Project Calculations Traffic
We all know that if we make mistake in calculating the effort and the margin of the services offer there is a COST associated with this. This is no surprise.
But do we really realize what is a real cost for the organization?
Let’s find out.
If we work in professional services project-oriented business, all we plan to sell we have to propose, but earlier calculate cost and price of it.
Even for a small market number of calculations can be quite huge.
On average regular service-delivery company prepares between 10 to 20 offers per customer per year. This could be less but also more.
If we run several customers, the numbers go into hundreds. This is not the end.
Many times, we have to calculate many times the same offer.
On average 50% of offers need more than one or more versions of the calculation. This easily makes it double.
We can firmly say that company supporting the local market may reach up to 1000 calculations within a year. Even if this number is far from reality as of now, sooner or later it may become true. At least companies should have ambition for a similar level.
Now we can name the number of calculations at an organizational level, let us talk about what is happening at an individual calculation level.
We all had once or two cases (I am sure many had more than two) we prepared calculations with errors.
Here is what can happen wrong with our calculation:
- Error in calculation formula – this is probably a very obvious issue. If we have an error in our formulas our cost and price are wrong. This error can be as simple as the wrong range of cells used to calculate the sum, which is much more common than we think. How big is a mistake? - depends on the error. But the issue here is we may have used the wrong formulas for many calculations in past. So the impact may be quite large.
- Wrong input data – like outdated cost rates or exchange rates. This also directly leads to a gap between the right cost and price and what we prepared.
- Different methods to calculate the cost, margin, and price – this is also a common issue. At individual calculation, it looks OK, but each calculation is a slightly different way of computing things. Are expenses used as a base for the risk calculation? Do we calculate risk as workload or a lump sum? Inconsistency may lead to issues.
What is the cost to an organization?
Calculate a gap of margin we should have, and we proposed to a customer based on the wrong calculation. This is real money.
This is your first category of COST.
There is more.
If we put the wrong numbers to the customer – this is the customer baseline for now.
Any future offer will always be benchmarked against those wrong numbers.
I have seen many times that due to political situation and competition those errors cannot be recovered.
Depending on project size the cost of those errors can vary even to tens of thousands of EUR (or other currency) at average offerings over a period of time.
Am I Approved?
If we have a complex offering and long negotiations, we most likely have multiple rounds for the same offer with the customer. Easily can move into 10 or more versions of the offers.
They all differ a bit. It could be a scope or a different split of payments.
Mostly they're subtle changes. So, the price and cost are subtle as well.
Here is a point. With many subtle versions of the same pricing, it may not be easy to understand what each one is.
And which is approved and worst if what we sent to the customer is approved.
This is a real issue.
"If You sent wrong, not approved numbers to the customer, you pay either for calculation mistakes now and in the future by doing nothing, or spend the huge effort of management time to roll back errors and obviously risking reputation"
I have seen many times digging into mails for the last 3 months and trying to understand what was sent to the customer and if this was approved.
And few times discovering it was not approved.
What is the cost of organization here? Simply time to prepare a new version and controlling the versions and approvals.
This time often is a time of quite expensive resources in the company.
If You sent wrong, not approved numbers to the customer, you pay either for calculation mistakes now and in the future by doing nothing or spend the huge effort of management time to roll back errors and obviously customer reputation.
All can be calculated in either FTE or money like EUR.
Speed of Reacting to Customer
Let's say we have a calculation, and it is internally approved. We send it to the customer.
And the customer is asking for some modifications, or maybe different options – again most likely subtle changes.
How fast we can build a new version, check it, approve it and come back to the customer?
What about if the main person who controlled the worksheet is off for holidays?
As expected, changes are subtle, can we come back fast enough as the customer expects?
In my experience coming back to the customer is way longer than anybody expects and commits at the discussion time.
This creates a bad impression on the customer side, making the process longer and possibly riskier as now the customer may have a person off for some time.
Longer the process more presale cost.
This can be calculated in FTE or har money like EUR.
Being able to calculate cost and price for a project without error, fast and inconsistent is still a luxury Today.
Being able to get an approval of calculation and respond to a customer on a new version fast, is an art.
It takes many years to work out a reasonably fast process.
If you don’t have luxury and art, you can risk tens of thousands of EUR (or other currency) per year due to mistakes in calculations and complex process.
But Today's world provides platforms to calculate, approve, and store all offers and calculations for professional services projects.
Pricell.io is a solution to make the process more error-free, consistent, transparent, and overall simpler by miles.