Beruflich Dokumente
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PricingStrategyforCompetitiveProposals (Andhowtoexplainthatyouarenotthelowbidder)
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Thisarticleappearedinadifferentformas LowBidDoesntAlwaysWininTodaysEngineer,SecondQuarter1999
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EdmondH.Weiss,Ph.D.
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EachProjecthasaWinningPrice Formanyconsultantsandcontractors,thepricetheybidonthejobislittlemorethan whateverappearsinthelowerrightcelloftheirspreadsheet.Theyestimatetheir staffingrequirements,theequipmentandmaterials,andotherdirectexpenses;tothese theyaddoverheadandindirectallocations,G&A,andfees.Andthatiswhattheybid. Consultantsandcontractorswhoaremoresuccessful,though,derivetheirbidfroman estimateofanidealorwinningprice.Asillogicalasitmayseematfirst,successful projectsaredesignedtocomeinatapricethatwillmakethemespeciallyattractiveto theclientandalmostneversubstantiallymorethantheclienthasbeenauthorized(or intends)tospend. Partoftheinformationgatheringknownascustomerintelligenceconsistsinfindingthe plannedorestimatedpricetheclienthasinmind.Ingovernmentprocurements,thisis oftenalegislatedorofficiallyauthorizedamount,publishedingovernmentplansor inferablefromkeyphrasesintheRFP,suchasestimatedpersonyearsofeffort.But justbecausetheinformationisnotpubliclyavailabledoesnotmeanthatthesuccessful bidderisexcusedfromintelligencework:findingouthowmuchtheclienthassetaside, howmuchtheclienthasspentforsimilarprojectsorservicesinthepastEveryclient withexperiencedevelopsasenseofhowmuchthingsusuallycostincludingwhatthe consultantsdailyratesshouldbeandisnotlikelytobedissuaded. Tomakeasale,then,contractorsandconsultantsmustdefineapricetheywanttobidandthen adjusttheirofferinguntilitmakessenseatthatprice.Ifthenumberinthelowerrightcorner ofthespreadsheetistoohigh,theprojectmustbereconfiguredtoproducealower price.And,surprisingly,inmostcases,ifthenumberismuchlessthantheclient intendstospend,thisalsorequiresanadjustment. Figure1illustratesthisrecursion.Marketingconsistsintryingtopersuadetheclientto buywhatyouprefertosellatthepriceyoudliketocharge.Merchandising,incontrast, consistsinchangingtheproposaltosuitwhattheyclientisinclinedtopayeitherby changingtheapproachor,simply,chargingless.Thereluctancetomerchandise,an especiallycommonattitudeamongtechnicalprofessionals,isarecurringbarrierto makingthesale.
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Figure1TheMarketingMerchandisingLoop
Wh at th e Cu s to m e rs are Willin g to P ay
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Wh at Yo u Wan t to S e ll an d Ch arge
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TwentyfivePricingStrategies Whattheclientwants,theScopeofWork,ispartlypublicandpartlysecret.Thepublic partisrevealedinRFPs,IFBs,RFQs,andthewholefamilyoftenderdocuments.What theclientreallywants,orwouldprefer,orwouldsettleforthesearededucedfrom intelligencegatheringandaninformedreadingbetweenthelinesoftheofficial documents. Proposaldevelopers,therefore,needtoestimatetwoessentialvariables:exactlywhat theclientintendstospendandexactlywhattheclienthopestoreceiveforthat expenditure.Giventhesetwoestimatespriceandscopethenexttaskistodevelopa pricingstrategybasedontheintersectionofthesetwotargets. Themostobviousstrategytoofferexactlywhatwasaskedforatexactlytheintended priceisconsideredbymanyconsultantsapoorstrategy.Althoughthisseemsa reasonableofferonitsface,inmostcompetitivebidsitwillbebetteredbyanother strategy. Table1showstwentyfivepossiblepricingstrategies.Thisarrayassumesthatthereare fivedegreesoneachestimate:muchless,slightlyless,exact,slightlymore,andmuchmore. Theshadedcellsillustratethatanyofferpromisingmuchlessthantheclientsexpected scopeofworkirrespectiveofpriceisprobablyapoorbid;thatis,clientsdonot usuallyperceiveabargainwhentheyareaskedtogiveupmanyoftheservicesthey werehopingtobuy.Similarly,anyofferthatcostsmuchmorethantheclientintendsto spendwillalsohaveahardtime,since,nomatterhowattractivethepackage,theclient maybepowerlesstoapprove. Itshouldbeobvioustoalmostanyonewhohaseverboughtorsoldanythingthatthese ninecellsareapooroffer.Yet,everyday,consultantsandcontractorswhoareabad matchfortheclientsrequirementsoffertodoasmallfractionofthescopeofwork. Andstillotherswhodonotunderstandthenotionofawinningpricebidwhateverfar fetchedamountisinthegrandtotalboxoftheirspreadsheet. Evenaftereliminatingtheseninebadcellsfromthestrategymatrix,though,thereare stillmanychoicesremaining:
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Table125PricingStrategies
SCOPE PRICE
MuchLess SlightlyLess Exactly SlightlyMore MuchMore
MuchLess
SlightlyLess
Exactly
SlightlyMore
MuchMore
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Thestrongeststrategiesareinthe+boxes.Evenashallowexaminationofthearray showsthatbiddingslightlylessthantheclientanticipatedisthebeststrategy,sinceit leadstotwowinners.Chargingexactlywhatwasplannedworksonlyifmoreserviceis offered;andchargingmorethanwhatwasplannedworksonlyifsubstantiallymore serviceisofferedassumingthattheclienthasanydiscretionatallinexceedingthe presetlimit. The?cellsarestrategiesofuncertaineffect,thatis,strategieswithverydifferentresults fordiverseclients.Whilemostclientswillacceptaslightreductioninservicefora substantialreductionincost,manyclientswillacceptnoreductioninservice, irrespectiveofcost. Inthisconnection,thereareseveralquestionablestrategiesinvolvingamuchlower price.Why?Wouldntmostclientsbeattractedtoanofferwellbelowtheauthorized amountabargain? Theresultisquitedifficulttopredict.Consultantsandcontractorsshouldremember thattheauthorizationorbudgetforaconsultingcontractusuallyhasbeenrequested anddefendedbythepersonjudgingthebidorproposal.Ineffect,acceptingabidwell belowtheexpectedcostcouldembarrasstheadvocateandunderminehisorher persuasivenessintheclientorganization.Therearealsomanycases(forexample, constructionprojects)whereanunusuallylowbidisinterpretedeitherasincompetence (thecontractormisunderstandstheproject)orasvenality(alowball,offeredwiththe intentionofaddingchargeslaterintheproject).
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Thisfigureillustratesthecomplementaryrelationshipbetweentechnicalingenuityon theonehand,andaggressivepricingontheother.Atthetopofthepyramidare ResearchandDevelopmentprojectsandNewHardGoodstheareasinwhichthe clientusuallyhastheweakestconceptionofwhatneedstobedoneandhowmuchit shouldcost.Indeed,forsomeR&Dprojectstheclientisnotsurethatthefinal deliverablecanbeachievedatall! Ineffect,theclientforsuchaprojectisanovice.Nowmatterhowexperiencedtheclient firm,itcannotrelycomfortablyonitspasttoestimatethecomplexityandriskof solvingafrontierengineeringproblemordesigninganewgenerationofmachines.In thesecases,theclientdependsontheconsultanttodefinethescopeandprice.(And,in fact,thefavoredconsultanthasoftenbeeninvolvedinwritingpartsoftheRequestfor Proposals.) Generally,thenewertheproblem,thelessfamiliarthedomainofinquiry,theless compellingisalowbid.AsIlldiscussbelow,amoreexpensiveofferfromafirmthat reducesthedecisionanxietyfortheclientwilloftenprevailoverthelowbid. Highpricesarefarmoreproblematicalinthelowerhalfofthepyramid.Here,the clientsknowmorepreciselywhattheywantandaremainlylookingforabargain.In extremecases,theyareabletoshopfromcatalogsofstandardproducts(machineparts) orcommoditylikeservices(testinglabs).Theseoffersaremorecorrectlyunderstoodas bids,ratherthanproposals,sincethepricepageisoftentheonlypartofthe documenttheclientcaresabout. Whentheofferedpriceisslightlyhigherthantheclientintendedtospend,the consultantmustofferslightlymore(orperhapsmuchmore)servicethantheclient expected.When,inacompetitivebid,theofferedpriceishigherthanthatofacredible competitor,thentheconsultantmustofferatleastslightlymorethanthecompetition. Eitherthroughexplicitpromises(whenappropriate)orimplicitassurances(when explicitpromisesareinappropriate)theconsultantshoulduseoneofthetenbasic argumentsbelowtojustifythefactthat,althoughthebidisnotthelowest,itisthebest. Table2summarizestheseappeals: Thefirstnineofthesetenappealsare,clearly,variationsonthesametheme:exceedingthescope ofwork,doingmorethanrequiredbycodes,standards,orprocurementregulations.Ineach appeal,theclientreceiveseitheramaterialbenefit(suchasreduceddownstreamcosts) oranonmaterialbenefit(suchaspoliticalfavor).Incompetitiveproposals,itisalso usefultocontrastthesebenefitswiththesmallerbenefitsinthecompetitorsoffers.
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ThetenthappealImpliedServicealsopromisestoexceedthescopeofworkbutin amorecomplicatedandpotentiallyinappropriateway.Itargues,ineffect,thatmost projectswillnotproceedasplannedbyeithertheclientortheconsultant/contractor, thatchangesareinevitable,eveninuncomplicatedshortdurationengagements. Moreover,itpresumesthatcontractmodificationsandchangeordersareanxiety causingfortheclient,sometimesevenembarrassingorharmful.(Thatiswhy,inmy ownprojects,Inearlyalwaysbudgetenoughtoallowforthesecontingencies;my businesspracticeistograntnearlyallrequestsfromaclientwithoutrequiringachange order.Ofcourse,Ialsoadjustschedulestoreflectthechanges.) Buthowcantheconsultantcommunicatethisargument?Surely,noonesuggeststelling theclientthatthebudgetisdeliberatelyheavytoallowforcontingencies! Alas,theonlywaytoexploitthisjustificationforhighercostistohavearelationshipin placewiththeclient,arecordofpastengagements,sothattheclientunderstandsthe consultantsattitudetowardchangesandmodifications.Inthesecircumstances,the clienttradingmoneyforreducedanxietywillbelessputoffbythepriceandless inclinedtoshopforalowerbid. DuringmyyearsofhelpingR&Dfirmswriteproposalstogovernmentagencies,I becameawarethatareputationfordoingonlywhatisinthecontracteventually harmscontractors,evenwhentheybidalowerpricethantheircompetitors.Most clientsnomatterwhattheysayinpublicpreferalittlehigherpriceandthefarlower stressassociatedwithamorelooselybudgetedproject.
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Table2ArgumentsSupportingaHigherPrice Appeal
Precision
Explanation
Theprojectexceedsthespecifications,especiallywhentheclientasksonlyfor codeminimumsandtheconsultantdisputesthewisdomofthesestandards. Thedesigncontainsaddedlayerstoprovidesafetymarginsandminimize downtimeforrepairsandmaintenanceorschedulingsurprises. Theconsultantwillusesuchmethodsandmaterialsandanticipatedownstream eventssoastoensuretheviabilityoftheprojectbeyondtheplanninghorizonof theclientorganization. Theconsultantremindstheclientthatcertainpersonnelandmaterialsare,at themoment,inshortsupplyandmustbeobtainedatapremium. Theconsultantorcontractorwarrantstheproductsandserviceinsome exceptionalway,removingsomeofthedownsiderisktotheclientbymaking allorpartofthefeecontingentorrefundable,orbyguaranteeinglater maintenanceandsupportservicesatnocharge. Theconsultanthasselectedthisprojectasashowcase,promisingspecial attentionfromthecorporateleadershipandpledgingtostaffitwithstar investigatorsandresearchersineffectassigningpeoplewhoareoverqualified and,therefore,exceedthespecification. Theprojectusesmaterialsandmethodsthateliminateothercosts,suchas goodswithamuchlongerdutycycle,technologywithoutconsumables,or internalsubsystemsthateliminatetheneedforcertainexternalsystems,suchas inspectionandsecurity. Theconsultantorcontractorpromisestostaffsomeoftheprojectwithlocal workers,choseninconjunctionwiththeclient(eventhoughthelocallaborrates arenotthemostattractiveorthelocalworkforcethebestqualified),thereby providingastrongpoliticalbenefittotheclient. Theconsultantorcontractorisasociallydeservingbusinessperson,entitled eithertoofficialgovernmentsetasidesortounofficialspecialconsideration,the socialbenefitsoffsettingsomeofthediseconomies. Themostdelicateofallargumentsisthenotionthattheprojectbudgetishigh enoughtosupportchangesandadditionswithouttheneedforchangeordersor contractmodifications,anarrangementthatespeciallyappealstomany governmentclients.
Redundancy
Durability
Guarantees
TopPeople
Offset
JobCreation
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BestandFinal Onceaproposalisonthevergeofacceptancebyaclient,theconsultant/contractorwill oftenbeaskedforthebestandfinaloffer,thelowestpriceheorshewillacceptforthe engagement.Here,theconventionalwisdomisthatthewinnerwillnearlyalwaysdrop thepriceslightly.Therationaleisthatmostclientswhobuyprofessionalandtechnical servicesbelievethattheestimatesareinflatedabitandcanbetrimmed.Overtheyears, ofcourse,thisbecomesaselffulfillingprophecyasbiddersanticipatethebestandfinal transactionandinflatetheirestimatesinresponse. Myfinaladviceisthatconsultantsandcontractorsshouldalwaysreducetheirbidsslightly atthispoint,butalsoshouldremoveanitemortwofromtheStatementofWork,typicallyitems includedintheplanforjustthatpurpose.Ofcourse,everyoneknowsthatestimatesare impreciseandeveryoneknowsthatthereisoftenextramoneyforimpliedservice. Butitisstillbest,though,tosustainthefictionthatthebudgetisaustereandbasedon anobjectiveanalysisofthetaskstobeperformed,ratherthanonwhatusuallywins:a intelligencebasedestimateofthewinningprice.
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Awellmadepresentationisasmallfiveactplay,whereeachelement contributestoeffectiveness.
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Goodwritingisrewriting;onlyrevisioncanassureclarity,correcttone,freedom fromerrors,andreadability.
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AnalyzingyouraudienceandWinStrategy
Technical Communication
A Writing System for Technical Professionals
Technicalprofessionalscannotachievetheirprofessionalgoalsunless theywritetheircorrespondence,reports,anddocumentationwith powerandprecision. Creatingdocumentsasengineeredinformationproducts Eliminatingcommonerrorsandtimewasters Writingfornontechnicalreaders AlthoughcustomersandclientsaroundtheworldreadEnglishquite well,itisstillnecessarytoeditinternationaltechnicalinformationfor theE2reader. Makingdocumentsculturefreeandculturefair Correctingproblemsofstyle,idiom,andsyntax UsingcontrolledEnglish Adaptingtolocalsensitivitiesandcultures Amanualisadevicethatsupportspeopleintheirwork;whenwell designed,itteachesprocedures,enforcesstandards,andsavesmoney. DocumentingISO9000andotherqualitystandards Replacingunreadableandunmaintainableprosewithscripts,tables, anddiagrams Testingforusabilityandenforceability Designingmodular,maintainablepublications Storyboardingandprojectmanagement Thosewhouseinformationtechnologyandthosewhocreateoracquire itmustcommunicatetheirneedsandexpectationsclearly,especiallyat thebeginningofthedesigncycle. HowUser:Developercommunicationfails BeyondtheWaterfallModel Toolsandprocessesforfunctionalspecification
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Organizational Communication
Meetings that Work
Meetingsshouldbeenergizingandproductiveneverboringora perceivedwasteoftime. Objectivesandagendas:stayingonmessage Twowarringcultures:ratificationvs.exploration Rolesandgamesplayedbyparticipants Secretsofmasterfacilitators Culturalvariablesininternationalmeetings Despitethearrayofelectronictimemanagementtools,toomany professionalsfeeloverworked,stressed,andneverquiteontopof theirwork. Attitudesabouttime Fiveimmutablerulesoftimemanagement Timemanagementtrapsandhowtoavoidthem Productsandtoolsandhowtochoose/adaptthem Gettinglongtermgoalsandprojectsintoyourshortterm calendar Anurgentneedforinternationalbusinessprofessionalsistolearn, andadaptto,thecultureofthecommunitiesorcountrieswherethey wishtodobusiness. Dimensionsofdifference Contextandcommunication Individualismversuscollectivism Timingandpacing(thehiddendimension) Projectsneedfunding,capital;eventhebestideascanfailforlackofa convincingbusinessplan/case. Whatimpressesfundingsources Missions,visions,andgoals Thelogicofthebusinesscase Clear,persuasivelanguageandgraphics Presentationsforexecutivesandsponsors
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