Thereafter the study shall analyze the network and manage uncertainties, and the factors influencing the award decision. We conclude that project managers and marketers should also focus their attention on the management of milieu before, during, and after completion of the proposal-as-a-project to enhance their win ratios for project proposals and account success. The analysis is also amenable to use of the analytical hierarchy process (AHP) for various decisions (bid/no-bid, sub-contract or not, win/loss) that govern the proposal process.

II. INTRODUCTION Leading Indian ESO contractors are now successfully competing in the global market by leveraging their competencies, breadth of industry exposure and project execution capabilities. Although, the historical success in IT/ IT enabled Services(ITeS) point towards application services, vendors are diversifying capabilities to include consulting, industry-specific expertise and infrastructure management. As domestic

vendors expand their global footprint understanding the inherent and project-specific uncertainties is vital for market dominance. These uncertainties get realized into risks and problem situations due to the fact that, projects in ESO industry is of short duration, needs to be delivered rapidly, lacks customer & industry big picture and ability to absorb product liabilities. Teams are small in size, moderately skilled and are relegated to a support function in the minds of the customer's engineering teams, uses of the bottom of the talent pyramid (03years experience) as its primary instrument for delivery. Even though there is extensive use of information and communication technology (ICT) enablers yet work definition is lacking in specific work expectation guidelines resulting in diffused scope statements. The inability of account teams to adequately address the discontinuous usage of engineer's skill, knowledge and continuity in the type of work performed (thereby lacking in maturity and hence value though there is an increase in skill level, [1]). This creates role stress in teams and organization but significantly puts tremendous pressure on the project proposal process [2, 3]. Refer [15] for other aspects of risk management in IT projects. The critical aspect for success in ESO is managing a pipeline of projects which involves being in control of managing customer relationships, pre-sales activities and offer management. Due to the above factors, the conventional logic of a product business promotion does not work with the ESO-specific project business. Such pre-sales practices facilitating intense action ‘upstream' of project by anticipating, defining and constructing of project scopes have to be developed. The proposal process in ESO industry have a unique/specific buying procedure, a long negotiated process (in relation to the size of the project), fragmentation of buying centers (small elements instead of the integrated EPC, Engineering Procurement Construction projects and internally to an ESO, different sets of expertise lie in different teams hence needs integration) and a need for large number of projects, un-clear role among the various actors in the milieu. Also, the delivery teams have to spend a significant effort for proposal estimation which may not count towards their utilization or billability. The other factors, not considered here, that impact proposals (in ESO or customer organization) are: the influence of personality of the project manager/account manager, synergy (to address assumptions) between sales and delivery teams, lack of clear engineering services outsourcing budgets in customer organization, ability to address the multiple levels of accountability in the customer organization, industry

trends and emerging market imperative (low cost, specific functionality), intense competition and attrition of account managers. Thus, the account mining and account farming processes are crucial, given the above challenges of the ESO industry.

III. MILIEU ASSESSMENT AND ANALYSIS Cova et al. in their work on project marketing in 2002 have instigated that the seller should go beyond reactive approaches to proposal preparation in favor of a proactive approach[4]. This brings into focus the extreme difficulty of assessing the impact of exchanges between the customer and supplier as well on the difficulty for a supplier to forecast, hence the relationships between the actors become during the proposal related transaction.

Schedule Plan or due to some compounding effect because of missed-steps in integration between Scope and Schedule Plans. Much of these combination risks maybe addressed at the proposal stage by creating a plan to address the uncertainties directly i.e., many delivery risks come from proposals. The uncertainties, from Figue-1 and Table-1 in Reference[1], stem from (1) Market i.e., PES(T)LE, (2) Technology, (3) People interaction and processes and (4) Customer relationship information. Table-1: Description of uncertainty for ESO projects Uncertainty Type

Category

internal Market External

Cova et al. also stated that entering project business may become hazardous and resource consuming venture instead of a profitable activity if the supplier is unskilled in analyzing all the different kinds of risk involved in international projects[4]. The statement definitely holds true for IT/ITeS industry. Holstius (1989) has shown that the analysis of risks and steps taken to reduce these risks are necessary to attain success in project marketing. Holstius concludes that the relational dimensions of a project proposal is influenced by both the project portfolio and multiple relationships associated with project marketing. Tikkanen et al. have considered relationship management as a foremost strategic issue that contributes to individual projects and their management [7]. The first level includes the management of relationships and networks related to individual projects from the beginning of a project until to its completion. The second level is the company level above single projects; it encompasses relationships between firms and other organizations during a longer period of their multiple project activity in a broader economic, social and political business network. Heinsz [14] and co-workers have highlighted the importance of managing external stakeholders (political risk management is termed as “corporate diplomacy” in their work)and its influence on market capitalization and financial returns. While Remington [8] has expounded on the merits of managing the public relations (read political dimension) during project execution.

Customer Relationship & information

Business-specific (ESO is either an Imitator or Innovator) Market risk (Consumer specific, related to dynamic aspects from PES(T)LE analysis)

Internal

Novel to Organization not to the market /those outside the organization

External

Current work by your competitor which is as yet unknown to you

Internal

Motivation, Professional pride, organizational culture

External

Technical competence and capability aligned to project requirements

Internal

Status of Sales-delivery synergy, Tension from cultural dimensions mismatch

External

Status of Trust, Recognition/matching of requirement to expectation between organization and customer

Technology

People Interaction & Processes

Uncertainty Description

It is also possible, in organizations which are capable but not mature (in the CMM framework), that such risks in proposals (and also in delivery) could arise from specifically the break-down of communication, situations threatening the viability of customer-specific business model or broadly from undeveloped organizational culture such as lack of vision, coherent strategy, established processes etc.

IV. DEFINITION OF DIMENSIONS As per the traditional system of a project offer, most of the project based companies have always concentrated on two ways to strengthen their offer as compared to their competitors, which are described below, Technical and Financial.

In this research, we have identified the importance of response to proposals, i.e., bidding for a tender just not for the sake of win, rather to execute a quantifiable analysis on all the dimensions (including but not limited to the technical competency and financial remuneration) of the project. A successful project milieu support is established by identifying the strength and weakness of the project in functional as well as relational dimensions. Such analysis can be effective in building counter-measures for the uncertainties associated with the offer and formulate a unique strategy to deliver value.

In the technical dimension, the service provider for a project concentrates on meeting the technical specifications, and prepares by providing technical training to employees, use of latest technology and offer extra features or customizations. This assessment is characterized by technology availability, resource availability, alignment of technology with the scope of work, know-how availability, certifications and accreditation, access to and availability of infrastructure, access to engineering consultants, R&D activities in the sector etc.

Iyyunni identified combined Scope-Schedule risk may arise from un-mitigated risks in either Scope Plan or

In the financial dimension: favorable financial terms and conditions, payment schedule and flexibility,

insurance against delivery, type of contract (fixed price, time and material, profit-sharing etc.), financial risk assessment plan etc.. The above dimensions are usually referred to as functional dimensions. Further to this, Cova suggests add two relational dimensions, namely, political and social [4]. In the social dimension: extent of networking, past customer feedback, relationship with the end-user, alignment with the vision , mission and goals with customer, trust and reputation among customer's milieu and network, articulation of the customer's need, collaborative orientation of the customer etc. In the political dimension: consideration of customer market position, market share of the product/service by customer organization, ESO's market presence specific to service/solution offered, local partners , referrals , influence on customer's milieu, understanding and maintaining clients reputation in industry-segment and market, customer's influence on peer-group in industry segment, advantage of association via standard and professional bodies, local partners, supply chain relationship, alignment to government regulations (such as business/work visa in a foreign country), mapping and use of common resources etc.

V. PROBLEM FORMULATION Account management is a very complex process with a huge set of market influences and industry trends, customer organization's strategy in adapting and orientation towards out-sourcing and ESO‘s account and sales team sector-wise priorities, technical team capabilities and resource management plans. An ESO organization's account strategy is crucial to maintain a sustained growth. Table-2 lists the growth of 13 accounts over a 5-year period. Accounts (numbered) 2 and 10 being newer customers have only a 2-year and 3-year data respectively. We note that the general growth rates are high in early phase and then saturate to a certain level. The data reflected reflects year-on-year (YoY) growth for the 13 accounts (see Reference [11] on using such measures for analysis). In Table-3, we comment on the age/ maturity and health of the accounts. Based on internal data (not shown here), we classify the age of the account, from the history prior to the 5-year period. The health of the account is classified based on the growth of the account from year-4 to year-5 (as listed in the last column of table-1) i.e., low indicates a YoY-4 score of 0.9- 1.1, medium as 1.1-1.4 and high as greater than 1.4. The ESO senior management sets a strategy for the growth of the accounts for the year ahead. Some of the factors that influence this strategic direction are customer response to ESO (direct feedback and year-

ahead plans for outsourcing), trends in the various industry segments (hence the portfolio orientation), internal technical build-up (providing service/solution clarity with clear project management processes supporting delivery excellence). Based on the revenue targets set for the accounts, a project pipeline needs to be built (which rests on proposals and proposal win ratio). Table-2: Accounts with Year-on-Year growth Account Number 1 2 3 4 5 6 7 8 9 10 11 12 13

Ratio of Current year to Previous Year Revenues YoY-1 1.55 (a) 3.21 2.89 3.07 2.74 0.75 1.77 19.40 (b) 1.09 1.90 1.33

YoY-2 1.45 (a) 1.59 1.50 1.83 1.37 1.59 2.61 6.67 2.37 1.31 1.29 1.89

YoY-3 1.30 28.50 1.16 0.92 1.02 1.97 4.01 4.82 1.03 1.34 1.15 0.99 1.40

YoY-4 1.49 1.75 1.18 0.93 1.08 1.37 1.10 1.73 1.20 1.11 1.06 1.27 1.34

Table-3: Age and Health status of Accounts Account Number

Age of Account

Health

1 2 3 4 5 6 7 8 9 10 11 12

Mid Early Mid Mid Early Early Mid Early Early Early Mature Mature

High High (b) Medium Low Low Medium Low High Medium Low Low Medium

13

Mature

Medium

The premise in the work relates to the important role given to the project proposal in addressing the needs of the customer milieu and in determining the business viability of the ESO. We also make a strong assumption that account growth is reflected in the quality of the proposal process. We show a sample set of proposals with both wins and losses from the accounts listed above. Listed in Table-4 is a sampling of proposals from different account teams. The customer segmentation details and technical know-how details of the proposals have not been considered here. The proposals are categorized as win or loss (as per their status) and the perceived reasons for the win or loss are mentioned.

Table-4: Proposal description and win /loss status

2 3 4 5 6 7 8

Passenger bus benchmarking for India launch Asset Management Large engineering engagement

Win

Social, political, Financial

Win

Social, Political

Win

Technical

Win

Social, Political

Multi project Engineering cooperation New PLM implementation program Large Automotive design project

Technical, Social, Political Social, Political, Financial

Loss Loss

Technical

Medical device development

Loss

Political

Win

For now, we consider the overall score between 3.0 to 3.3 to be in the grey area (either a win or a loss). We will address this apparent deficiency in the example problem and future work. Table-7: Sensitivity assessment.

VI. METHOD In Table-5, we reflect the opinion of a member of the business development team, on the quality of the proposal across the four dimensions. See Section VII and Section VIII, for suggestions on improving this assessment. The proposals are analyzed as per the four dimensions mentioned in Section III. Table-5: Proposal assessment on T,F,S, P dimensions

0.4 0.2 0.2 0.2

HIGH 

POWER / INFLUENCE  0.34 0.22 0.22 0.22

3. Pre-sales team

4.Project Manager/ Account manager

5.Quality Team

6.Vertical head 7.Subject matter experts.

8.Discipline team / Horizontal team 9.Project Lead 10.Subcontractors

MEDIUM 

VII.

RESULTS & CONCLUSION

Based on the weights considered in Table-5, we arrive at a score for the strength (quality) of the proposal. The results in Table-7 indicate that there is a minimum overall score for reasonable success. The results of

HIGH 

CONCERN/INTEREST

Figure-2: Stakeholder matrix of the external actors in an ESO 1.Customer outsourcing manager 2.Customer Contract Manager

3.Consultant to customer

4.customer project team

5.Competitors

6.Customer discipline engineers 7. Consultant to ESO

LOW 

0.46 0.18 0.18 0.18

Proposal

1.Senior management 2.Sales Team

LOW 

POWER / INFLUENCE 

Functional Technical Financial Relational Political Social

the

Figure-1: Stakeholder matrix of the internal actors in an ESO

Table-6: Weights for T,F,S,P dimensions for Proposal assessment Dimension Scheme-1 Scheme-2 Scheme-3

of

Figure-1 and Figure-2 below show the assessments for the stakeholders or actors internal and external to the ESO.

Proposal Rating on these aspects of No. Proposal T F S P 1 4 4 3 3 2 4 4 3 3 3 4 4 4 3 4 3 4 3 3 5 4 3 3 4 6 4 4 2 2 7 2 4 3 3 8 3 4 1 1

We use AHP to work out a base set of weights (scheme-2) for each of the four dimensions. From the AHP results, we have made a simplifying assumption that F,S,P dimensions have the same weight. See Reference [10] for similar assessments. We perform a sensitivity analysis to these assessed weights, as in Table-6.

analysis

Proposal Weighted assessment No. Scheme-1 Scheme-2 Scheme-3 1 3.6 3.7 3.6 2 3.6 3.7 3.6 3 3.8 3.85 3.82 4 3.2 3.15 3.25 5 3.6 3.7 3.6 6 3.3 3.4 3.16 7 2.7 2.6 2.9 8 2.5 2.55 2.37

MEDIUM 

Large scale data restricting in PDM systems

Reason for Win / Loss

LOW 

1

Win / Loss

HIGH 

Proposal Description

MEDIUM 

No.

the above analyses also indicate a cut-off score for overall assessment (on all four dimensions) to be 3.0 and for the technical dimension alone to be 4.0.

LOW 

MEDIUM 

HIGH 

CONCERN/INTEREST 

Ideally, there should be a mapping of internal and external stakeholders on the various dimensions, the influence diagrams are indicated (but not specific) on page 94 of [4]. Such a network diagram based on

The results, Table-7, do not have the granularity for detailed judgments and point to a more detailed assessment via the use of sub-dimensions for each of the four dimensions. A more granular assessment using Expert Choice© [9] is proposed. In this case the sub-dimensions would be considered in the average sense for the entire proposal project. A snapshot of the assessment is provided in Figure-3. Here the dimension and subdimension assessment are specific to a certain account team which indicates very high maturity on both functional and relational dimensions. The results indicate that the current proposal has an overall score of 0.381 against the ideal of 0.424. Decision to bid or not bid would depend on detailed comparisons with respect to various criteria. A detailed description of the method is left to future work. Table-8: Mapping of Uncertainty to Stakeholder responsibility Category Market

Technology

People Interaction & Processes

Customer Relationship & information

Uncertainty Type internal External Internal External Internal External Internal External

Stakeholder Responsible Senior Marketing team Sales person, Vertical Head Subject Matter Expert Discipline Team Project Manager/ Account manager ; Delivery Team Resource Management Team Account Manager Project Lead/ Project Manager

Proposal dimension Political Social, Political Technical Technical Social

HIGH 

3. Build  capability 

1. Go for it 

LOW 

The deficiencies in the various proposal dimensions should be addressed by the stakeholders, refer Table8, especially those internal to the ESO milieu. Such an responsibility assignment can be tracked via a risk management process (details not listed here).

Figure-4: Proposal evaluation matrix PROJECT  ATTRACTIVENESS 

various dimensions can be addressed via the analytic network process (ANP, [16]).

4. Don't    touch 

2. Can do  HIGH 

LOW 

INHERENT CAPABILITY 

The space of allowable proposals that can be bid is usually large. Hence a number of proposals may not get bid. Such a decision can be done using AHP. Figure-4, highlights the strategy that needs to be adopted by account teams. As team resources are constrained, assumed zero-sum game, trade-off sector-2 (“Can do”) with sector-3 (“Build Capability”). We now discuss some improvements for the given work. The definition and rating scale will need clear definition for the sub-dimension dependent as well as the subphase of the proposal project. This is shown Table-9 below. Table-9: Weights for proposal dimension as per phase of the proposal life-cycle Sub-Phase of Proposal Pre-sales activities Conceptualization to RFI/ RFP stage RFQ to the Quotation

Functional Relational T 2

F 1

S 4

P 3

3

1

2

4

4

3

2

1

The results from the AHP can be converted to organizational benchmarks. The method is elaborated in [10].

Social Social, Political Social, Technical

Figure-3: Sample proposal assessment in AHP

The results would prescribe a different minimum on each dimension at different stage and reinforce our result a minimum overall score for reasonable success. The analysis of the proposal or account pipeline can be considered at three sub-phases: (1) pre-sales activities, (2) conceptualization activities leading to RFI/RFP (Response for Information/Proposal) and (3) the Response for Quotation, the Quotation and win/loss result. This could lead to, for instance, three AHP analyses, over various phases of the proposal with results in the same vein as [13].

VIII.

FUTURE WORK

We also suggest a more detailed analysis via use of sub-dimensions, which is discussed above, at two more levels: 1. The proposal-delivery life-cycle, i.e., delivery excellence, has a significant impact on future proposals. Also, the strength of interactions between the various levels of both the Customer and ESO organization (within the network) will need characterization both on the social and

political dimensions Process, ANP).

(via

Analytic

Network

work contract, International Journal of Project Management 24 (2006) 422–430.

2. Other factors, that may have a significant impact on success and its role can be assessed separately [10], are: account manager (competency, performance of account manager), sales person (effectiveness and performance of sales activities), priority of the account for the business unit in the organization, the energy, maturity and team [2, 6] and organizational development stage [3] and enthusiasm levels [12] for a given proposal in the team.

[6] S. L. Adams, V. Anantatmula, Social and Behavioral Influences on Team Process, Project Management Journal, Vol. 41, No. 4, 89-98 September 2010

IX. ACKNOWLEDGMENT The authors would like to thank the following persons: CI to K.V. Sai Prasad, Tejas Shah and Vyomkesh Mishra (L&T Technology Services) for interesting discussions related to the motivation presented and other account managers for their validation of the above work, MSP to Prof. P.M. Deshpande (NICMAR) for the opportunity to attend PMI Research Conference at IIT-Madras, CI and MSP to Prof. Tapan Bagchi (Director, NMIMSShirpur) for encouraging us on collaborative work. Prof. Krishna Moorthy (Dean, L&T Institute of Project Management) for his continued guidance and motivation for developing Figure-4 through the product analogy.

[7] H. Tikkanen, J. Kujala, K. Artto The marketing strategy of a project-based firm: The Four Portfolios Framework, Industrial Marketing Management, 36 (2007) 194-205. [8] K. Remington, Leading Complex Projects, Gower publishers, 2011 [9] http://www.ExpertChoice.com/ [10] V. Trivedi, An Evaluation of Agile Projects with use of AHP in Project Management, July 2013, Master's thesis (MBA in Technology Management), Faculty of Technology Management, C.E.P.T University, Ahmedabad, India. [11] C. Iyyunni, New risk measures in infrastructure projects, in preparation. [12] T. Amabile, S. Kramer, Progress Principle, Harvard Business Review Press, Boston, 2011.

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