Further lessons in knowable risks…
It’s not always the big things that can hang you out to dry. ‘Our proposal is valid for 30 days’ (boilerplate on most supplier bids) has the potential to wreak havoc.
This innocuous-looking statement shows a supplier’s tolerance for risk. To evaluate their ability to deliver on the promise they’re making—and to bake in a profitable margin—they’ve had to make assumptions. The validity period ringfences their exposure to impacts from all sorts of variables only they are privy to.
Years ago, we were developing a management system solution for a company that had suffered a string of project cost overruns. Their project washups didn’t capture the essence of the issues, so we had to go digging for clues.
It didn’t take Sherlock Holmes to realize they were taking major cost hits because of mismatches between a quotation’s validity and the time taken to place an order. Once we could show them how basing their budgets on time-limited supplier estimates was hurting them, it was a straightforward fix for their future management system.
If there was ever a known project risk, it’s that materials prices can fluctuate dramatically. Supply chain issues exacerbate volatility, as we’ve seen with a pandemic and a war. A recent Bloomberg piece about wind power’s ‘colossal market failure’ only confirmed this. The authors note that ‘soaring materials prices and supply chain issues have added new costs’.
“Perhaps the clue is in the word ‘deadline’.”
Just recently, too, I was chatting with a client when he was handed a piece of paper informing him of a substantial escalation of price and delivery lead-time for key equipment on the critical path. Why? Because the supplier’s initial quotation had overrun its validity period, and this was the new price.
One missed deadline might not sink your ship but it only takes a few to erode value across your project. Incidents like these have been around forever, so exposing your project to risk from missed order deadlines is unnecessary.
Perhaps the clue is in the word ‘deadline’. There’s no need for your project to die by a thousand cuts. It’s a fixable issue, not an unknown-unknown. It shouldn’t even be a known-unknown if you’re on top of it. Quotation validity is a supplier convention. If you ask, they’ll usually work with you to extend the price to meet your requirements.
Remember our maxim ‘project mindfulness beats corporate conventions’ and be mindful of when you need to make decisions. Academic project management theories may have much to recommend them. But sometimes it’s about back to basics.