Proposal Pricing with Deltek MPM TM

Transcription

1 technical brief Proposal Pricing with Deltek MPM TM A typical proposal pricing process and alternative ways to build a cost estimate in MPM Table of Contents Introduction 1 The Scenario 1 Scope of Work (SOW) 2 The Work Breakdown Structure (WBS) 2 Changing the Estimate 5 Conclusion 8 Introduction All of us need to prepare cost estimates. Some are simply informal estimates while others are very detailed estimates tied to a proposal or a scope of work change for a customer. This technical brief will highlight a detailed estimate and the typical proposal pricing process and discuss the alternative ways to build the cost estimate in MPM. Information regarding changing the estimate, what-if scenarios and risk planning will also be presented. How many times have you had a proposal estimate in a spreadsheet and needed to make a change? It often takes days to revise all the files and validate the data. With MPM, this can be accomplished in minutes. Estimating Vs. Pricing There is a distinction between estimating and pricing. Estimating determines the quantity of work; pricing determines what that work will cost. Even though both terms are used in this brief, MPM s capabilities are for pricing and estimate adjustments, not estimating to determine the quantity of work. The Scenario For the purpose of this brief, we will create a fictional project and work through the entire process. The project: designing and building a racing, single mast sailboat (sloop) and delivering it to the customer in California for a race from Long Beach, CA, to Honolulu, Hawaii. We are assuming that all of the global files are in place. These cover the direct rates for the resources and the overhead rate structure, for example. We will also assume that: all the rates are escalated through time, the calendar and escalations extend far enough into the future to cover the estimate time period, and the basic capabilities of MPM are understood. info@deltek.com

2 Scope of Work (SOW) This project is for the design and construction of one transoceanic racing sloop and support equipment. The craft will be capable of supporting a crew of five and racing from California to Hawaii. It will be delivered by December 15, 2009 to the Long Beach Marina in Long Beach, California. Testing is scheduled to start on January 5th, This will be followed by crew training, speed sessions and shorter races. The 48th Honolulu Race will be in July Defining the Scope of Work Regardless of why an estimate is needed, all estimates require a Scope of Work (SOW) as the basis. The most logical way to define work is in a Work Breakdown Structure (WBS). This is also a standard way of developing estimates. The Work Breakdown structure (WBS) 1. Sailing Craft and Support Equipment 1.1. Sailing Craft Hull Exterior Interior Propulsion Masts Sails Auxiliary Diesel Engine Directional Control Rudder Mechanism Mainsail control Sheets Instrumentation Navigation Communication 1.2. Support Equipment Maintenance Equipment Shore Facilities 1.3. Delivery 1.4. Project Management Now the WBS is ready to be entered into MPM for pricing and summarization (Fig. 1). Figure 1: Preparing the WBS In the Integrated Planning section of MPM, it is easy to quickly spread the estimated hours or dollars in monthly increments for the duration of the task. Estimates can be entered either as discrete, monthly values or by using standard or custom spread curves (Fig. 2). In MPM terminology, estimates can be entered as any estimate type (i.e., hours, EQPs and prime dollars). Figure 2: Inserting the Estimate on a Curve 2 Technical Brief: Proposal Pricing with Deltek MPM

3 Labor estimates can be entered in Equivalent People (EQP) or hours and the estimate dollar levels are calculated and maintained in MPM (i.e., prime, total burden, total cost, total dollars and price). To see this, go to the View menu and click on Total Window. You can then see how those equivalent people were priced out in the time frame you planned for them (Fig. 3). Estimates are rolled-up at the time they are entered. When detail estimates are entered, MPM creates detail resource records and summary EOC (Element of Cost) records. The Rollup Processing can be turned off during mass data entry, so that only the detail records are created. This could improve performance. If that is done, the Rollup Processing option can be used to execute a roll-up of the detail data to the summary EOC records (Fig. 4). Figure 3: Viewing the Estimate by EOC Figure 4: Summarize the Proposal Estimate 3 Technical Brief: Proposal Pricing with Deltek MPM

4 With this accomplished, it is time to get a Proposal Summary report. When conditioning the report, it is easy to define how much should be visible and filter it by several factors including CLIN, X-REF and Element Type (Fig. 5). Reviewing the Proposal Report, we can see the Price Summary (Fig. 6). Is the total price of $3,653,167 good enough to win the proposal? Maybe the customer has admitted to a budget limit of $3.5 million. Or possibly that is what the marketing and sales people think is a winning bid amount. In situations like this, how do you reduce the bid? Figure 5: Proposal Summary Report Conditioning If all the material is fixed price and cannot be reduced, the only options are: 1. Reduce the Number of Hours How many hours do you need to take out to reduce the bid by $153,167 ($3,653,167 - $3,500,000)? 2. Use Different Resources Can I reduce the cost if I use different resources? 3. Use a Different Burden Rate Can I reduce the cost if I use a different burden rate? 4. Move the Estimate in Time You just got a revision to the deliverable date. How do you move the estimate in time and calculate the cost impact of doing the work in a later time period that will be affected by escalation? These are all issues that every proposal team has to face. These questions are answered in the next section. Price Summary Total Prime $1,537,041 Overhead $1,205,172 Total Burdened $2,742,212 General and Administrative $736,632 Total Cost $3,478,845 Cost of Money $380 Total Dollars $3,479,225 Fee $173,942 Total Price $3,653,167 14,968.1 Hours LABOR $789,001 MATERIAL $736,819 OTHER DIRECT COSTS $11,219 SUBCONTRACTORS - Prime Subtotals $1,537,041 Figure 6: Proposal Summary for SAIL Project 4 Technical Brief: Proposal Pricing with Deltek MPM

5 Changing the Estimate There are several reasons to change an estimate the four previously listed are common types of changes that regularly occur. This brief will explain how to leverage MPM to address them. The first question is really asking how to make an estimate change to meet a specific goal. In MPM, the Estimate Adjust feature in the Project Maintenance screen provides this capability. In the Project Maintenance screen (Fig.7), you first need to highlight the project that you will be adjusting. Then from the Tools menu select: Estimate Adjust. That will bring up the Estimate Adjust screen. Here you have several choices that will provide you with the various ways to adjust the estimate. Rather than cover all the options, we ve answered the questions and explained each step as the estimate is adjusted. Reduce the Number of Hours How many hours do you need to take out to reduce the bid by $153,167 ($3,653,167 - $3,500,000)? In this scenario we need to adjust the total project estimate. Since we can only directly control in-house labor, we will only adjust labor. The easiest way to determine the estimate by EOC is to run the EOC report. The following report (Fig. 8) shows the total estimates by element of cost (EOC). The labor portion of the estimate (thru fee) is $2,653,105; if we need to reduce the Total Price by $153,167 the result is $2,499,938 (total price for labor). Now lets go to the Estimate Adjust screen to adjust the estimate. Figure 8: Reports of Baseline by EOC Figure 7: Select Estimate Adjust from the Tools Menu 5 Technical Brief: Proposal Pricing with Deltek MPM

6 In the Estimate Adjust screen (Fig. 9), we make the following choices: Select both Baseline and ETC you want both to match at this point The results (Fig. 10) show that we hit the number within $1.00 with rounding. The same adjustments that we did to estimate all labor can also be done by Work Breakdown Structure. No need to limit the adjustment to a WBS Leg that field is left blank No need to limit the adjustment to a single department that field is left blank No need to limit the adjustment to a time period those fields are left blank Only Labor is being adjusted that field is checked in the Adjust Conditioning The Unit Value is being set at $2,499,938 select Total Price as the Unit Type Figure 9: Estimate Adjust Screen Figure 10: The Adjusted Estimate 6 Technical Brief: Proposal Pricing with Deltek MPM

7 Use Different Resources A better approach to reducing the cost may be to find a less expensive resource. To test this theory, two copies of the original project (called SAIL) were made. The copies are called SAIL2 and SAIL3. The original total price is being used ($3,653,168). In the project copy called SAIL2, changing the resource from CON-ENGR to ENGNER (which is approximately 45% less expensive) should yield the desired results. To do this use the Estimate Rename feature from the Tools menu in the Project Maintenance screen (Fig. 11). The result of the substitution is a total price of $3,195,724. This is less than our target so it may be prudent to go back and try substitution on one WBS leg at a time. labor $2,195,662 material $985,084 other direct COSTS $14,998 subcontractors $0 subtotals $3,195,724 total burdened / Cost/ Dollars/ Price Use a Different Burden Rate Another approach is to have the work done in a division where the burdens are lower. To test this theory, once again we will use a copy of the original project (SAIL3), with the original total price of $3,653,168. In the Project Maintenance screen, a point and click will change the burden table. Then from the Tools menu, choosing Reprice will have MPM calculate the estimate with the new burden rates. As is shown in the EOC report (Fig. 12), the total price is now $3,195,725. Once again, this is below the customers target. This means that another what-if could be done with only part of the work in the other location with the lower burden rates. Move the Estimate in Time If after submitting the estimate, the customer comes back and asks What would be the cost impact of starting the project 3 months early? a data shift in MPM is an easy way to answer this question. You can move the entire project or a part of the the project, and MPM will automatically re-price the estimate based on rates and escalations in the new time frame. In the Project Maintenance screen, highlight the project in question and from the Tools menu, choose Project Date Shift. Figure 12: Estimates Using Different Burden Rates Figure 11: Estimate Rename Window 7 Technical Brief: Proposal Pricing with Deltek MPM

8 Contact Deltek Deltek (NASDAQ: PROJ) is the leading provider of enterprise software solutions designed specifically for projectfocused businesses. For more than two decades, our software applications have enabled organizations to automate mission-critical business processes around the engagement, execution and delivery of projects. More than 12,000 customers worldwide rely on Deltek to measure business results, optimize performance, streamline operations and win new business. World Headquarters: United States & Canada Dulles Corner Lane Herndon, VA International Sales Headquarters: United Kingdom 1 Warwick Row London SW1E 5ER +44 (0) Australia 6th floor 182 Victoria Square Adelaide SA In the Date Shift window (Fig. 13), clicking the Baseline and the ETC check boxes will change both. There are options to limit the change to a WBS element, change milestone-scheduled dates, and change the estimate type to maintain during the re-price. The only thing to do then is enter the new start date and click OK. When MPM finishes the shift, it re-prices based on labor and burden rates for the time period. In this example, the rates were slightly lower. The impact can be seen in the EOC report (Fig. 14). Conclusion This brief has shown that there are several ways to use MPM to create price estimates you can copy projects to provide what-if analysis, replace resources or move project estimates in time. Utilizing the Project Comparison report then allows you to see the changes from the original project to the changed copy. Figure 13: Project Date Shift Options Figure 14: EOC Report after Date Shift This brief has not exhausted all the features that support preparing cost estimates and proposals but has hit some of the most common. Learn More To learn more about these and other features of MPM, please contact Deltek MPM support. For questions about this brief, or for more information about Deltek, contact: Mark Infanti Sr. Product Marketing Manager markinfanti@deltek.com Phone: (714) Deltek, Inc. All rights reserved. All referenced trademarks are the property of their respective owners.