Pricing out a customer's request for proposal is a trade-off between time, cost, and accuracy. If time and money are not an issue, then we could determine a very accurate bid. But if the company is reluctant to invest heavily in the preparation of the bid, care must be taken that there are no hidden costs
Situation: You have been asked to price out a project for a customer, and this pricing is an activity with which you have very little previous experience. Table 15-19 shows the numbers that you arrived at in determining that a bid of $193,166 should be submitted.
Before a bid is submitted to a potential customer, the bid must be reviewed by a committee of senior managers that can question the validity of the numbers as well as look for "hidden" costs that may have been omitted. For each of the situations below, which line item in the pricing summary would most likely be impacted assuming that these hidden costs were not already included?
a. Management tells you that, during the execution of the project, the customer will want three interface meetings with the customer held at the customer's location. The Travel Group within your company informs you that airfare, ground travel, meals, and lodging are expected to be approximately $2000 per meeting.
b. One of the executives comments, "The shipping costs for the deliverables, including insurance, packaging, and handling, will be about $1000. I do not see this included in your summary."
c. The RPF for the project stated that the contract would be firm-fixed-price with a lump-sum payment at the end of the project after approval/acceptance of the final deliverables. The cost of capital is expected to be approximately $6000.
d. Engineering believes that the engineering hours in the summary could be low by about 10 percent if the risks in the estimates provided actually occur. The executives believe that a management reserve of 10 percent should be included in the summary costs.
e. Using the information in parts a through d above, what final price should be submitted to the customer?
Table 15-19
