Table Two Global Pricing Strategies

Type I Acquisition:

One-of-a-Kind Program with Little or No Follow-On Business

Type II Acquisition: New Program with Potential for Large Follow-On Business or Representing a Desired Penetration into New Markets

1. Develop cost model and estimating guidelines; design proposed project/program baseline for minimum cost, to minimum customer requirements.

2. Estimate cost realistically for minimum requirements.

3. Scrub the baseline. Squeeze out unnecessary costs.

4. Determine realistic minimum cost. Obtain commitment from performing organizations.

5. Adjust cost estimate for risks.

6. Add desired margins. Determine the price.

7. Compare price to customer budget and competitive cost information.

8. Bid only if price is within competitive range.

1. Design proposed project/program baseline compliant with customer requirements, with innovative features but minimum risks.

2. Estimate cost realistically.

3. Scrub baseline. Squeeze out unnecessary costs.

4. Determine realistic minimum cost. Obtain commitment from performing organizations.

5. Determine "should-cost" including risk adjustments.

6. Compare your final cost estimate to customer budget and the "most likely" winning price.

7. Determine the gross profit margin necessary for your winning proposal. This margin could be negative!

8. Decide whether the gross margin is acceptable according to the must-win desire.

9. Depending on the strength of your desire to win, bid the "most likely" winning price or lower.

10. If the bid price is below cost, it is often necessary to provide a detailed explanation to the customer of where the additional funding is coming from. The source could be company profits or sharing of related activities. In any case, a clear resource picture should be given to the customer to ensure cost credibility.

to meet the customer requirements and cost targets, and gives management the time to review and redirect the design before the proposal is submitted. Furthermore, it gives management an early opportunity to assess the chances of winning during the acquisition cycle, at a point when additional resources can be allocated or the acquisition effort can be terminated before too many resources are committed to a hopeless effort.

The final pricing review session should be an integration and review of information already well known in its basic context. The process and management tools outlined here should help to provide the framework and discipline for deriving pricing decisions in an orderly and effective way.

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