Project-based companies win work through proposals and quotes by providing prospective clients with tailored prices and specifications for the project deliverables. Just as projects range from billion-dollar one-off assignments lasting years to small repetitive projects taking a few days or weeks, so too do the proposal-generating efforts required by each. Where large project proposals are projects in themselves, costing hundreds of thousands of dollars and taking months, the proposal processes for small projects are like production lines—producing ongoing proposals via a repeatable process. This paper looks at the success factors and key capabilities for generating successful proposals profitably for smaller projects.
Success Factors for Proposals for Short Repeat Projects—Speed, Accuracy, Consistency
Speed is vital. Proposals and quotes for short repeat projects are routine and are submitted at short notice. Usually, the client awards the project as soon as he receives an acceptable proposal and price that fits his budget. Since there is often no proposal deadline, the sooner the client has the proposal, the sooner he makes a decision and the greater the proposer’s chances of winning the work. To constantly win projects, companies must be able to submit proposals within days (often hours) of being asked to do so.
|“Prices or quotes that are too high won’t win work, while those that are too low put the company at a risk of making a loss”|
Accuracy is another success factor. Cost and price estimates must reliably reflect the work and risk involved in the project. Proposal prices or quotes that are too high won’t win work, while those that are too low put the company at risk of making a loss.
The third prerequisite for effective proposals is consistency—both in terms of pricing (calculating the numbers) and wording (communicating the offer). By standardizing the estimating and pricing processes, the company can eliminate proposal submissions that do not fit its risk and profitability requirements. By sticking to the most effective language and tone across all proposals, it will maximize the ratio of projects won to proposals submitted. In this way, it will maximize overall project profitability.
What type of Proposal-Generating System is Best?
Companies reliant on short repeat projects for revenue are best served by automatic proposal systems. Manual project proposal processes rarely make long-term economic sense—they are slow, labor-intensive, error-prone and don’t keep up with changing corporate or market environments.
Generic, packaged project proposal-generating solutions seldom enable companies to leverage their full potential in the marketplace. Companies are distinct in many ways—what is perfect for one company might be detrimental to another. Therefore, customized systems are essential for project-based companies wishing to gain a competitive advantage.
Key Capabilities of Customized Systems for Short Repeat Project Proposal-Generating Systems
1. Estimating Direct Costs:
The first step in estimating is to determine direct costs. The project work required (in terms of labour, equipment and materials) must be predicted in accordance with the company’s standard resource requirements, production rates and costs. To maximize accuracy and minimize risk, work should be broken down into detailed components, from which the estimate is calculated. This is a straight-forward process, and most estimating systems can make such definitive estimates accurately and reliably.
|“Full work details are not always available at the time of proposal, or the cost to obtain them is too high”|
However, for many projects, full work details are not always available at the time of proposal, or the cost to obtain them is too high. In such cases, factored estimates are required. A factored estimate is an order-of-magnitude calculation where the work is mathematically modelled from similar projects in the past. A formulated computation, linking one or more key project cost drivers to the project delivery process and resource requirements, estimates cost. Factored estimates are quicker and easier to produce than definitive estimates, but depending on the reliability of the estimating mechanism and the nature of the project, can be much less accurate and riskier. Therefore the factored estimating capability needs to be well formulated and be able to accommodate the full range of project types at which proposals may be aimed.
Proposals are often based on a mix of detailed and factored input data. It is therefore advantageous for the system to include a semi-detailed estimating component in addition to the definitive and factored ones.
2. Calculating Overheads & Overtime:
Overheads are comprised of general overheads (indirect costs) and job overheads. General overheads are the costs which the company shares across all projects (usually a percentage of project value) and are easily determined, whereas job overheads are those costs which are charged directly to a specific project, and are more complex.
Since labour is significant for most off-site projects, a large portion of job overheads is for travel, accommodation and meals. The calculation is dependent on the company’s expense policies and guidelines, project delivery process and travel plan (day trip, drive and stay in a hotel, or fly and stay in hotel), and can be intricate. Labour-related job overheads are time-sensitive. Therefore the production plan (on-site production days and times) adds further complexity to the calculation, requiring the estimating mechanism to incorporate scheduling capability.
Not only does the scheduling capability facilitate the calculation of job overheads (as well as forecast project end date and last day on site), but it also enables the prediction of overtime, which can be critical, especially where on-site production and travel happens outside of normal hours. The estimating system’s ability to calculate overtime could mean the difference between a profit and a loss.
3. Planning for Risk & Profit:
The markup from cost to price must be small enough to ensure a good chance of winning the project, yet large enough to realize an acceptable profit.
|“The estimating system’s ability to calculate overtime could mean the difference between a profit and a loss.”|
The costs of project resources are affected by a range of factors (availability, estimate risk, execution risk, etc.) which vary in magnitude from one resource to the next. Some resources, such as proprietary technology and process, give the company a competitive advantage in the marketplace. Therefore, when determining overall price, it is beneficial for the pricing mechanism to be able to markup resource costs discretely.
To manage project profitability and ensure compliance with the company’s pricing strategy, the system should also be able to predict project margin, as well as the margins for each cost component separately.
4. Generating Proposals and Contract Documents Automatically:
|“[The proposal] sets up the project for problem-free execution once the work has been awarded”|
Automatic proposal-generating mechanisms facilitate faster and more accurate proposal submissions. They save on proposal production costs and increase the chances of winning profitable work. However, a proposal or quote isn’t just aimed at coming up with a price that will win the project at a good price. It also sets up the project for problem-free execution once the work is awarded, at which point a written contract—the tool for managing both project and client—becomes essential. A well-written contract avoids misunderstanding between the contractual parties, prevents financial disputes, counters scope creep, provides for change orders and gives the company basic protection from major elements of risk.
The template for the automatically-generated proposal must incorporate items such as the company’s standard scope of supply, conditions of contract and limitations of liability provision. It should be drafted in a way that it becomes a legally-binding contract document upon acceptance.
Benefits of Optimally-suited Proposal-Generating Systems
The greater the dependence on proposals to win short repeat projects, the greater the value of an optimally-suited proposal-generating system. The system impacts the company’s bottom line in 3 ways:
To find out more about Two Global Eyes, contact firstname.lastname@example.org or call (905)-630-1003.
Brentt Bugler is the founder of Two Global Eyes. He has successfully developed and installed cost-effective customized corporate solutions on four continents covering a broad spectrum of industries for the past 25 years. He is a process improvement specialist with extensive experience in the manufacturing, construction, and project management industries.