Whether a cost engineer is pricing a competitive bid, or trying to get a new product to market, estimating accuracy will determine success or failure. When pricing a competitive bid, first “ghost the competition” to determine a price-to-win. Validated, (parametric) predictive estimating models allow you to quickly estimate the cost of recently priced items from competition to determine bidding margins and target a likely price-to-win for a new competition. A client,had an extensive database of competitive bids which determines a price-to-win for a new bid in less than one hour. The rich set of industry benchmarks TruePlanning supplied validated the predictive models streamlines the task.
Once a price-to-win is obtained estimating the business’s cost, schedule, and of risk of meeting the requirements is needed. Comparing the most-likely cost estimate and potential cost of risks to the price-to-win, helps management decide their bidding strategy, metered by the businesses risk tolerance.
(Cost + (Risk Tolerance x Risks)) x Profit_Margin = Bid_Price ≤ Price-to-Win
Estimating accuracy is vital to winning the bid, and vital to delivering the expected margin after the bid is won.
All new products have a certain “window of opportunity” to capture market share and achieve revenue growth for a business. Everyday there are stories of cancelled new product developments or new products failing in the marketplace because their window of opportunity has passed. Most new products are good ideas and most product managers are skilled, but failure is the result of over-optimism. The most common cause of new product failure is inaccurate estimates of the scope, cost, schedule and risks of bringing the product to market. Inaccurate estimates result in bloated requirements, under-estimated schedules, and missed opportunities. Successful new products bring just enough features (scope) to market on schedule to be first, capture initial market share and then grow with successive offerings – look at the iPhone story. Accurate estimates help you launch within the window of opportunity and achieve revenue growth.