Analyzing Your Proposal Cost Estimates and Contract Win Rate

Have you thought about doing a forensic analysis of your company’s proposal cost estimates? What are the benefits of doing this analysis? How could the analysis help improve your approach for producing proposal cost estimates as well as the company’s bottom line? Anything you can do to increase the likelihood of winning a contract and successfully executing the scope of work within the schedule and cost objectives of the contract is a win for your company as well as your customer.

There are two sides to this analysis.

  1. You are winning the contracts, however, the actual costs for performing the work are consistently higher than the proposal cost estimates. Why is that occurring? What is the root cause? Unexpected cost growth? Why did that happen? High technical risk? Schedule driven? Resource driven?
  2. Your win rate is lower than expected. Why are you losing to competitors? Was it your technical solution? Pricing? Quality of the proposal submission? Is there a common thread for those loses?

Granted there can be a variety of reasons a contract was awarded to someone else – and that is part of the analysis process. The analysis can help identify common root causes proposal cost estimates deviate significantly from the actual costs as well as why you didn’t win a contract.

Facts and Data

Conducting a forensic analysis requires facts and data. You need objective evidence you can use to determine what actions can help to improve the quality of proposal submissions including the proposed schedule, cost estimate, and basis of estimates. When you have limited time and resources, it helps to have a short priority list so you can focus on what you can do differently to produce the most tangible benefits.

Analyzing previous proposal submissions as well as the historical actual costs and performance data for the contracts you won can help identify the largest cost drivers and potential areas where the cost estimates were unrealistic.

Factors to Analyze

Here is an initial list that can help you identify factors you may want to analyze for your business environment:

  • Can you verify there was a common understanding of the RFP requirements including the statement of work and deliverables was established? The customer may have provided the opportunity to communicate with them to clarify their requirements. Did your proposal team take advantage of those opportunities? What was the win strategy for your proposal team? The intent here is to gain an understanding of how the new business development team identifies opportunities and how that is reflected in the proposal submission. Do you need to do more homework here to ensure internal assumptions and objectives are on target and the proposal submissions satisfy the needs of the customer and what’s important to them?
  • Was the proposal submission complete? Did the proposal team inadvertently fail to address a proposal requirement? Proposal teams typically use a checklist to verify all proposal requirements were identified and addressed – this helps to ensure nothing obvious was missed. That said, there are a number of moving parts that need to be organized. For example, along with the time phased cost estimate data, there are the related narratives, bills of material, and supplier basis of estimates that requires proposal teams to be vigilant in preparing their final package for submission to the customer. This also ties back to the first point – was there a common understanding of the RFP requirements including the SOW and deliverables? If that wasn’t clear, it is easy to omit content the customer is expecting to be included in the proposal submission.
  • Assess what estimating methodologies were used. What was the percentage of methodologies that rely on verifiable source data from your business systems such as analogous, cost estimating relationship (parametric), or cost models? These methodologies are preferred because you can substantiate the basis of estimate with historical actual cost data. When there is a high percentage of cost estimates that use the engineering judgement methodology, this creates greater risk for all parties because it is more subjective. It is easier to make unsupported assertions or assumptions and underestimate risks because there are too many unknowns to make a realistic assessment of the effort and resources required.
  • What about the narrative content? Did anyone review that content? The more subtle things to look for often occur in the narrative content of the basis of estimate. Does it make sense to someone other than the person who created the content? Can someone else follow the rationale, verify the analogous or parametric source data, and confirm the source data is relevant as well as the calculations performed? Are there any math or logic errors? It helps when the narrative text is part of the time phased cost estimate (in the same database) and you don’t have to go searching through a separate set of documents to match up the cost estimate for a work element to the narrative content.
  • Verify top down and bottom up cost estimate traceability. As noted earlier, there are number of moving parts to the cost estimate and it isn’t easy to manage the development process. It helps when everything is in the same database including the historical actual costs, cost estimating relationship data, cost models, rate sets, resource structure for element of cost breakouts, time phased cost estimates with assigned assumption types identified, bills of material, supplier basis of estimates, and narrative text. It is harder to verify top down and bottom up traceability when proposal teams are using ad-hoc approaches for creating their cost estimates or use a mixture of tools to develop their cost estimates and document their basis of estimates.
  • Verify the proposal schedule and cost estimate align. They should be telling the same story. When the schedule and proposal software tools are able to integrate, it helps the proposal teams ensure the schedule resource loaded activities match the cost estimate work package durations, start and end dates, and resource requirements. It also improves the quality of the resource plan and ability to identify key resource requirements to ensure project execution success.

Why Data Driven Cost Estimates Matter

The goal should be to create an integrated proposal schedule and cost estimate with useful narrative information that demonstrates to your customer you have a good understanding of the scope of work requirements and is realistic. Make it easy for your customer to evaluate your proposal and verify your basis of estimates. Keep your focus on:

  • Cost realism.
  • Use historical actual costs and performance data whenever possible; minimize the use of engineering judgement methodology.
  • Be able to substantiate and clearly articulate the rationale, assumptions, and calculations used to arrive at the cost estimate.

This is where establishing a repeatable cost estimate process and using the right tools such as ProjStream’s BOEMax proposal software can make a difference in the quality of the proposal submission. Data driven cost estimates reduces risk to you and your customer. There is a lower likelihood of cost growth that negatively impacts your bottom line or your customer’s program budget.

No one likes surprises – especially the ones where it takes longer or costs more to deliver a product or service. If you can’t make heads or tails of the cost estimate details in your proposal submissions, neither will the customer. The customer will give your proposal a lower score because it will be perceived as unrealistic with a higher execution risk.

Schedule a demo of BOEMax today. See why BOEMax proposal software helps proposal teams create data driven cost estimates easier and faster. BOEMax estimate software functions as “command central” for proposal teams because everything they need to create their cost estimates is in a single database. This includes historical actual costs, parametric data, cost models, bills of material, supplier BOEs, and narrative text. Your proposal teams can easily produce data driven cost estimates that are fully traceable from the top down or bottom up. BOEMax bidding software integrates bi-directionally with Oracle Primavera P6 and Microsoft Project to ensure the schedule and cost data align. The built-in workflow functions simplify life for the proposal manager and helps them track the development process as well as who made what changes to the cost estimate data.

Topics: proposal cost estimate, proposal software, BOEMax

Author: Tom Shanahan