Quotation

What

The quotation in the Launch Phase covers the realisation of the project in terms of costs, overheads and margins.

How

The dish

Quotation

Ingredients

• Specifications from the General Analysis and Design phases.

Process

With the Development Plan and the Selecting Technical Platform analysis as basic documents, make a list of the estimated costs needed to perform the activities in the Realisation Phase and the PostProject Phase.

If more than one or two developers are involved in and responsible for the costs of different parts of your project, you may want to allow each developer to specify, in the quotation, the planned total costs of their part of the project. Here, all developers should use the same management tool (or worksheet) in order to combine all parts of the project as simple as possible.

• Summarise the estimated time consumption as listed in the development plan. Convert the time consumption into a net cost simply by multiplying by the developers' net wage per hour.
• List estimated expenses for materials and components needed to realise your product. Take into consideration the requirements and expected number of units you are going to use during the project realisation phase and obtain a written quotation from the suppliers. The quotation from the suppliers should also include the time of delivery.
• List the expected costs for external engagements such as test facilities: Write, email or call the supplier, or test premises to obtain a written quotation for the work of facilities you want to rent or buy.
• Consider the expected travelling needs (visits to the customer, test premises, etc.). Estimate and list the travelling expenses.
• Summarise the total costs listed above.

Now you have the net price for your development project.

If there is more than one attractive way of implementing your product (in accordance with the Technical Platform and General Architecture analyses, the quotation analysis above is done separately for each implementation method.

To find the price to be announced in your first quotation, it is important to take into account overheads and margins for your work in the Realisation Phase and the PostProject phase. Usually, an overhead factor is multiplied by the net price to get the price listed in your quotation. The overhead factor depends on how detailed you are able to do the above analysis and on your level of expenses indirectly connected to the project.

Margin/overhead considerations: If you have completed projects previously, here is a simple way of estimating the needed margin or overhead: Compare the cost-to-completion estimated at project start against the cost-at-completion for each completed project. The ratio between the initial cost-to-completion and the cost-at-completion can be used to find your overhead factor. Multiply your net price from above by the overhead factor found from previously performed projects, and you will get the best price estimation of your Launch Phase activities.

Keep in mind that a first quotation should also include margins for negotiations with the customer.

Make the different elements of the quotation visible to the customer so that the quotation will appear well-founded and reasonable. State prices as net prices with appropriate discounts based on customer, volume and initial and upgrade purchases.

In some cases, it is possible and very useful to compare your price with the price of similar products already on the market.

Also, in future projects you would probably like to compare and refer to the current project, and therefore, it is very important that your quotation is well documented.

Why

In almost all situations, a customer wants to know the maximum price of a product before placing an order. The quotation in the Launch Phase covers the realisation of the project in terms of costs, overheads and margins.

To receive an order, the quotation must have a reasonable price both from the customer's and the developer's point of view. If the price is too high, you will not get the job, if there are other vendors in the field. On the other hand, if the price is too low, you might get the job, but the project will not be economically attractive for you.

The development plan made in the Launch Phase is used as a basis for the quotation. To make the quotation, the developer should consider the different activities listed in the development plan. For each activity the costs of wages, materials of any kind, transport, test premises, etc. are considered.

Remember that a first quotation also should include margins for negotiations with the customer.

Example

The following sheets are part of the full quotation. It lists costs only related to one of the activities presented in the project plan.

The project manager version:

The customer version:

Used in

The quotation together with Product Acceptance is the basic for the contract, which is very different from company to company.