"A human being should be able to change a diaper, plan an invasion, butcher a hog, conn a ship, design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, analyze a new problem, pitch manure, program a computer, cook a tasty meal, fight efficiently, die gallantly. Specialization is for insects."
— Robert Heinlein, Time Enough for Love
In addition a human should be able to scope and quote for a new piece of business.
This is designed as a checklist of things to consider when preparing a fixed price quote for a customer.
Having good tools and templates are vital for success as this should be a repeatable process and should not rely entirely on the project manager or pre sales consultant to think of everything. The following list will help.
4. Would it be better to undertake the first phase such as requirements and design under a Time and Materials (T&M) basis instead? Often the first phase of the project the requirements and scope of the project can be ill defined or some of the technology building blocks unknown. In this case it may be appropriate to offer the client a T&M engagement to help scope out the project until it can be reasonably well defined enough to allow a fixed price.
5. Would it be better to provide a ball park estimate or a rough order of magnitude (ROM) instead? This type of estimate can be used during the business case or analysis phase by the client to decide whether a project meets a certain hurdle like a Return on Investment (ROI). You should include some assumptions and scope boundaries when submitting a ROM price so that there is an understanding of what the ROM estimate is based on.
6. Would a plus or minus estimate be more appropriate to give an indication of price in a short time frame? Often putting together a fixed price proposal can take a period of time longer than the customer is willing to wait. Therefore you could offer a plus or minus estimate with a 50-100% margin for error so that the customer can decide to go ahead or not. This can also reduce your pre sales costs.
7. Would the project be better priced by doing a mixture of Fixed Price and T&M? For example could you do the design and build as fixed price and testing and support as T&M? The build element might be easy to scope out but the testing could be unknown where you do not have experience of working with the client and there may be extensive testing cycles and accreditation required to move from testing into production. This can often be the case with large government or military contracts where the accreditation process can be extensive even though the build or configuration cycle can be short. Customers are reluctant to accept and deploy new software and code until it has passed through their gated process.
8. Would Time boxing instead of Deliverable based fix pricing be better? This can be more appropriate in agile projects, where a team of resources including project managers, business analysts, testers and developers work together for a period of time and get through what they can in the allocated time box.
9. Would it be better to do rolling Fixed Price Phases rather than an upfront full fixed price? As more details emerge as the project moves forward the next phase can be fixed price. At the beginning maybe consider providing a ROM for the whole project.
10. Is your executive/ senior manager supportive of pricing strategy?
11. What has the sales or presales consultant communicated to the customer?
12. What is normal in the industry?
13. Is the customer expecting fixed price or something else like cloud based user consumption model or T&M?
14. Is the bid or project team fully supportive of Fixed Pricing strategy?
15. Would a peer review be supportive of Fixed Pricing strategy?
16. Do you have tools and templates that can help you build a fixed price quote?
Fixed Price Scope
17. Do you have the project detailed requirements documented?
18.Have they been signed off by the customer?
19. Who produced the requirements or scope?
20. Is there a clear list of all deliverables the customer needs you undertake?
21. Who defined the deliverables?
22. Can you trace the requirements to the estimates? This is important if the customer decides to reduce or change scope to get under a price point, this will allow you to quickly re price a project.
23. Are there any cleanup activities required on your project like data migration or data cleaning? This can be a big source of extra work. Consider doing this under a T&M basis or time boxed.
24. Is the acceptance criteria well documented with customer including the number of review cycles. Again this can be a source of cost blow out if the customer requests multiple review cycles.
25.Have you delivered this type of project before?
26. Are there any reference projects that you can use to benchmark how much the price should be? Similar size, similar complexity?
27. What was the risk profile or contingency allocated?
28. Do you understand the solution being proposed or are you relying on 3rd parties?
29. Has a draft project plan be prepared?
30. Do you understand the critical path for the delivery of the project and has it been documented? How does the critical path affect the price of the project?
31. What are the scope deliverables
32. What are the scope exclusions
33. What are the assumptions
34. What are the dependencies?
35. What are the constraints?
36. Has a Proof of Concept or Model Design been completed to validate Solution assumptions
Fixed Price Estimate
37. Is there a clear rational for the estimate? For example are there bottom up estimates available which support the price. For example have you used a project schedule with resource allocated to each task to estimate how many days of effort are required? This can be useful when task change and you need to re price. For example if the customer requests 4 weeks of testing support rather than 1 week of testing support.
38. Has the estimate was worked out using a recognised technique? For example. PERT, SLiM._
39. Has the estimate has been validated using another recognised technique.
40. Has the estimate has been validated against industry standards
SOW Fixed Price Terms
41. Is the acceptance criteria for project deliverables documented and able to be quantified? For example detailed design might be accepted by signing off the detailed design document after 2 review cycles. Testing might be accepted after the test report is produced showing that there are no outstanding severity 1 or 2 test defects.
42. Has anyone from legal reviewed the terms and conditions? Also are contractual risks are included and quantified in a risk log?
43. Have you include regular project reviews in the schedule and costs are included in pricing model.
44. Does the Statement of Work (SOW) contain a contractual checkpoint for you to validate the Fixed Price after the design phase is completed and re-price if necessary. This can be useful inclusion as the design may increase scope and therefore the cost to deliver. It could be pitched to the client that the design may also highlight or allow for a decreased scope and therefore a reduced price.
45. Have any risks around third party long term delivery capability have been assessed and quantified in the risk log. For example, if you are using a 3rd party to deliver part of the project what would happen to the project and your ability to deliver if the 3rd party was not able to deliver, maybe they lose a key resource or go bankrupt. It could be prudent to have step in rights included in the back to back contract with the 3rd party. Always seek independent legal advice.
46. Has a risk workshop has been conducted with all key staff from the bid team (Sales, Delivery, Legal and Commercial), to identify all risks? It is important to also include a cost or dollar value to those risk. Has the risk log and estimates been reviewed independently to ensure that are not over or under inflated.
47. Have you included the fully priced risk reserve or contingency amount in the fixed price quote?
48. What is the agreement between you and the customer on sharing the risk or contingency? For example the customer might agree that there will be 10% of the build costs in change requests that they will approve during the project, which might allow you to reduce your risk contingency. This also has the advantage of recognizing that all projects have change and managing this process in a collaborative manner is more harmonious for both parties.
49. Have you confirm that the delivery team have a culture of delivering successfully under fixed price. Sometimes delivery resources who are not commercially focused will not consider the commercial implications of their behavior. For example a solution architect might offer to the client that the change proposed in the meeting can be easily included without understanding the extra costs involved which might include extra testing, support, risk and documentation.
50. Are the project resources that you will allocate to the project experienced in the solution being delivered?
51. Have you included in the schedule adequate stand up or staff ramp up time?
52. Have third parties demonstrated strong capability to deliver fixed price projects based on the proposed solution?
53. Third party contract is clearly defined to allow a fixed price to be tracked through deliverable achievement. Quantifiable Acceptance Criteria has been defined and agreed for all third party Deliverables.
54. If you are using a 3rd party do you and the third party delivery aligned in a back to back manner
55. Can you recover actual costs plus impact costs should a third party fail to deliver
56. Do you have valid third party fixed price quotes which have been received with appropriate validity periods?
57. Is the third Party is an approved supplier you have done business with before?
58. Is this a cool project?
59. Will you be proud of doing this project?
60. Will you have fun doing this project?
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