Project based industries, such as professional services, complex manufacturing, defense and construction, often submit quotations for multi-year, multi-million-dollar projects or proposals, which combine non-recurring work packages such as IT or business transformation, engineering, R&D or prototype manufacturing, with recurring items such as hardware, software or support labor and services, recurring maintenance or applications management and IT hosting.
It is vitally important for project-based companies to produce accurate, confident quotations, at a price where you best positioned to win the work and deliver the project at optimal margin, whilst protecting your client's future satisfaction and your reputation with on-time, on-budget milestone deliveries. 80% of the project margin is determined during the estimating and pricing stage, not during the delivery of the project, so getting the price right (or more accurately, charging the maximum price where you still win the business) is essential to your long-term success.
The following success factors and considerations should be considered to produce optimal quotations:
Understand your customer's requirements in detail. Ensure clear communications with subject matter experts at the client, not just with the client's procurement organization. Don't be afraid to put your subject matter experts in the room with the client's - they will have to work together after all if you win the proposal. Ask questions and seek clarifications, even if you feel that other bidders will learn from the client's responses (if shared with all vendors). The number one reason for project failure is miss-set expectations, for example the client requested a motorcar, and the consultant built a horse and cart.
Open communications between your sales and delivery teams. Too often one team sells the work, and a different team delivers, especially in larger organizations these two teams can become siloed. This always leads to a lack of accountability by your project delivery organization; they don't accept the way the project was sold, structured and the original estimated costs or resources. Or they don't understand the risks (more on that below), constraints and strategic opportunities that were considered during the sales cycle. Or even worse, no-one knows how much the project was estimated for by the sales team because it is buried in someone's spreadsheet and the delivery organization want to block access to this information to avoid being held to someone else's account. Involving sales and delivery in every proposal is more work and takes collaboration, but it not only results in sales and delivery both being accountable for the original plan, it also results in a more accurate quotation and less churn or change in the project and resource plans during initial planning stages.
Embed risk and confidence in your estimates and project plans. When estimating the resources for your proposal there is a big difference between a work-package that costs $1 +/- 10% or $1M +/- 80%, especially if the client is looking for fixed fee or results/performance-based pricing. Whether you use three-point estimating (best, worst and most likely), risk registers (what can go wrong, with cost impact and probability) or contingency reserves (pre-determined reserves as a % of cost pools based on user menu selections) you can, with little additional effort, quantify the risk of your project in an objective way. Not only can you set margin targets accordingly, but you can also often justify higher pricing to the client for taking over some of the client's specific and quantified risks.
Learn from and re-use historical cost and pricing history. From something as simple as starting from a similar quotation you did prior (adjusted for inflation, different location, or other parametric sizing inputs), to a more sophisticated data-science or AI-based cost or price analysis learning from historical costing or price data and win/loss ratios for similar prior work; you can make your bid and proposal team far more efficient and effective by having a central, searchable, database of prior quotations and actual project delivery hours and costs, classified appropriately, which you can re-use. Excel spreadsheets might be easier for the first proposal but by the tenth bid, Excel starts to fail as a solution because you can't reliably find prior similar work to reference, unless you are the only person in your company responsible for the entire quotation and you are super organized and have photographic memory.
When not re-using a prior quotation, use a templated approach to avoid missing anything. A common mistake on quotations is to miss something out. For example, "It will take Samantha six months and she is paid $6K per month so let’s added 35% margin to $36K to price this work-package at $48,600". What about her time-off, her benefits, the office overheads, the computer systems she uses, travel to the client? And what if all your project leads using a support group for quality assurance, or document publishing, or analysis? What about the client account management status meetings or lunches? What about the risks if this is a fixed price engagement? Not to mention, a 35% margin on a $36K cost is really $55,380 not $48,600. A systematic, templated approach means you must consider all cost drivers, and appropriate commercial and risk mgt. strategies, that creates a win/win situation for you and your client
Finally, you need a great quotation tool or software application. There are lots of cloud based optional available nowadays, from configure/price/quote (CPQ) tools for repetitive end items or packaged services, which normally sit on top of your CRM, to project management tools which only cover the non-recurring aspects of the resource and cost plan, to Twenty5's intelligent project pricing and estimating, or project CPQ. Twenty5 is the only truly project-orientated CPQ toolset out there, which bridges the gap between sales and delivery and between your CRM (Salesforce or MS-Dynamics) and ERP (SAP). Twenty5 not only provides a searchable, reliable, central database for all your proposals, quotations and projects, it facilitates collaboration, workflow and what-if analysis, both before contract award and during project delivery for change orders. Twenty5 also automatically mines your rich cost and price transaction history, in SAP and other systems, to combine the art and science of estimating, learning from your cost history and allowing the engagement or project leads to quickly and accurately cost and price our project-based proposals, with confidence.
Twenty5 is the only truly project-orientated CPQ toolset out there, which bridges the gap between sales and delivery and between your CRM (Salesforce or MS-Dynamics) and ERP (SAP).
Learn more from our co-founder, Richard Minney, on Optimizing Quotations for Complex Manufacturing on our Youtube!
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