Deciding on Projects (The Go/No Go Decision)
(Loosely Excerpted from Profit, Risk & Leadership)
In dealing with remodeling of public buildings, it’s not smart or even possible for a contracting company to chase every opportunity that comes along for bid. The actual selection process of choosing which projects to go for consists of making a choice from all the opportunities, and deciding which will justify a commitment of company resources.
Your company’s business model should define the framework for project selection. Every firm has its own strengths and weaknesses. Your business unit leaders, business development staff, and project personnel should all have a good understanding regarding what types of work will best align with the competitive advantages of your firm. They’ll also know which types of work your company should avoid. Be sure to communicate to them the overreaching business model so that you are all on the same page. Your own strategic planning and business planning processes should sharpen your company’s focus, defining what categories of business are to be pursued, and which to avoid. This would include specific markets, delivery models, and procurement methods. These parameters should be communicated to your staff with extreme clarity.
The go/no go decision is the separation of opportunities into those that will be pursued and those that will not. This is one of the most important business processes in any construction business. Here are some guidelines for best practices in go/no go decision-making:
The go/no go decisionmaking should be made at a senior management level.
Business development staff members should not be making these decisions in isolation, as they are too close to the front lines, and when the pressure is on, their judgment about which projects are in the company’s overall best interest may be clouded.
The senior management should establish clear criteria for the business unit leaders. Senior management should also be able to reserve authority over any opportunities which the business unit leader wishes to pursue that are outside the normal criteria.
A standing go/no go committee can be a worthwhile addition for the large construction firm. The collective wisdom may lead to better decisions than the instincts of an individual leader. Also, the process of discussion among the committee members can help develop the judgment and breadth of wisdom of the executives who participate. The committee needs to meet often enough to take advantage of fresh opportunities; a scheduled meeting every one or two weeks may be about right.
It’s a challenge to define the point in the project timeline at which a go/no go decision should be required. In general, you want the decision made before major costs or resources are invested in the project. But if you try and force decisions too early, basic information related to the project may still be undetermined. Certainly a “go” should be required before responding to an RFQ or RFP. In some cases, the RFQ response may only be a preliminary “go,” with a further checkpoint occurring before proceeding to the RFP response. There should be established criteria defining which business units will pursue which types of projects. Yet, even with this definition in place, there can be times when pursuing a project falls in the grey area between two business units. Other times a project may need resources from more than one unit, requiring collaboration between the two. The “go/no go” committee can be helpful in keeping the boundaries between business units clear and enforced.
The go/no go decision should give some deference to the views of the company and business unit leaders. Deference does not mean, however, that the committee becomes a rubber stamp for the “higher-ups.” It is healthy for the organization to have occasional “no” decisions, communicated promptly and directly, with an honest explanation of the reasons and the facts behind it.
Be wary of end runs around the go/no go process. Sometimes there are bona fide emergencies or other reasons to stray from the committee review process, but the odds of getting stuck with a losing, or expensive, project increase if the go/no go process requirements are too easily sidestepped.
One example is that a business unit may delay asking for a “go” decision, then claim it is too late for management to say “no go.” The theory may be that commitments have been made to the subcontractors or JV partners, or that estimators have already done so much work and would be demoralized if the plug is pulled. Effective management should not allow this “end run” tactic to be rewarded.
One highly beneficial facet of the go/no go process is the evaluation of risk associated with a particular project. In effect, senior management must decide, based on the judgment of the go/no go committee, whether the risks involved are appropriate considering the capabilities of your company and the potential rewards of the project. The experience of your surety can be a valuable resource in this regard, both in assessing the contractual terms as well as sharing insights about the level of risk involved in working with a particular owner.
Tom Porter has worked in the construction industry for over 30 years. He is a graduate from Michigan Law School and holds a DBIA certification. Tom is recognized as a leading expert in project delivery. He has served as a speaker and instructor for industry organizations such as DBIA, AGC, the American Bar Association and the American Arbitration Society. Tom currently serves as Vice President – General Counsel for LeChase Construction, an ENR-100 building contractor, and is the author of Profit, Risk & Leadership, the definitive reference for anyone who leads or does business with a 21st century construction firm. In this book he shares practical solutions that have been proven to work in the real world of today’s construction industry. Find out more about this book at www.bnibooks.com
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