Published in Railway Strategies.
John Judge talks to Railway Strategies about the issues faced today by commercial managers.
Has the recession caused your project's budget to be slashed? Are you concerned that your contractor will no longer be able to meet your increasingly tight requirements? If so, you're not alone. The economic downturn has brought with it uncertainty that even Transport for London and Network Rail will not be immune from. As a result, many projects have been forced to de-scope. The good news is that you don't have to let these factors reduce your expectations, because they won't have a detrimental impact on your project if you're prepared to follow some procedure.
2009 has certainly had its challenges so far. The global financial crisis is being felt everywhere, and now the threat of an unforeseen virus is in our midst. Dr Oliver Pybus, a University of Oxford biologist, said: “Predicting how the swine flu virus will mutate is rather like trying to predict the weather in several months' time – virtually impossible.” One of our current projects was affected during early stages of the swine flu pandemic. Several key members of the team who contracted the virus were placed in quarantine until they received the all clear. There are many unexpected events, such as swine flu, that remain outside our control, and this virus has great potential to cause widespread disruption to all industries. It is quite possible that suppliers as well as your workforce are going to be affected by this outbreak, and it’s important to be prepared for this.
Reporting within the project will help you understand if the scale of the issue facing you is critical, and will help you mobilise faster. Do you move to replace those who are ill with temporary or permanent staff? Who have you worked with in the past who you can bring in, people you can trust, who can continue the momentum of the project and help deliver profit? What can be done to protect the project against staff shortages? These are some of the key questions commercial managers working on rail projects will be asking in coming months.
For much of the year commercial managers will have been occupied with the meaning of the global financial crisis and its impact on their project. It’s important on any project, especially so now, that all parties – the client, the team, the suppliers - remain concentrated on what you are all setting out to achieve. Without this collective focus, you carry the risk of falling into difficulty upstream.
When I was working on the West Coast route modernisation project earlier this decade, it was obvious the scale of costs were too much to bear, yet the project still went ahead. The key to achieving this was major re-scoping of the project. If you're compromised by a fixed budget to work with, you must measure it against what you want to deliver, with the aim being to achieve the functionality within the constraints of that fixed budget. By continually challenging your design to ensure delivery of what is essential, you will drive the maximum out of your supply chain.
Another obstacle to consider is the set of standards that are explicitly performance-based and which dominate the different sectors of the industry. Network Rail has its own performance-based group standards and once a product has been approved to meet those standards, the product then has to be tested and the market has to procure it. The route for suppliers to achieve this is expensive. The standards are in place to improve safety, quality and performance, but once a handful of companies have been approved it can be very difficult for others to enter that market. Not even substantial financial backers will be enough to assist you in getting into the market, and this process often limits research and development in the rail industry, resulting in talented designers and engineers being attracted to other sectors where their ideas are given greater opportunity. However, derogation can be applied for and new approvals can be sought out by making the application of these standards more flexible. It is imperative to budget sufficient time for approvals, and I encourage you to actively pursue these.
Competitive pricing is also an issue and is inevitable during a recession. The benefit is a more competitive market, but it's important not to become complacent about it. These gains can sometimes be artificial and lead you to a situation whereby you end up paying more further down the line. Problems can arise as early as the bidding stage if bids are overly competitive. It pays to remain wary of all pricing until you no longer have reason to do so, but be especially vigilant with anything involving larger or critical orders of commodities.
Manage the cash flow in a forensic manner. Take measures to de-risk the situation by doing your research on whoever you're dealing with. Confidence in who you’re working with is not enough; in times of economic uncertainty you also need evidence to reinforce the belief that they have both the capacity and the resources to help you deliver successfully. Be certain that they can do this before you commit to signing any contracts. Credit checks won't be sufficiently up-to-date in this case, so always take bank references - that way you eliminate the chance of a situation where suppliers cannot meet your demand.
Since privatisation, the rail industry has enjoyed major investment like never before, allowing us to look forward positively. No sector is immune from the recession, and there will no doubt be further challenges ahead of us. If these are met in the right way, they can actually be transformed into opportunities to grow our businesses.
It's vital we don't lose sight of the fact that the rail industry is a buoyant and engaging environment, but we still have room for improvement.