Three stages for improved commercial visibility across your project portfolio
Major natural resources project and programme portfolios are no stranger to actively managing rapidly changing environments. However, the global uncertainty brought by COVID-19 has left many owners and stakeholders urgently refocussing to safeguard their immediate and short term business outcomes.
As organisations rebound after the shocks and isolation brought by COVID-19, many are reviewing processes for how they analyse the risk profile across their commercial portfolio. As challenges continue to emerge as a result of the crisis, natural resources owners and stakeholders are not only looking to position their portfolio for future success, but also place themselves in the strongest position to proceed.
Supplier productivity, material availability, logistics, shipping and labour mobility have all been impacted creating the potential for commercial distress.
As the COVID-19 recovery continues, many commercial teams are taking stock of the lessons learned as a result of the crisis. In working with a number of clients to increase supply chain visibility, data and capability across their portfolio, this three-staged approach will challenge your commercial team to review how they can safeguard their supply chains and increase resilience against future disruption.
Challenges to set your commercial teams
1. Have you commercially screened your portfolio?
COVID-19 has forced organisations to quickly examine their entire portfolio to identify commercial risk and actively look to safeguard their commercial position. Not surprisingly, some businesses have found this process difficult due to lack of consistent, reliable data. In response, organisations need to challenge themselves on the following:
- What are the commercial impacts that have occurred as a result of COVID-19? How is risk allocated between parties on the design and execution of the work?
- What risks do the supply chain have an obligation to handle and mitigate, and what risk does the owner take responsibility for?
- What are the new risks affecting individual projects across the portfolio and what is your planned response to mitigate new risk?
- How will risk be monitored and mitigated going forward?
An effective screening process will capture a portfolio’s commercial position consistently across global business units, supply chain, location, contract type and project type. To provide the required holistic lens engagement should be undertaken at multi-levels across a portfolio, from contract representatives through to senior commercial management and stakeholders.
Screening your portfolio in this way will provide a transparent risk based approach and enable stakeholders and business owners to develop response actions that prioritise the management of risks and opportunities across the portfolio, and limit liability. If you have found this data collection process challenging, then now is the time to review your processes and build resilience for the future.
2. How agile are your commercial levers?
Most organisations rate their relationship with their supply chain as healthy. This assessment may well hold true in fair weather, but how will that relationship fare post lockdown with potential on-going uncertainty and economic volatility. Adjusting commercial levers provides a set of decision options to manage through the COVID-19 recovery, providing the opportunity to engage commercially with the supply chain to recover the impacts of lost time and productivity. The ability to work collaboratively with an organisations supply chain to understand the challenges and effectively manage the required outcomes can include:
- analysing contract terms and conditions including penalties
- reviewing payment regimes and mechanisms, as well as making timely payments
- reworking schedules as necessary
- implementation of incentivisation models
- alternative delivery/execution solutions.
A degree of caution is required. Many organisations will measure success based on the reduced likelihood of escalated disputes materialising. One of our major mining clients is preparing to increase collaboration with their supply chain and to support suppliers using these means. By driving consistency through a standardised approach, process and governance they aim to resolve COVID-19 commercial matters consistently across their portfolio.
The need to obtain and keep full records will be essential to inform decision making.
3. Do you have the right decision-making frameworks in place?
Decision-making frameworks provide the principles, processes and practices aligned to delivering business required outcomes.
In the current environment the need for business management controls are accentuated and cannot be underestimated. Data, people, process, change management and adaptable governance are critical levers to focus on. A portfolio wide approach will support visibility across the supply chain, leading to more informed and confident decisions. It is critical that commercial decision making is not undertaken in isolation, and that it takes into account broader key business drivers. This includes safety, productivity, operations, quality, schedule factors and wider market confidence to deliver overall business required outcomes.
To achieve this in a centralised and structured way and ensure business requirements are met, it is prudent to review and update an organisations decision-making frameworks. Taking a multi-disciplinary approach will enable solutions that balance the short term need with longer term opportunity. Effective communication of the improved, more agile approach across your organisation will also be required.
Benefits of commercial screening
The overall purpose of a commercial screening portfolio approach is to consolidate the management risks and opportunities across your entire portfolio, allowing you to reposition your strategy and establish an effective response through your supply chain. This can be achieved through understanding your commercial levers and using them to deliver the outcomes required by your organisation.
Key benefits include:
- Governance and assurance: Provides a fully developed end-to-end process to support commercial management of your portfolio.
- Consistent reporting: Transparent and fully documented reporting meeting the requirements of project teams and senior management, structured in a consistent manner.
- Informed decision making: Embedding critical commercial decision making into a business wide framework to establish a decision-making framework at portfolios, project and supply chain level.
- Agility: A short-term approach to manage your commercial impacts and inform the longer-term dedicated response team (if required) with collaborative principles embedded.
- Supply chain: Using commercial levers to establish a more engaged supply chain that has the ability to recognise and deal with immediate and long-term problems more efficiently.
Taking back control
By undertaking a portfolio commercial screening, organisations will gain a greater understanding and visibility of commercial impacts affecting their portfolio and establish the correct commercial strategy to deliver the outcomes their business requires.
We have found that where clients have adopted this three-stage approach, they are tackling tough decisions consistently to proactively take back control on the road to recovery.
Please visit our COVID-19 response page for all of our resources relating to the impact of COVID-19 on the construction sector.