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Designing and Pricing to Win Designing and Pricing to Win with SEERwith SEER ToolsTools
William VitalianoHarris Corporation
Evin StumpGalorath Incorporated
Presented at ISPA / SCEA Joint Conference
June 2001
Tyson’s Corner, Virginia
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IntroductionIntroduction
Elements of design / price to win strategy Elements of design / price to win strategy
ExamplesExamples
SummarySummary
OverviewOverview
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Today’s Defense Markets Have Forced Us toToday’s Defense Markets Have Forced Us toChange the Way We Do ProposalsChange the Way We Do Proposals
Focus on what the customer wants and has funds for
Maximize early trade studies
Cost on equal ground with performance and schedule (Well...almost)
Start with minimal product design approach and work up to “musthaves” (Better known as a clean sheet of paper!)
Extensive use of Parametrics
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IDENTIFICATION QUALIFICATION PURSUITPROPOSALDEVELOPMENT
POSTPROPOSAL
•CAN WE DO IT?
•WILL WE MAKE A PROFIT?
•DOES THE CUSTOMER HAVE A BUDGET?
•DEVELOP SYSTEM DEFINITION & CONCEPT
•REVIEW WITH CUSTOMER
•BID / NO BID MEETING
•HIGH LEVEL COST ROM
•DEVELOP SYSTEM ARCHITECTURE
•DEVELOP WINNING PRICE
•APPLY DTC PRINCIPLES
•COST MODELING
•DEVELOP PLAN TO WIN
•DEVELOP PROPOSAL
•SHIP PROPOSAL
•NEGOTIATIONS
•BAFO
•AWARD
•LESSONS LEARNED
•PROGRAM START-UP
SEER Models
Pursuit ProcessPursuit Process
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Why Proposals FailWhy Proposals Fail
Most proposals fail because they do not convincethe customer’s evaluation team (contracts,technical, users, etc.) that the company is capableof solving the government / buyer’s problemstatement at an acceptable risk and within thecost budget.
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What Can We Do?What Can We Do?
Follow a well structured process that addresses the customer’skey attributes, delivers an acceptable product/system/servicewithin the cost budget
Many companies use a technique called Price To Win(PTW)which has many of the Design To Cost (DTC) principles andsupports the key tenets of Cost As an IndependentVariable(CAIV)
This presentation will discuss the key features of PTW used indeveloping winning proposals and the use of the SEER Models
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ProposalTechnicalRequirements
FastCost Estimates
OutputOK?
ContinueYes
NOIteratedesign cost(trade studies)
Customer RequirementsEquipment ParametersType (DOD,NASA, Commercial)ScheduleSize, Weight, No. of CardsNo. of IC’sQuantityTechnology
•Use of SEER Tools enables fast cost estimates, which can typically take a proposal team days or even weeks•SEER Tools can guide teams when doing trade studies
We Need an Easy to Use, Highly InteractiveWe Need an Easy to Use, Highly InteractiveCAIV Tool for ProposalsCAIV Tool for Proposals
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Elements of Design / Price to Win Strategy*Elements of Design / Price to Win Strategy*
Know what the customer wants
Know what the customer can afford to pay
Bulletproof your proposal
*Note: In this approach, price is rationally connected
to design, and the “challenge” is to find the design that
minimally satisfies the customer’s wants
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Functional Focus Example: Ladies PurseFunctional Focus Example: Ladies Purse
Function …………………………………………..Hold junk
Cost………………………………………………...$85 at Nordstrom
What else will perform the function?…………Paper bag -cost = $0.05
Go to plastic bag for more durability…………Cost = $0.10
Add color…………………………………………..Cost = $0.15
Add strap.………………………………………….Cost = $0.25
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Des
ign
Fea
ture
s
$ Cost
Paperbag ($0.05)
Plasticbag($0.10)
Bag with color ($0.15)
Bag with strap ($0.25)
$85 - Gucci
$75 with cost reduction
Minimum set of customer needsMinimum set of customer needs
Value Engineering Approach:Value Engineering Approach: Paper Bag Design Paper Bag Design
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Know What the Customer WantsKnow What the Customer Wants
Understand customer wants in depthUnderstand customer wants in depth
Hierarchy of customer needs
Numerical weighting (utility function)
Team members need to apply customer importance factors
to design trades:
• Ease of use
• Cost
• Performance
• Reliability
• Maintainability
• Scalability
• Manageability
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Know What the Customer Wants (Cont’d.)Know What the Customer Wants (Cont’d.)
Help derive the lower level requirementsHelp derive the lower level requirements• Contractors have knowledge and experience
• …. Use it to your advantage
• Clarify requirements
• Early involvement (6 months to 1 year)
• Use of parametric models
Stay close to the key decision-makers (WIN-WIN)Stay close to the key decision-makers (WIN-WIN)• Create a matrix of all stakeholders and their needs
• Conflicting needs can be a source of project risk, and should beidentified
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Know What the Customer Wants (cont’d.)Know What the Customer Wants (cont’d.)
Get to know the customerGet to know the customer•Describe the business environment, history, market differentiators
•Driving requirements, stakeholders, current need and how theproposed system will meet those needs
ConstraintsConstraints•Where can you go and where can you not go?
•Business constraints (e.g., time to market, customer demands,standards, cost, etc.)
•Technical constraints - COTS, interfaces with other systems, Requiressoftware and hardware, reuse of legacy code, etc.
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• 10 Bedrooms
• 4 Stories
• Castle style
• Gas heat
• $2 Million
Ready to move in!
Finished: July 30thFinished: July 30th
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On Time, but…On Time, but…
10 bedrooms……………………You only needed 4 bedrooms
4 story……………………………Your father is in a wheelchair
Castle style…...…………………You prefer traditional style
Wood burning stoves.………....You prefer gas heat
for heat
$3 million…………………………You have a $1 million budget
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What Happened?!What Happened?!
Too many bedrooms Poor assessment of user group
No Wheelchair access No allowance for special requirements
Wrong architecture Proprietary vs open system
No wood available No model of “boundary system”
No cost estimate Historically poor cost estimates
No plans Lack of engineering models & specs
No need to build new COTS
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Historically, in the defense industry, trade studies have tended tofocus more on relative benefit, such as performance, and less onrelative cost
CAVE - CAVE - CCost ost AAlways lways VVaries aries EExponentiallyxponentially•BID LOW AND WORK THE ECP’S DESIGN = f(SPEC)
CAIV - CAIV - CCost ost AAs an s an IIndependent ndependent VVariableariable•DESIGN = f(PRICE)
Changing
Things Are ChangingThings Are Changing
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Recent customer initiatives, most notably CAIV,have pushed designs in the direction of meetingpredetermined cost constraints
The CAIV initiative has at times allowed someliberties to be taken with performancerequirements
☯
Pe
rfo
rma
nce
Cos
t
K P P
T h r e s h o l d
KPPObjective
Consider This“Threshold” If Meets
True Need
Region for Best“Bang for Buck”
Region for MarginalPerformance Improvement
☯
☯☯
The CAIV InitiativeThe CAIV Initiative
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Know What the CustomerKnow What the CustomerCan Afford to SpendCan Afford to Spend
Business intelligenceBusiness intelligence
• Business development / marketing needs to determinecustomer budget
Balance customer wants and costsBalance customer wants and costs
• Often, there is a lack of balance between the customer’sperceived value of (i.e., importance of, desire for) designfeatures and the cost of these features
• Remember the paper bag vs the Gucci purse?
• We cannot have a Gucci purse for the cost of a paper bag!
• Early use of parametric models
• Where Do We Start ?
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What Is Important to the Customer…What Is Important to the Customer…CarCar
Example…We Must Balance Cost With Requirements/FeaturesExample…We Must Balance Cost With Requirements/Features
Number of Doors
TypePrice
FuelEconomy
Safety
ComfortFeatures Insurance Cost
Warranty
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Requirements And Features
Analysis
Preliminary DesignProcess
•Human Factors•Security•Reliability•Availability•Survivability
•Supportability•Testability•Producibility•Reuse•Transportability
Other Factors
Alternative 1Alternative 2Alternative 3Alternative 4
Cost Assessment
•Performance•Schedule•Risk Assessment•Life Cycle Cost
SEER
1
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4 5
SelectionProcess
OK?Optimized?
Yes
CostPerformance ScheduleRisk
Continue
NoIterate
Pricing to Win Thought Process:Pricing to Win Thought Process:Trade Study FlowTrade Study Flow
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Customer wants a laptop
Question to ask: what system features are most important , how important are they and how much should each cost?
Features Relative Value % GoalWeight 20 5.9 poundsProcessor speed 9 800 mhzStorage 9 300 mbRAMDisplay 5 25”Battery life 5 6 hoursPrice 20 <$1,500Warranty 5 3 yearsOptions for growth 13 Option#1,#2Availability 14 2001Q3
Pricing to Win Thought Process:Pricing to Win Thought Process:ExampleExample
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What WorksWhat Works
The author has used, or has been exposed to, every methodology andThe author has used, or has been exposed to, every methodology andhas found that the following fundamentals always apply:has found that the following fundamentals always apply:
• Need an event to get everyone thinking properly
• Must have someone from outside
• Must have prior successes for people to buy-in
• Needs to be simple and fast or else folks will not want to use it!
• Focus on customer key attributes
• Functional look
• Good facilitator is a requirement
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DegreeofsupportforPTW/DTW
Time
Contact
Awareness
Understanding
Trial Use(Pilots)
Adoption
Institutionalization
Ready...…Realize the benefitsWilling.....Accept itAble.........Have skills and training
Stages of Design to Win / Price to WinStages of Design to Win / Price to WinInstitutionalizationInstitutionalization
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Establish a Senseof Urgency (Concern)
Form a PowerfulGuiding Coalition(Commitment &Sponsorship)
Create a Vision
Communicate the Vision
Empower Others toAct on the Vision
Plan for and CreateShort-Term Wins
Rewards (Motivationand Consequence)
Training
Key Steps Plan
Team Support,Continued focus on Winningwith Low Cost Solutions
VP BD,VP Eng.Team
Improve Hit Ratio
What, Why, How, Who, When, Progress, Plans
Proposal Teams
Proposal Team
Develop Training
Continues to Be Urgent
Continue
Work Pilots
Working Pilots
Status Action
Continue
Present Results to Team withVP Eng. and Leaders
Continue
Continue, Track Success,Improve Methodology
Team Input
Institutionalization Planning StepsInstitutionalization Planning Steps
1
2
3
4
5
6
7
8
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How Can Parametric Models Help?How Can Parametric Models Help?
Helping shape the requirementsHelping shape the requirements - Parametric models can be used totrack the current cost baseline of the approach to the customer’sproblem. The results of the model (SEER) can be used for comparisonto the range of funding the customer has available.
Conducting trade studiesConducting trade studies
Balancing customer wants and costsBalancing customer wants and costs
Educating your customer away from mistakesEducating your customer away from mistakes
Making the team aware of affordabilityMaking the team aware of affordability
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How Can Parametric Models Help? (cont’d.)How Can Parametric Models Help? (cont’d.)
Following the principles of affordable designFollowing the principles of affordable design
Creating efficient designs (SEER-DFMCreating efficient designs (SEER-DFM ))
Testing costs as your customer willTesting costs as your customer will
War gaming for improved competitivenessWar gaming for improved competitiveness
Honestly appraising risksHonestly appraising risks
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Using SEER™ Tools to Model a Competitor’s Plausible Effort
Using SEER to Model a Competitor’sUsing SEER to Model a Competitor’sPlausible EffortPlausible Effort
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How Can We Be Successful in ApplyingHow Can We Be Successful in ApplyingDesign to Win / Price to Win?Design to Win / Price to Win?
TimingTiming• Early enough to work with the customer (6 months before RFP)• Lead-time to consider and implement alternative approaches
Management SupportManagement Support• Sponsorship and direction• Monitoring of the implementation
TrainingTraining• Overview training for the entire proposal team• Hands-on coaching during the entire implementation
TenacityTenacity• Time and resources built into the proposal schedule• Willingness to work through numerous iterations without
discouragement
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SummarySummary
Price to win methodology, as discussed in this paper,supports many of the key CAIV tenets.
Early involvement, training, and facilitation are critical tosuccess.
The methodology works and has been successfully appliedto both commercial and government proposals.
Parametric models can be invaluable to the proposal team.