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Process Improvement - Cost Management Reinvented®

Improve Business Processes with the Insights of PRICE Estimating Resources

PRICE® Systems treats cost data as a valuable tool for improving performance beyond estimating. While tools like PRICE® TruePlanning® and the PRICE® Cost Models contribute to better initial bids and bid analysis, the insights and opportunities they deliver also extend to strategic viewpoints throughout your organization and the supply chain, such as finalizing an estimate at completion or managing overall life cycle costs.

Project Cost Management

PRICE® TruePlanning® offers added value for supplier assessment and strategic sourcing by providing a common language for information flowing throughout your organization and throughout the supply chain.

As a government decision-maker you can benefit from the PRICE Estimating Systems Integration Framework across many aspects of cost management. As a lead contractor soliciting subcontractor bids, you can be better prepared to evaluate contractor proposals for reasonableness, completeness, and traceability, and to respond to requests for estimate at completion. Should-Cost analysis can provide insight into reasonable cost expectations, from the overall project down to each individual subsystem or component.

TruePlanning also integrates with Enterprise Resource Planning, Product Life Cycle Management, Computer Aided Engineering, and with other project management tools—such as ACE-IT, MS-Project, Primavera, and Excel—as well as with the PRICE® TrueFindings® and PRICE® TrueMapper® resources. This ability to identify, share, analyze, and manage data before, during, and after the estimation process provides for better insights into competitive estimates and greater ability to manage project costs long-term and as input for future projects.

PRICE® Cost Analytics (PCA) provides the tools and a systematic approach to enhance the effectiveness of PCM through the application of cost management principles, proven methodologies and the latest predictive technology in support of the management process.

PCA and PCM both start with a simple concept based on the time-tested Deming or Shewhard cycle. In essence, PCM and PCA are aligned as quality management processes. PCA addresses the quality of cost management, cost estimation and the decisions made based on the predictive cost estimates. The systematic approach employed by PCA ensures continuous feedback and improvement. This feedback loop ensures that decisions are being supported with the most current information, based on the most appropriate projects. The PCA framework supports cost estimation and analysis throughout the entire project lifecycle, as does the PCM framework.

Cost Estimation

Until now, mining the value in historical project data for use in cost estimating software was difficult to achieve. Today, PRICE ESI helps customers tap into that resource by applying the same disciplines used to develop the industry-recognized PRICE® Cost Models.

PRICE® ESI engagements offer advice and implementation services to facilitate data collection, cleansing, categorization, and normalization, enabling organizations to reflect their own historical project data within their estimates, with confidence equal to the credible, unbiased, data-driven decision-making provided by PRICE® Cost Models.

For estimators and engineers, the PRICE Cost Analytic Framework improves cost estimating speed and accuracy, with built-in flexibility to evaluate multiple alternatives quickly. The integrated set of data, tools, and processes enables organizations to successfully estimate and analyze the effort, schedule, and cost of projects.

PRICE Systems develops and supports cost estimating, analysis, and knowledge capture tools to help customers manage cost and schedule throughout a project’s lifecycle. These tools embedded in our Analytics Framework enable the execution of a standard, repeatable cost estimating discipline. Our approach facilitates the use of historical data, and integrated cost models to build and calibrate activity-based cost estimates.

The power of this approach is that the estimate is based on the specific parameters of the system being built and the characteristics of the individual organization which is developing the product. Cost estimates are created using a product focused, Work Breakdown Structure which allows the estimator, Subject Matter Experts (SMEs), and management to cost the product as it is planned to be built. The PRICE Cost Analytic Framework further allows each of the different stakeholders (estimators, SMEs, and management) to view the inputs and outputs in accordance with their functional paradigm. Cost is created once and can be “slices and diced” into any custom view to support the cost estimation needs of the particular stakeholder.

Cost Budgeting

Organizations are able to build program credibility by taking a more holistic view toward project planning and budgeting. Instead of depending on outside estimates, or spending time and money trying to build bottom-up estimates for a program that might not fit the budget, they are able to generate a quick top-down assessment of how a specific project will impact budgeting—in the first year and over the total life of the program.

PRICE® TruePlanning® also supports business case analysis by giving managers a frame of reference for comparing multiple projects. That ability helps to identify not only the most competitive cost for the project, but also the best value for the overall investment.

Budgeting is a critical first step in developing an effective cost management plan. The ability to integrate your specific budget tools with a predictive cost estimation engine, whose output can be tailored to your organization’s cost activity center structure, is a very powerful capability. The requirements to achieve this level of budget management consist of the following:

    1. Accessing historical budget data which allows you to benchmark the allocation of dollars to specific cost activity centers.
    2. A predictive cost estimating capability which can be customized to specifically represent the item for which the budget is being built.
    3. The ability to format the output of the estimating system to multiple cost estimation structures customized for a particular management or execution need.

    The ability to build an estimate and do what if drills, translate the estimate into a budget, and distribute the budget to project personnel quickly and seamlessly is critical. The PRICE® Cost Analytic Framework is designed, through the use of an integration engine, to facilitate this kind of budget management. The integration engine is the capability that allows the organization to combine its data, budget tools, and cost engine to facilitate this type of agility.

Cost Control

Providing a comparison between top-down and bottom-up estimating adds confidence to financial decision-making by highlighting differences in cost estimating results generated by different methodologies. You can use it to compare internal budget estimates vs. contractor estimates, or to evaluate the characteristics of homegrown spreadsheet estimates against the comprehensive methodology of a standardized cost-estimating framework.

Using PRICE® TrueMapper® to map and shred estimates to the preferred formats makes it easier to compare top-down and bottom-up estimates—element for element. It maps the Work Breakdown Structure/Cost Element Structure so that you can identify, analyze, and resolve variations across the different approaches.

Effective management of a system or program starts with a budget in the front end and execution control and evaluation in the back end. Effective cost control can be achieved if the organization has a dynamic and flexible cost estimation capability which sets a baseline in the budgeting process and updates the costs / estimate-to-complete quickly and with minimum effort. Effective cost control is only possible if an organization has a coordinated and synchronized cost estimation, budget development, and execution management process. As has been the theme in the other two cost management sections; data, estimation, tool integration and a feedback loop are the keys to successful cost control and execution monitoring. The PRICE® Cost Analytics Framework provides such capability.

Position to Win

Position to Win can be an important capability when preparing for opportunity qualification or the bid & proposal development. Estimating what you believe your competition might do in terms of Price-to-Win (PTW) is extremely useful intelligence for your own PTW process. Having a standardized ghosting capability that can be used to “train up” Red Teams will produce credible intelligence about your competition.

A robust ghosting capability can also deliver “What If” drills of the system design, manufacturing approach, and internal investment on the part of your competition. This kind of capability in the hands of an experienced Red Team yields a plethora of competitive intelligence. To achieve this kind of ghosting, an organization requires the ability to draw upon historical data and to create and integrate a predictive cost estimation capability allowing them to describe the competition with exact representations of their organization and product. The capability must offer the ability to describe and cost what they will likely develop, as well as potential alternate solutions. These forecasts can represent the perspective and likely offering the completion may produce / present in a way that become actionable on the part of your proposal and engineering teams.

Opportunity Qualification

Many of the same attributes required for a competition ghosting capability are also needed for opportunity qualification. “What If” drills of the product with accurate cost information in the correct investment environment will reduce risk associated with a potential opportunity. More importantly, it will provide a disciplined means to analyze all aspects of the opportunity in preparation for a bid / no bid decision.

Bid & Proposal

Estimates based more on engineering judgment than statistical data lack credibility. This is especially true when proposing design alternatives to meet a customer’s unique program requirements. Companies that can’t demonstrate a rigorous affordability management process score low with their proposals because their bids presented without statistical data to back their estimates appear over-optimistic and risky, or too expensive. This ultimately has a negative impact on the business’ win percentage.

It is important that cost estimates supporting a final bid price have “grassroots buy-in” within a company. Individual leaders must believe that they can do the job for the bid price proposed. So, grassroots or “bottom up” estimating, the practice of deriving labor, material, subcontractor, supplier, and other costs from the people that will do the work is imperative. However, asking for these estimates without supplying target costs is a recipe for disaster. Without a credible initial cost baseline, it’s almost impossible to develop a cost volume that is consistent with the price-to-win and with other parts of the proposal.

PRICE® Cost Analytic Framework delivers the tools and methods needed to create a robust and reliable decomposition of the price-to-win into the cost targets necessary to keep grassroots estimates “in-the-box”. TruePlanning® (A component within the PRICE® Cost Analytics solution) maps estimates for the activities and resources of the product breakdown structure (PBS) to that of the work breakdown structure (WBS) familiar to the project leaders. With this mapping of estimated costs, TruePlanning’s data-driven estimating methods give individual leaders the context of measured benchmarks around which to form their estimates for a winning approach. This persistent link between the PBS and the WBS is key to winning bid validations. Top down to bottom up estimation comparison ensures that any areas of the proposed solution that may cause problems as the bid progresses are identified very early on in the process allowing time for the organization to mitigate any underlying uncertainty and to test alternative solutions. The PRICE® Cost Analytics Framework provides the capability to reconcile data-driven estimates with grassroots estimates to garner confidence of true bid validation, unifying top-down statistical estimating with bottoms-up buy-in.

In addition to the abovementioned benefits, PRICE® Cost Analytics enables:

  • Improved bid/no-bid decision-making by empowering decision-makers with real metrics and credible, data-driven ROMs for pursuit of profitable business.
  • Increased Business Winning with accelerated PTW strategy. Leverage competitive intelligence and understanding of customer budget to set target costs that match the price-to-win.
  • Implemented target costing by competitively estimating solutions to unmet requirements, orienting products to customer affordability and/or market driven pricing.

PRICE cost estimating resources help you take estimating from a necessary, tactical business function to a strategic profit-center support resource. Top-down parametric estimating makes it possible to generate credible bids in a timely manner, and to improve win ratios, with optimal use of estimating resources. PRICE customers report a 30% to 60% reduction in both proposal cycle time and costs to develop estimates.

PRICE® TruePlanning® also helps you quickly answer multiple questions that will impact your top and bottom lines—such as bid vs. no-bid and make vs. buy. It can even help to maximize your return on investment in preparing bids—through competitive assessment of the situation, Should-Cost analysis, and comparison of industry-wide cost data that can help you implement a price-to-win strategy.

Supplier Assessment

If your suppliers are selected on an ad-hoc basis, then you are less competitive yourself. If, on paper, you have very similar proposals, how can you judge which organization will provide the best value for money?

 

PRICE® Cost Analytics ensures that selecting the preferred supplier is conducted on a rational basis. It offers added value for supplier assessment allowing your organization to compare efficiencies of companies that produce similar technologies - your considered suppliers. This process of comparison will lead to suppliers knowing that since you are able to have more control over their prices, they will need more control of themselves. This will enable the perfection of negotiation skills, leading to better decision making and overall better success.


The qualitative benefits of supplier assessment using PRICE Cost Analytics are:

  • Better control over suppliers
  • Improved estimating accuracy for purchased items at the concept phase
  • proposal validation in minutes; detailed evaluation if necessary
  • Different negotiation material based on technology Cost Drivers
  • Normalization enables bigger samples across industry
  • Quick return on investment.

Many competitive proposals open with: 'As the world's leading provider of…'. This type of unsubstantiated claim is not nearly as convincing as a detailed analysis of an organization's competitors which identifies the organization itself as the most productive and this identifies it as a candidate for the role of preferred supplier.

 

Cost Informed Scheduling

Cost informed scheduling, also referred to as “Joint Confidence Analysis,” refers to the simultaneous, integrated development of an Integrated Master Schedule (IMS) and a “product focused cost.” The term product focused cost refers to a cost estimate that is driven by a system, project, product, or service Work Breakdown Structure (WBS). However the nature of the WBS is one that is oriented to the architecture or structure of system, product or service and not the organizational structure of the program. Being able to develop and manipulate your cost estimate in these terms allows the management team the ability to see the true cost of the design/manner in which the system, product, or service is being developed / provided. Through the customization of the PRICE Cost Analytic Framework the management and engineering teams will be provided the correct tools and data to explicitly link cost and schedule together as part of the day to day working environment. This improved visibility and manipulation capability can then support EVM, DTC, VE, and Risk analyses.

Manage Technical Baseline Costs

Having a fully integrated cost analysis capability, which can influence the cost/schedule calculus, positions management and engineering to create better and more robust technical baseline cost. This activity, instead of being static and somewhat inflexible, can become very dynamic. The increased visibility and ability to monitor, manage, and adjust the baseline cost as the program progresses provides significant benefits in terms of cost control, accounting for and incorporating Engineer Change Order, and developing realistic ETC to better inform the EVM process. Finally, if and when a program re-baseline becomes an issue the team has the means to do the job with better control and more realism.

Value Engineering

The primary focus of Value Engineering (VE) is assuring that the greatest functionality is provided for the least cost or expense, to maximize value. Value Engineering is defined as a systematic process of review and analysis of a project, during the concept and design phases, by a multi-discipline team of persons not involved in the project. This review is conducted to provide recommendations for:

  • Attaining the needed functions safely, reliably, efficiently, and at the lowest overall cost
  • Improving the value and quality of the project
  • Reducing the time to complete the project.

Like many techniques or methodologies, it consists of a problem solving approach or “job plan” and a set of tools and skills. In this way, it is very similar to Design for Six Sigma or Lean. Cost is at the center of this approach. Having a capability that allows your cost estimate to be reactive to changes in the design in “near real-time” is essential to the VE process. Allowing for the integration of engineering tools; pricing tools, like PROPRICER and QDV, and the PRICE® Cost Analytics framework can provide the means to do that real time analysis at the engineering level. Furthermore, by having this capability embedded in the PRICE® Cost Analytics framework, the entire engineering and management team can easily share results. This improved interaction results in a design which provides value and quality in a timely manner. As an added bonus the same structure and data can do double duty by supporting the needs of those engineering teams executing Design-to-Cost (Cost bogie with iterations) analysis.

Affordability Analysis / Lifecycle Costing

Affordability is an abstract term that most people think they understand but have difficulty articulating. The United States Department of Defense defines affordability as the degree to which the life-cycle cost of an acquisition program is in consonance with the long-range investment and force structure plans of the Department of Defense or individual DOD Components. However, the Department of Defense acquisition regulations require program managers to address affordability, detail affordability constraints, and achieve affordability during the procurement of new systems without providing a clear idea of what affordability means. How then should defense contractor view affordability?

From the contractor’s point of view, affordability is that characteristic of a product or service that:

  • Makes it (product or service) available when the customer initially needs it
  • Enables it to meet customers’ performance requirements at a level of quality they demand
  • Makes it available whenever customers need it during its expected life span (life-cycle)
  • Allows customers to fit it into their budget for all competing products or services

Affordability Analysis from our perspective is an iterative process which tries to rationalize a systems development across four areas simultaneously. The areas of interest are cost, risk, performance and schedule. The process and work flow associated with Affordability Analysis is facilitated by the use of a family of tools and models. Traditionally these tools and models have been stand-alone. PRICE® believes and has demonstrated that there is value and a competitive edge for those companies that can integrate their tools and data into a coherent Affordability Analysis approach.

The PRICE Cost Analytic Framework provides the infrastructure and flow to allow a company to create its own Affordability Analysis environment. By using the capabilities of the framework, a company can combine its data, and unique tools to conduct comprehensive Affordability Analysis. It is this customized environment that will allow the organization to meet the four characteristics listed above.

Arriving at a final cost estimate is only a fraction of the benefits PRICE provides. A broad range of PRICE Program Affordability services—including best practices, cost estimating and analysis tools, training, consulting and research—provide extended opportunities to manage program costs, as well.

The life cycle approach to program affordability in PRICE® TruePlanning®, and the ability to estimate Total Ownership Cost (TOC), enables program managers to minimize risk and cost and maximize ROI multiple ways: Deliver better overall value. Accelerate project processes. Improve the efficiency and effectiveness of project selection, control, and delivery. PRICE helps clients take that concept even further, by building bridges from cost estimating to cost management and earned value management (EVM) through its Estimating Systems Integration Framework.

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