Role of Commercial Management in Competitive Advantage for a Project Buying Organization - Case Study Example

How Does the Work of Commercial Management Create Competitive Advantage for a Buying Organization in a Project Commercial Exchange?

Commercial management is defined as the disciplines that exist within a company or organization mainly concerning the handling of revenues and expenses to create a financial return. The disciplines are mostly non-technical, although some technicalities are sometimes involved when an organization is buying (Kerzner, 2001). Commercial management is a key, yet a complex process for any buying organization with an aim of achieving set financial targets and maximizing solutions that will be made because of the buying. Commercial management should also ensure the buying process minimizes any risks on or by the users of the procured entity. This paper aims at defining the role of commercial management in creating a competitive advantage for a buying organization in a project commercial exchange from the start of the project until when it achieves its desired outcomes (Heerkens, 2002).

For an organization to gain a competitive edge in buying any commercial project, it is paramount to define and understand the expected outcome and benefit from the project. The organization needs to determine if the project will aim at minimizing the company’s operational or acquisition cost, reduce the time taken in undertaking a task, maximize capability a company’s operations, or if the purchased commercial project will combine the functionalities (Collins, 2011). The requirements are set at the initiating stage of project management. After the requirements of a project have been identified and evaluated in monetary terms, the route to be used in the procurement process has to be determined after comparing several spectrums of possibilities.

Commercial management will be used to determine if the procurement process will be pre-commercial to allow research and development of the project and determine if the project commercial exchange will add value on the existing resources in the company. In the determination process, there have to be a specified criteria used to evaluate a procurement process by use of quantitative methods to choose the one with most economical benefit before tendering the project commercial exchange (Forbes, 2000). The commencement of the project is only given a go-ahead after completing the benchmarks. Commercial management is deemed successful after successful buying of a project and saving on a company’s budget and time in the process. Evaluating a procurement process is important in determining the final outcome of any project.

For commercial management to gain a competitive edge in procurement and management of any project or resource, all issues in procurement have to be considered accordingly. Among the issues in the management of a project is understanding its requirements right at the point of purchase. This is where the commercial manger determines if the project will perform as expected upon application and its ease-of-use to achieve the objectives of its procurement. Before defining and preparing a list of a project’s requirements, the commercial management team should consult extensively with the project vendor for almost, if not over, a year, which is known as conducting a “market survey.” The market survey should be thorough to prevent distortion of the project while in its later stages, and to ensure the project has a competitive advantage over its competitors until it achieves the set requirements (Flatscher, 2016). The requirements to be checked by commercial managers are divided into financial, technological, and technical. A target date for the procurement and commencement of a project is important and has to be defined. A target date allows the project outcomes to be achieved in the desired time. However, the commercial management should allow some flexibility in the date to allow inclusion of new technologies and components in the given time-scale. All this is provided by an efficient and successful market survey (Itsallaboutbusiness.com, 2016).

This is done in the planning stage of project management by the project management.

There is a need for commercial management to include a test project in requirement specifications to enable its users and auditors to check it in a realistic environment before finally using it for the intended purpose. The test project is administered at the execution stage of project management. If delivered before the actual project, a test project enables managers to do the necessary changes and adjustments to optimize the project’s functionality and create a competitive advantage over similar projects and systems in the market. Other than the requirements of the project development, there is also need to specify requirements of the site where the project is to be implemented (Lee, 2016). Poor site specification by commercial management may cause later additional expenses that may overshadow the need of prior commercial management, which is to undertake viable projects with maximum returns on the organization. Technical requirements follow later after the project is rolled out, developed, and are done using a specified project management methodology drafted by the commercial management (Akhtar, 2016). There should also be minimum requirements under technical requirements that should be met by the project vendor even before the project is running and the requirements should be precisely done to differentiate vendors from their competitors.

It is challenging for a company’s management to foresee the application and requirements that a project may have in years to come. Flexibility is hence another paramount issue in project procurement and management. The provisions should be made differently depending on the procurement’s timescale.

The flexibility of project management requirements includes providing a profile that states the increasing requirements that are expected over specified time concerning key parameters. A flexible project in its planning stages ensures the desired project outcome as various factors are set to change as the project progresses. There should also be an allowance to reduce or increase project configuration by bench marking its performance against the set predictions (Lock and Scott, 2013). Flexibility is an important component of project management as it allows an organization to maintain a competitive edge without necessarily changing over to a wholly new project. As time progresses, it is inevitable for technological advancements to emerge in any market sector (Lowe and Leiringer, 2006). It is hence, mandatory for any project management team to incorporate technological changes in their projects to maintain a competitive edge. Accommodating technological changes not only improves performance, but also saves money and energy, and allows increased capacity and capability needs.

If project procurement process is complex, it is necessary to add an extra phase that seeks to enable a commercial management team to effectively evaluate the project supplier and determine the supplier’s ability to meet all the project requirements. This is done by use of a pre-qualification questionnaire where all vendors are required to fill and respond to a formalized request for proposal (Lowe and Leiringer, 2006). The questionnaires are composed of two sections with the first section seeking the vendor’s knowledge of the company’s corporate information, and the second section relating to the specific requirements of the project. The questionnaires ensure a competitive advantage for a company, as there is a higher probability of a project’s success if the supplier understands the operations and vision of the company.

The composition of the questionnaires varies depending on the nature and scope of the project being managed.

Suppliers who fill the questionnaire as required are then invited for a competitive dialogue chaired by the financial management along other involved managers who select the right candidate to spearhead the project (Lutchman, 2011).

Another major issue that is heavily emphasized by commercial managers is the Total Cost of Ownership (TCO) of the project, which needs to be matched with both the recurrent and capital budgets. The main costs to be assessed are acquisition, maintenance, infrastructure upgrade, and energy required. If it is a complex project, there may be a need for additional items like training and user application support. Costs will also vary depending on the nature of a project and its expected lifespan. There may be extra costs to be determined by the commercial management team especially if the new project needs to be incorporated into the infrastructure of an existing project and skills and training required for smooth integration (Moraveck, 2013). The total cost of ownership is defined at the initiating stage of a project management but it chan change at the planning stage too. For a successful project management process that produces the desired financial returns on a company, a breakdown of the project expenditure should be as defined below:

• 5%-10% of the allocated budget should be used on infrastructure. This is the actual place where the implementation of the procured project into the company is going to happen. However, the cost may be hard to determine if the new project is being integrated into an already existing one. The capital cost of the infrastructure may also depreciate over time and thus the commercial management should be keen to ensure they work as per the set budget.

To maximize on financial returns, the commercial management should check on the cheaper option to be adopted, whether creating a new project infrastructure or integrating into the already existing one.

• 10% should be allocated to then operational and running costs. These costs also vary depending on the machinery and energy required in running the project.
• 65%-70% of the budget should be directed to the project. This is the overall cost of procuring the project, and all the follow up until it is up and running.
• 20% should be used on training the users who will be directly involved in the project on its operations and how to effectively use it for maximum profitability and ensuring a competitive edge over its competitors (Aurecongroup.com, 2016).

The vendor of the project needs to clarify to the commercial management the cost of any equipment to be used on the project, the cost of maintenance, and its ease of use. The capital and recurrent costs must be determined to determine their affordability in comparison to the set budget.

Contractual aspects are vital components in purchasing of any project. The first contract should be issued to managers for the test project so that they can have room for legal termination incase the vendor does not supply the agreed pilot project. To avoid legal uncertainties later, a contract between the project supplier and a company should have a change control procedure, insurance, named personnel, and priced options. The contract should also specify where the project implementation is to take place, any sub-contractors, and their performance warranties, and any licenses involved. This is vital in achieving the set project outcomes because in case of an underperforming project, the project allows the buying company to sue or seek compensation.

To avoid the company incurring extra costs in case the project does not work as planned, there should be the provision of penalties in the contract. The supplier company or individual of the project should also be penalized if the project does not meet the agreed requirements in the contract (Kendrick, 2009).

A project’s procurement procedure should be done according to the set laws of the land.

The commercial management team should work together with a company’s legal team to ensure that every project is lawfully acquired. Any project that is acquired and ran against the law may lead to hefty fines by the court, and thus, undermining the purpose of starting the project, which is to generate financial income. The set procedures include the open procedure, restrictive procedure, competitive dialogue procedure, and negotiated procedure (Lutchman, 2011). Most procedures are restricted, but to have a competitive advantage in getting a suitable project supplier, the managers should adopt the open procedure. This is where anyone can place a bid on the project (SAP, 2016). The procedure is suitable because different bidders will offer different qualities and projected project achievements. A commercial management team, to achieve a competitive advantage, should select the most economically viable procedure that still offers the required results without compromising on the quality of output. However, in complex projects, the procedure is not advisable as only a few supplier companies can handle the workload involved.

The selected project supplier companies should continuously assess the project requirements to ensure that the project is up to par with the current technological requirements. The main aim of any project is to maximize on investment and hence vast consultation is required before a company settles on a supplier. Technological advancements have become a key feature in any project and many commercial managers now prefer multi-stage procurements.

In case a supplier company that is new in the market or where multi-stage procurement is required wins the project tender, the request for proposal should include a test project. The commercial managers should ensure that the total cost, running costs, and maximum investments costs of the project in comparison to sustained performance ratio are the main requirements in ensuring maximum returns on investments (Keith, 2016).

However, much the procurer company wishes to involve project suppliers in negotiating how the project is to be developed, procures should ensure they maintain the upper hand in the project management. However, flexibility on both parties of the project is necessary to the test stages and initial stages of project implementation. If the project supplier is allowed too much power in running a project, they will implement it to their competitive advantage as compared to the procurer’s benefit. Nonetheless, if the procurer company dictates every aspect of the project, the supplier companies find themselves limited in their operations. Both parties, especially the commercial management teams should collaborate to ensure that the project management smoothly becomes a success to the satisfaction of both parties. Flexibility allows clearer relationships between the counterparts and provides better communication to enable both parties to brainstorm on physical and environmental constraints that may hinder a project from achieving maximum benefits from the project (Ciovp.com, 2016).

Commercial management is considered the most crucial part of any project because most projects are normally cost driven. Any additional services and requirements are clearly described in the tendering process, and financial aspects of a project are the only likely unpredictable constraints. Commercial managers must hence conduct a proper market survey before commencing any project to avoid incurring unbudgeted expenses before completion of a project.

However, to maximize their competitive advantage as well as profitability, commercial managers can adapt several strategies to ensure they save on the overall costs incurred. Instead of starting the whole project supplier and selection process, the procurer company can seek help from an expert who has dealt with projects of a similar nature for other companies. The expert can point them to the most suitable and cost effective supplier company. This will save them time and financial expenses used in the tendering and negotiation processes (Icm.education, 2016). In most companies, a project’s budget includes the supplier company training all the staff members in the procurer organization on the operation of a project. However, to save on cost, the procurer’s management team can be trained, and they can train their junior staff as the project proceeds.

If the commercial managers of the procurer company have ensured that the prepared budget is in accordance with the requirements of the project, there is a need to minimize risks to avoid any uncertainties. This is in the monitoring and controlling stage of project management. Risks can occur at any stage of a project whether it is in determining the project requirements, or in project management of an already running project. If the commercial management, in the biding stages, gives stringent conditions on how the project should be implemented, it may lead to none of the supplier companies accepting to tender for the project contract (Cappels, 2004). If the rules are too strict during the project implementation stage, vendors can delay the procurement process in protest. This results in loss of income and profits due to inactivity. To curb the occurrence of unexpected risks, the procurer company should constantly conduct project audits.

To have a better understanding of how a company increases its income and share revenue through developing a competitive advantage, every organization should separate its business systems into activities that generate value porter’s value chain. The primary activities of Porter’s Value Chain are inbound logistics, operations, outbound logistics, marketing and sales, and services while the support services include procurement, human resource management, infrastructure, and Technological development (Traver, 2015). After identifying a project supplier, the buying organization needs to create a proper business relationship with the supplier and outline all operations necessary for receiving, storing, and disseminating inputs. In operations level, the project the commercial managers should clearly inform the supplier company any activities required by the project to transform the given inputs into outputs. Outbound logistics involves the buying company describing activities involved in the collection, storage, and distribution of outputs. These should all be included in the procurement project and monitored by the commercial management team to ensure the project achieves the desired competitive advantage (Traver, 2015).

In conclusion, the work of financial management thus plays a pivotal role in creating a competitive advantage for a buying organization in a project commercial exchange for the whole project from the initiating, planning, executing, monitoring, and closing stages of project management. The financial sector of any project determines the level of success of a project and hence the commercial management team should work to ensure financial success that in return ensures project success. Commercial management should clearly dictate the rules and practices defining the terms of any contractual business that the organization is involved. In the procurement process of a project, commercial management is implemented by ensuring the trade relationship and terms are with business policies and goals. Commercial managers must also manage and have an understanding of risk and financial implications involved in the buying process of a project (Rodriguez and Elliott, 2016). Proper commercial management not only ensures competitive advantage between competitor companies but also in the project procurer company in its operations. Every organization should thus invest in a skilled and professional commercial management team that will ensure the desired financial returns.