Risk Assessment

Despite the length of these checklists, deciding whether or not to bid can at times be straightforward! If the contract is in a target sector of the market or for a key client, the answer is likely to be positive. But it often involves balancing a complex set of points for and against. Some businesses require a risk assessment to be undertaken if the cost of preparing a bid is likely to exceed a defined proportion, say five per cent, of the contract price, or where a substantial amount of working capital will be needed if the bid is successful. Thresholds may be defined at which progressively more demanding criteria are applied - for example, where contract values are above 1 million or where peak working capital needed during the contract will exceed 500,000 and so forth. At these high levels there may also be a requirement to obtain the approval of the chief executive officer or board of directors.

Factors likely to have a particular influence on the risk assessment include:

• the value of the contract;

• the average working capital and peak working capital required;

• the length of the payback period;

• bid preparation costs;

• the expected profit margin;

• whether the contract will require long-term partnership or consortium arrangements;

• whether the client requires a bid bond or performance bond;

• whether payment will be related to performance;

• whether the contract will involve penalty clauses, and the possible level of loss resulting from termination;

• the staffing implications and resource costs of the contract;

• whether exceptional risks are involved - for example, in terms of political, security, taxation or legal issues;

• aspects that may have particular implications for professional indemnity insurance cover.

A wide choice of management software is available to assist in risk assessment, including spreadsheets that allow the application of multiple criteria and weightings. Risk assessment necessarily includes both objective and subjective considerations: some items may be quantifiable in monetary terms, others will be matters of professional judgement. Each business has to determine for itself the questions to be answered. The important point is to have in place a consistent procedure that can ensure time and money are not spent wastefully on contract opportunities with little economic sense or professional merit.

If you have to decline the invitation, tell the client as soon as possible of your intention not to put in a bid. Unless you really want to have nothing more to do with the client, try to explain your decision in a way that indicates a conscientious assessment of the situation and does not prejudice your chances of being invited to bid for other work in the future.