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Hello everyone. Welcome to the 5 Minutes podcast. Today I'd like to talk about mitigating inflation risks in projects, and I know I have no doubt it's a nightmare. Inflation is a nightmare because it's unpredictable. It destroys every single one's budget. And I'm not talking only, and of course, I'm not an economist or an expert in public economy. I know we are of us everywhere on this planet. We are facing a dramatic increase in prices. But this podcast, I want to talk about the project environment because if you are delivering a project today, you are probably facing the same challenges, and you will be extremely lucky if you do not have any procurement action that you don't need third party suppliers, that you have a small team because then you can control this a little bit more. However, most of the projects face a dramatic challenge with this because I know some people say, oh, it's 80% or 10%, but for some goods, they increase it by 100%. For example, global supply chain, shipping, and freight, it's extremely expensive today. It's a very complex environment. And I want to share with you three tips for you that may help you to mitigate inflation risks in the initial phase of your project and three orders that will help you if you are in the middle of a thunderstorm. So if you are in the middle of your project facing challenges.
So let's start with the initial. So let's suppose you are planning your project, you are starting to develop your project. What should you do? So the first step, go to the business case, go to the rationale on why this project exists and test the assumptions you place there. For example, if you are developing software and are planning to charge a monthly fee of $9, is it still feasible? Is it still profitable? Is my budget still feasible to do and deliver that value? This is your first step because many times, we become blindfolded, and we always think that the business case is perfect, and we try to do something that will never, ever happen. The second one is to plan the procurement. If your project has procurement and if procurement is relevant, you need to work on anticipating purchases and negotiating payments. Most of the time, you try to make the deal as fast as you can because then you freeze the price, and you negotiate payments to not damage your cash flow. So you try to make deals today for a product that will be delivered in 100 days or 120 days. And you agree on the price now because these will help you. Of course, this is not easy to do, but this is something that you really need to look for. The third tip is to explore alternatives. It's time for you to be creative and explore alternatives to material labor.
Is there a way that I can outsource something? Is there a way that I can internalize something to avoid this fluctuation? Is there any material that I can replace? Is there any type of software coding or computer or services that I can use instead of the original one? That would be more feasible for me at that time, and less open to this strong variation for inflation or maybe a country or maybe finding suppliers in other countries. Okay, this is just an exploration, so you really need to think about this when you are in the initial phase. However, let's suppose you are now in the middle of a thunderstorm, so you are now in the middle of your construction, for example? In the middle of it, because if it's at the beginning, you have more flexibility because most of the time, you didn't make any major expenditures. But if you are in the middle of a thunderstorm, what would be my first advice and sometimes, it's counterintuitive. It's accelerating your scatter. I know that people would say why you don't delay and slow down and wait because when inflation tackles, it takes time for it comes to normality. So what happens? You need to accelerate. So go fast because faster you will deliver, and you will be less subject to this inflation pressure. And this is what happens most of the time.
When you are with escalating prices, you try to anticipate as much as you can to reduce your risk. The second one, if you are doing works for the third. Art for clients or for someone that is paying for you to do that, you need to adjust your bid. You need to transfer these costs to the buyer. And you need, of course, I expect that you have an agreement, a contractual agreement with some clauses that would protect you in this case. So, in this case, it's time for you to adjust not only your budget but also the bid you are charging. For example, if you are producing software, okay, maybe I cannot charge $9.90. I need to charge $12.90, and you need to adjust to see and make sure that your business case will be is still feasible. Remember, in the end, if you do not deliver the outcome of your project, you are just throwing money away. Okay? And last but not least, look for efficiencies. And this is the old concept of using lean. If you are constructing, building something, lean construction, it's how I can save energy, how I can reduce waste, how I can reduce over time, how I can reduce things to recover and try to contain the damage of inflation. And I know this advice for the projects that are advanced that you can use. Also, in the initial phase, of course, you can plan using building construction, which is a dream, but in the advanced, you have no other option but to do it and do it today because tomorrow, new waste will be generated.
New energy. Energy prices are really high now. So how can you increase efficiency on your machinery, on your labor, and on the waste management to reduce and mitigate? Look, I'm not saying that with these three measures on the initial and three on the advanced, you will solve all your problems. But there is a good chance you will mitigate and remember these inflation aspects. I would say 99% of the population and 99% of the projects are suffering it. It's not a local effect but a global effect. And this I'm not saying it's very bad, but in some ways, it's good because it's above our hands. And there is, I would say, a global motivation to solve this. This is not just localized to your project, your city, or your country, but you need to be very mindful because otherwise, inflation will destroy you. And if you slow down because you don't have cash flow and inflation is picking up, you will be in trouble. Trust me; you will be in trouble. And it will not be easy for you to get to the finish line with your project. Be always mindful of that and enjoy a week. See you next week with another 5 minutes podcast.
