Situation: A CEO faces challenges with clients. The first is vague customer specs because they don’t understand the product. Second is misunderstandings as to timelines. Third is insistence on strict timelines while simultaneously demanding revisions to previous work. How do you add more discipline to quotes and pricing?
Advice from the CEOs:
Is the company’s technology strategy aligned with its capabilities? Currently the company is trying to build advanced solutions in multiple international markets with a small staff. There does not seem to be the technology or development discipline to convert current capabilities into a sustainable market advantage.
For near term focus, because of commitments and milestone payments due from the key customers, focus resources on finishing the last piece of these projects. Once this is done, step back. Look at options and determine the company’s technology strategy moving forward.
The key challenge is to define ONE beachhead on which the company will focus and which they can dominate. The objective is to leverage existing engineering creativity to create a sustainable competitive advantage.
As this exercise is designed, start with a clean slate. Don’t burden the process with a lot of restrictive assumptions. Consider using an outside facilitator to help facilitate this process.
Until this exercise is completed does it really make sense to seek additional work or to commit the company to the next phases with current customers?
Once the company has selected and committed to a technology strategy, the decision process becomes different.
The objective is to develop laser-like focus on the technology. Minimize distracting the team with other opportunities.
It may be OK to lose money on development projects if this work will significantly impact or accelerate the development of the company’s core technology.
How does the company justify asking for payment for development for future projects?
First, determine and clearly state the company’s technology strategy. Evaluate all future development projects and decisions in terms of their alignment with this strategy.
Second, if a particular project is completely aligned with the technology strategy, the company may waive the requirement of payment for development. This, ideally, will be the only exception.
Ask for a limited time/scope project to jump start and define new projects. This provides proof of company capabilities and establishes its credibility.
If is it necessary to negotiate or bid, start high and bargain down to but not below the best estimate of the cost of development.
Remember that deciding what NOT to do or quote is often harder, but just as critical, as deciding what to quote.
Situation: A CEO is
concerned about long term trends versus short term volatility. While the
business has done well over time, short term volatility has made it difficult
to project both personnel needs and cost. As the company expands geographically
these issues are becoming more critical. Which is more important – long or
from the CEOs:
the company find that capabilities are not fully understood until they get into
development? In this case, is the problem with variables of schedule, budget or
capability more important?
forward, evaluate each of these variables to determine which is having the greatest
effect, positive and negative, on project performance and profitability.
the problem is time constraints in the project planning phase, assure that
sufficient time for project iterations is allowed in both the schedule and
budget. It may be that the clients are not sure of what they want until they
see a model, and that several iterations are required to assure that clients’
needs are satisfied. Plan and bid for this.
fixed costs impact margins during dips between active projects, assure that enough
fixed cost coverage is built into project bids to cover dips.
geographically remote offices is the company’s issue a question of volume or
resource cost or is it a pricing issue?
it’s a pricing issue to stay market competitive focus initial activity where
this issue is minimized. As market presence expands, add additional capabilities
in phases according to the ability to cover costs profitably.
it’s a resource cost issue use the same solution, adding resources according
ability to cover costs profitably.
the company’s sales and marketing structure in phases while expanding into new
markets. If sales compensation is base plus commission, vary commissions paid
according to resource rates negotiated. This will tie sales incentives to
negotiated resource rates and will help to assure that costs are covered.
with short term issues effectively will improve long term planning and profitability.
A company is revising sales forecasts for 2016 and seeks the advice of others. A combination of low energy prices and shaky financial markets sparked by the Chinese decline has left many questioning whether they should revise their plans to account for an economic contraction. How is the economy impacting your sales plan?
Advice from the CEOs:
Niche Software Company – we are coming off of a good year. Our industry has seen low impact so far. Going forward we are cautiously optimistic. A couple of clients have delayed projects but didn’t cancel.
Services Company – hiring has been frozen. Adjustments to staff count have already been made. Clients are asking us to contact them again early in the second quarter. Opportunities exist in the health care area.
Hardware Company – we are running scared. We have cut business and personnel expenses to assure survival. A large customer just announced new plant construction earlier this week – this may help to turn things around. We are assuming this will be mean a longer term rather than a short-term opportunity.
Niche Software Company – cutting personal/business expenses. Long term things look favorable, but we have to survive the short term. Attendance at a large trade show this month was a little above last year but we don’t know whether this will yield a significant increase in sales.
Trades – Projects with big bank backing are on hold. We see large scale bidding wars for projects. Where there used to be 3-5 bids there are now 15 or more. Looking for consolidation of competition – especially union–based shops.
Situation: A company is transitioning from a time and materials to a fixed price bid model. Estimators and project leads find this transition difficult. We need them to think like business managers. How do you help managers to see and think in terms of the big picture?
Advice from the CEOs:
First, set up a framework that repositions projects in a business framework.
All projects are business go/no decisions with expenses, minimum profitability targets, and incentives provided for beating initial projections.
This will help generate more consistency in bids and final gross margins per project.
Next, teach managers and employees industry and company standards within your new model.
Do post-mortems on all projects. Did we make or lose money versus initial estimate? How much? How did we perform against estimated time and expense? Were client expectations met? Were they exceeded? What was good or bad about the project? Were there errors in the original estimates? Where could we have saved cost?
Use this information to improve your estimating process over time.
You have a long history of T&M projects. Categorize these by project type. Look at the hours required to complete the projects – both engineering and management time – as well as other costs. Establish range and averages within each category.
Look for key variables among the project categories: scope of project, learning curves, efficiency of team members.
Work through known costs and outcomes on past projects as examples to teach the process.
For new projects, calculate best, medium and worst case hours and costs. Bid based on your worst case as you develop your learning curve.
Make sure to include a project management fee on top of your T&M estimates. Eventually you want to develop an overhead percentage to cover project management.
Team your estimator with the project lead both for project input, and performance against the bid.
Evaluate and compensate both based on project outcome.
The critical measure will be gross margin generated versus gross margin estimated on the project.
Key Words: Leadership, Project, Time and Materials, Fixed Price, Bid, Framework, Consistency, Standards, Variables, Estimator, Lead, Incentive