THE CRITICAL BUSINESS ISSUES THAT EACH DEPARTMENT MUST ADDRESS
Now that we've discussed the overall business environment of a company operating on an ETO basis, we can examine some of the critical business issues each department or function must deal with. Since there are many functions involved and they experience many challenges, I'll limit the discussion. For seven different departments or functions I'll cover just a few issues. Since this paper is written for the resource management professional and also the project management professional, we will examine and be more expansive on issues that directly impact them. A disclaimer—every role or function I describe is a generalization. The ETO community is very creative and pragmatic on job responsibilities and reporting relationships!
Bidding and Estimating (Proposal Management)
This is a difficult role to play. The bid process is an integral part of the front-end processes. During this phase (see figures 1 and 2), two critical objectives are extracting a workable and reasonably accurate requirements definition or specification from the customer. The second objective is to select the strategy to satisfy delivery and the cost requirements. This selection is complicated in that not only will machinery be delivered, but also value-added services. Decisions must be made such as should we subcontract or perform this activity in house? How much project reserve should we incorporate and not damage our ability to get the contract? Can I use a blended labor rate for my estimates? How reliable are the estimates I've gotten from engineering, procurement, etc.? Do I have enough historical data on similar projects, and how accurate is it?
The people responsible for bidding and estimating work collaboratively with engineering, project management, and contracts. They will have historical data to work with and will use data from past projects or templates that are similar to the bid under development.
Most if not all of the computerized systems they use are standalone, that is, not integrated with the other major systems in use in the company. This lack of integration between systems is not unusual in companies operating on an ETO basis and serving the commercial marketplace. Figure 3 depicts the unintegrated nature of systems in a typical ETO environment.
The bidding and estimating team is very much aware of the day-today, week-to-week, and month-to-month activities and problems in their company. "Head knowledge" is critical for success and intuition is frequently applied.
There are a number of critical business issues that cause problems for the bidding and estimating professional.1 Since the length of this paper is limited, the discussion will be kept to two issues:
• unrealistic schedules
• limited availability of knowledge workers and craftsmen.Unrealistic schedules—If you're responsible for bidding the contract, you are interested in performance to schedules. Since there may be a penalty clause in the contract, your power of concentration relative to schedule integrity is enhanced. Unfortunately, the information you receive from co-workers on new tasks and deliverables that is used
in the bid are often faulty. Since they do not have reliable data and simulation tools, the estimates on effort and time are often well off the mark. They do not have a problem of personal integrity; they just do not have the appropriate means to estimate time and effort. Then there's the problem of the CEO or managing director.
Right at a critical point in contract negotiations, the CEO gives away the project contingency reserve not only in terms of budget but delivery. The end result — unrealistic schedules. If Diogenes2 had gotten his priorities straight and had he worked in an ETO environment, he would have looked for a realistic schedule, not an honest man. Today we are looking for the means to give a realistic estimate and put together a realistic schedule. Later in this paper we will discuss how to do both.
Limited availability of craftsmen and knowledge workers—The reality that every company operating on an ETO basis cannot escape is limited knowledge worker resources. In other words, there just aren't enough craftsmen around. This is an extreme issue for those producing complex mechanical machinery. A valid and achievable bid and contract both in terms of schedule and cost is very dependent on leveraging these critical resources. Unfortunately the "islands of information" typical of an ETO environment do not facilitate resource or constraint planning for these critical resources. The end result—poor schedulereliability, integrity, and credibility and high costs. Everyone involved in the bidding and estimating function wants
to leverage these critical resources and get the maximum possible value-added contribution from them. Unfortunately, their systems conspire against them.
To Be Continued