In today’s competitive environment, winning a contract from a public entity or a private company is not just about which vendor has the best solution. Rather, it’s about which provider can submit a bid that best satisfies the customer’s requirements at a price the customer is willing to pay.
To do that, you have to price your bid correctly so that it meets the requirements and generally comes in lower than the bids of your competitors. That means you have to determine what the customer is willing to pay and what your competitors will likely bid. The best way to do that is by completing a Price-To-Win analysis.
Price-To-Win is a structured approach – a valid business strategy – to determining what the bid level should be in order to win the contract.
“At a high level, Price-To-Win is asking, ‘I wonder what my competitors will bid on this job,’” said Michael McNulty, Founder and Lead Analyst for McNulty & Associates Inc., an industry leader in Price-To-Win. “So, figuring out a way to build a pricing model of what various competitors would bid for various jobs. From that you can say, ‘If they do that, here’s what I need to price my job to win.’” The model becomes a pricing model and an engineering trade-off model. SEER by Galorath provides both capabilities inside one set of models.
Price-To-Win includes determining the correct bid strategy based on various factors, including the type of contract; how much money the customer likely has for the job; and the actual cost to do the job.
Price-to-Win is about selecting the most affordable alternative that fulfills the customer need and that will also be successful against competition.
However, Price-To-Win generally does not require that a life cycle cost estimate be performed – although some RFPs require that you include a maintenance cost estimate. Price-To-Win is an analysis of what the cost should be for a specific contract; normally development and/or production.
The three elements of a successful Price-To-Win analysis are:
- Knowing how much money the buyer is willing to expend to fulfill the requirement.
- Understanding the competitive market for this requirement (the likely competitors and their likely bid strategies). The more you know about your competitors, the more likely you are to appropriately structure your bid.
- Knowing what it will actually cost you, the vendor, to fulfill the requirement.
Determining what the customer wants is done by looking at the contract, which is publically available. The buyer will tell you whether it’s a fixed-price job, a time-and-materials job, or a cost-plus-fixed-fee job. You also have to understand the ramifications – the risks and advantages – of each type of contract. Most public and Federal organizations have published budgets and it is from that data source that you can begin to determine how much the customer is willing to pay.
You can use open source documents to understand your competition’s strategy. Gaining knowledge of past and current behavior, as well as information from trade shows is very helpful.
You can also gather market intelligence by reading the technical manuals; understanding the commercial environment; understanding the business; and talking to people who have the knowledge you’re seeking regarding the particular commodity involved (e.g., vehicles, ships, planes, printers, radios).
SEER by Galorath provides a set of useful capabilities to determine what a project will really cost. Since SEER by Galorath models also provide project management tools, they can be used to assess all aspects of your technical approach (engineering and schedule trade-offs) and those same likely engineering and schedule trade-offs of your competitor’s approach. SEER by Galorath provides project planning, project estimating, project tracking, and project cost management capabilities for software intensive programs, hardware development programs (mechanical, electro-optical, and integrated circuits), information technology programs, and manufacturing alternatives.
Unlike most project management tools that focus on designing features and workflow, SEER by Galorath solutions streamline and automate project estimation and project cost management, ensuring that projects are delivered on time, on budget, and as specified.
Before budget cuts and sequestration, government agencies would evaluate vendors’ proposals using a “Best Value” approach, meaning an agency could offer a contract to a provider that didn’t come in with the lowest price, if the company provided an added benefit that was worth paying the higher price.
Today, however, one of the ways for government buyers to get more for their money, especially for something like IT services or support for an existing system, is by using a “Low Price, Technically Acceptable” approach, McNulty said.
“They’re saying, they want competent bidders but they want the lowest price,” he said. “So you’re evaluated to see if you’re technically capable of doing the work and among those folks, who’s the lowest. When that starts happening you have so many companies that are so good at different things that most are going to be technically qualified. Then it becomes a real competitive price environment. Modeling those various jobs from a pricing standpoint is what we do and we use SEER to help us do that.”
McNulty & Associates has developed a reliable and repeatable Price-To-Win methodology that supports many types of bids: From R&D to development, integration and test, including manufacturing and sustainment.
The company’s analyses offer vendors unprecedented visibility into the program requirements and their competitors’ likely bid prices. McNulty & Associates’ analyses are engineering based, with highly detailed pricing analyses including gaming recommendations and ultimately, a recommended Price-To-Win bid.
“The SEER models are designed for engineering design, integration, test, deployment, sustainment, and we’re happy with that because it allows us to use those modeling tools to help us model what needs to be done – requirements of the government’s acquisition,” McNulty said. “They have servers to be maintained, they have all this equipment that needs to be taken care of, and they have software upgrades that need to be made. The SEER applications help us model that in our work. And they’re very good.”
McNulty said his company has tried other tools, but they opted for the SEER by Galorath applications because they’re easy to use, very flexible and accurate.
“Accuracy is everything,” he said. “The way the SEER models work is they have knowledge bases. So how does the SEER tool know . . . how does it know how many people it would take to maintain a help desk for a big IT system. Well, that’s what [Galorath] does and they keep up with that data over time and they update their models to reflect the latest information. And we’re able to leverage that as we’re going about our work on a particular project. It’s an engineering estimating tool and we use it for our own purposes, which are Price-To-Win.”
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