Marketing Ans Sales From POME by Gautam Koppala VT

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Kanaka maha lakshmi Thalli
Be bold when you loose and be calm when you

win.
"Changing the Face" can change nothing.

POME’
POME’07
But "Facing the Change" can change everything.
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KANAKA MAHA LAKSHMI THALLI
THIS BOOK IS DEDICATED TO THE ALMIGHTY, WHO
ALWAYS SHOWERS HER BLESSINGS ON HER
CHILDREN.
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2007, POME, Gautam_Koppala, All Rights Reserved
PROJECTS AND OPERATIONS
MANAGEMENT EXPOSED
(POME)
Part “ GET”
A COLLECTION AMELIORATED BY
GAUTAM KOPPALA V.T.
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You are the only person who can revolutionise your life.
You are the only person who can influence your happiness,
your realisation and your success.
You are the only person who can help yourself.
Your life does not change, when your boss changes,
when your friends change, when your parents change,
when your partner changes, when your company changes.
Your life changes when YOU change,
when you go beyond your limiting beliefs,
when you realize that you are the only one responsible for your life.

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What People are saying about Gautam Koppala’s POME:
“Worth a lifetime of knowledge for Project Personnel.” –Binoy Koshy,
Regional Manager, Siemens Ltd, 2006
“My Productive and effectiveness have been increasing in my daily professional
life.”- Krishna Prasad, Area Manager, Honeywell Ltd., Bangalore, 2007
“Am more relaxed as my productivity evidently increased, as many of the
doubts are been cleared, after going through POME.”- Venu Gopal,
Operations Manager, Majees Tech Services, Muscat 2008
“Exceptionally well tailored and it’s the best book on Operations that ever
made.” – Krishna Rao, Branch Manager, HSBC, Dubai, 2008
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Copyright © 2007 POME
All rights reserved. No part of this product may be reproduced or utilized in any form or by any means,
electronic or mechanical, including photocopy, recording, broadcasting, or by any information storage
or retrieval system, without permission in writing from the author Gautam Koppala.
All knowledge in POME book is service marks and/or trademarks of the author Gautam Koppala.
Except as otherwise specified, names, marks, logos and the like used in the educational/teaching
content of these materials are intended to be, and to the best of Licensor’s [Gautam Koppala’s]
knowledge and belief are, fictitious. None of the names, marks, or logos used herein is intended to
depict any past or present individual or entity, or any trademark, service mark, or other protectable
mark of any individual or entity. Any likeness, similarity or sameness between any name, mark, or
logo used herein by Licensor and the name, mark, or logo of any individual or entity, past or present,
is merely coincidental and unintentional. Any such names, marks, and logos used in the
educational/teaching content of these materials are used only to provide examples for purposes of
teaching the educational content of the materials, and are in no way intended to be used in any
trademark sense or manner.
The names of actual past or present individuals, entities, trademarks, service marks, logos and the like
(other than those of Licensor used in the educational/teaching content of these materials are used only
to provide examples (including in some instances actual case studies based upon factual events or
circumstances involving the individuals, entities, marks, or logos) for purposes of teaching the
educational content of the materials. Any such names, marks, and logos used in the
educational/teaching content of these materials are intended and used solely for the purpose of
providing examples and case studies, and are in no way intended to be used in any trademark sense
or manner.
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VITA: FROM THE AUTHOR:
Academically, I am a cum laude graduate with a Bachelor of Technology degree in Electrical and
Electronics Engineering (B-Tech E.E.E.) and a post graduate in Masters in Human Resources
Management (M.H.R.M.) and Masters of Foreign Trade (M.F.T.), all from India.
My engineering completed in a remote village in India, Srikakulam, and it’s been a long journey from
there, and journey still continues….I feel this book demonstrates my ability to maintain dedication,
motivation and enthusiasm for a project management over a long period of time. I believe that in
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combination with my extensive broad-based operations work experience along with my drive,
resourcefulness and determination would make this book, an excellent opportunity for any
juvenile/experienced one in Projects industry.
I started my career as a small time engineer and gradually still developing in the Operations Domain.
With over nine years of Professional Experience, am a well-rounded functional Manager with excellent,
documented record of accomplishment and success in the electronic Security and Building Systems
Technology Field.
The reason behind writing this book, is that when am new to this field, I don’t have any one to say,
what is all about the projects, what to do, and when to do? Hence, the detailed information that I
gained through the ages, thought to put in an orderly fashion, so that it would be vitally milked by
future successful managers, avoiding the time lags.
Highlights of my background include Supply chain, Commercial with a magnificent experience in
Project and Operations management, technically oriented towards Automation and Security Systems in
Industrial and Building sectors.
My success in the past has stemmed from my strong commitment and sense of professionalism. I keep
high standards for my work and am known for my persistent nature and ability to follow through.
If this book facilitates you in getting adjusted and grow in this domain. I would feel really successful.
GAUTAM KOPPALA VT
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POME Contents
Marketing and Sales: ........................................................................................................... 15
Franchising:......................................................................................................................... 24
Techno Economic Feasibility Reports (TEFR): ...................................................................... 32
Managing the Project Selection Process .............................................................................. 50
Bid Decision Matrix Definition: ............................................................................................ 56
Request for Proposal: .......................................................................................................... 68
Non- Responsiveness during the Tender: ............................................................................ 75
Selling/ Marketing/ Estimating a Product/Service: ............................................................. 78
Budgetting: ......................................................................................................................... 89
Sales Acquisition Go/ No Go Decision:............................................................................... 108
Quotation preparation: ...................................................................................................... 127
The RFP Letter of Intent (LOI): ......................................................................................... 137
No Bid and Protest Letters: ............................................................................................... 141
Order Booking: .................................................................................................................. 147
Projects Handing over from Sales to Operations: .............................................................. 175
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MARKETING
AND SALES
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Marketing and Sales:
Difference between marketing and sales:
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POME differentiates that there is a delicate difference between marketing and the sales. Let's think
about this question for a moment. Without marketing you would not have prospects or leads to follow
up with, but yet without a good sales technique and strategy your closing rate may depress you.
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Overall, the sales phase starts with the generation and identification of leads and selection process of
offer making resulting in order acquisition and ends with the handover of the contract from Sales to
the Execution group. Thereafter, the project execution stage begins.
Marketing is everything that you do to reach and persuade prospects. The sales process is everything
that you do to close the sale and get a signed agreement or contract. Both are necessities to the
success of Projects. You cannot do without either process. By strategically combining both efforts you
will experience a successful amount of Projects growth. However, by the same token if the efforts are
unbalanced it can detour your growth.
Your marketing will consist of the measures you use to reach and persuade your prospects that you
are the company for them. It's the message that prepares the prospect for the sales. It consists of
advertising, public relations, brand marketing, viral marketing, and direct mail.
The sales process consists of interpersonal interaction. It is often done by a one-on-one meeting, cold
calls, and networking. It's anything that engages you with the prospect or customer on a personal
level rather than at a distance.
Your marketing efforts begin the process of the eight contacts that studies show it takes to move a
prospect or potential client to the close of the sale. If marketing is done effectively you can begin to
move that prospect from a cold to a warm lead. When the prospect hits the "warm" level it's much
easier for the sales professional to close the sale
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Try this. Take a few moments and divide your prospect lists and database into categories of
cold, warm, and hot leads. Then sit down and identify a strategy on how to proceed with each
individual group.
For example you could try the following methods of contact:
• Cold Lead Strategy - Send out a direct mailing or offer them a special promotion
• Warm Lead Strategy - Try a follow-up call, send out a sales letter, or schedule a special seminar
or training session to get all of your warm leads together.
Once you've moved your prospect to the "warm" level it's time to proceed in closing the sale.
This will be easier to do if you somehow engage the prospect. You can do this by conducting a
one-on-one call, make a presentation, or present a proposal, estimate, or contract.
Fig: What is Marketing and Sales?
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Process of Sales and Marketing:
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Fig: Flow Chart of Sales, Marketing, Execution and Closure of the Project
Fig: Comptetitive Advantages in Sales and Marketing
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Fig: Vicious Trap for not Marketing
Why Sales is Important??
No Sales
= No Projects
= No Revenue
= No Business
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FRANCHISING
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Franchising:
If you are an sales executive who is being displaced or who is dissatisfied with the way you are being
treated by your company. Recently you have been thinking about putting your resume on the street,
but more often than not you have found yourself thinking about going into business for yourself.
Whenever you think about going into business for yourself, you think about the horror stories and
statistics you read in the Journals about the failure rate of independent businesses. Those statistics
dampen your desire to own your own business.
Yet every week in those same newspapers you see ads by companies offering franchise opportunities.
If you want to be self employed and are intrigued by the idea of operating a franchise and want to find
out more about selecting the right one for you, read on.
What Is Franchising?
Franchising is one of three business development strategies a company may use in capturing market
share. The others are company owned units or a combination of company owned and franchised units.
Franchising is a business strategy for getting and keeping more Projects from the customers. It is a
marketing system for creating an image in the minds of current and future customers about how the
company?s products and services can help them. It is a method for distributing products and services
that satisfy customer needs.
Franchising is a network of interdependent business relationships that allows a number of people to
share:
• A brand identification
• A successful method of doing business
• A proven marketing and distribution system
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In short, franchising is a strategic alliance between groups of people who have specific relationships
and responsibilities with a common goal to dominate markets, i.e., to get and keep more customers
than their competitors.
The business relationship is a joint commitment by all franchisees to get and keep customers. Legally
you are bound to get and keep them using the prescribed marketing and operating systems of the
franchisor.
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To be successful in franchising you must understand the Operations and legal ramifications of your
relationship with the franchisor and all the franchisees. Your focus must be on working with other
franchisees and company managers to market the brand, and fully use the operating system to get
and keep customers.
Other franchisees and company operated units are not your competition. The opposite is true. They
and you share the task of establishing the brand as the dominant brand in all markets entered and
reinforcing the customers? familiarity with and trust in the brand. So in this respect you are working as
a team with others in the system. Other franchisees share with you the responsibility for quality,
consistency, convenience, and other factors that define your franchise and insures repeat business for
everyone. Increasing the value of the brand name is a shared responsibility of the franchisor and
franchisee.
As a franchisee you own the assets of your company, which you have chosen to invest in someone
else?s brand and operating system and ongoing support. You own the assets of your company, but you
are licensed to operate someone else?s business system.
Franchising allows one business to operate under the name of another business' established brand and
sell a prescribed product or service. POME includes Franchising as an exclusive chapter as it involves
down the task attributes for the Operations team, to out source and share the responsibilities and
delegation, especially for Marketing and sales. Hope by now, you been acquainted well with the
difference between marketing and sales.
Franchising can seem like an easy way of starting or expanding your business, but it's not something
you should rush into without the proper knowledge. Whether you are buying a franchise or franchising
your own business, it requires a significant investment of your time and money. Normally, Marketing
people do Franchising, for the receipt of the Product and Project sales. It involves a decentralized
Operations tasking from the established business Operations Point of view:
Below are some important issues to consider:
Buying a new franchise/ franchising your own business:
Buying a franchise gives you the right to run a business and sell a prescribed product or service.
Before you buy a franchise, you should consider the same issues as when purchasing any other
business in addition to the specific issues of franchising.
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It's important to understand that when you buy a franchise and sign the agreement, you are agreeing
to run the business according to the requirements established in the contract. You are also bound by
the Franchising Code of Conduct. Consider consulting a business adviser, accountant or solicitor for
advice.
o Complying with the Franchising Code of Conduct
o Entering into a franchise agreement
o Understanding your tax obligations
o Resolving franchising disputes
Complying with the Franchising Code of Conduct
All franchise businesses are required by law to comply with the Franchising Code of Conduct( as
per the Contracts/regions). As a franchisee, the code details:
• your rights
• your obligations
• the information franchisors must disclose to you
• the elements a franchise agreement must contain
• A mediation procedure for disputes.
Entering into a franchise agreement
The franchise agreement is a legally binding document spelling out the rights and
responsibilities of both the franchisor and franchisee.
Before you sign the agreement you should obtain as much information about the franchise as
possible. Consider the following questions:
What are the details of the Operations?
• Do you have all the relevant information on the Operations?
• What is the track record of the franchisor?
• What are the franchisor's current motives for franchising?
• Does the franchise have a strategic plan and what are the plans for the future?
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• What is the success rate of other franchisees in the same Operations?
What is included in the sale?
• Does the sale include the use of Operations name, products, reputation/goodwill, site location,
advertising budget or back-up assistance?
• What are your intellectual property rights and obligations?
• What are the terms of sale of goods? Can you purchase from outside the franchise network?
What are your obligations?
• What are your occupational health and safety Environment(OSHE) obligations?
Understanding your tax obligations
As a franchisee you need to know how your franchise payments and fees are treated for tax purposes.
When you buy, sell, transfer or terminate a franchise there may be taxes like Capital Gains Tax (CGT)
and Goods and Services Tax (GST), depending upon the country or region, consequences to consider.
Resolving franchising disputes
If a dispute occurs between you (the franchisee) and the franchisor and it cannot be resolved, the
Office of the Mediation Adviser (OMA), depending upon the region or the country, may be able to
assist you. The OMA (POME acronym) normally be having a specialist panel of mediators across the
respective region/ country, who are trained in mediation and have commercial experience. There is a
fee once the mediator is appointed.
POME LIGHTER VEIN:
PERFORMNACE APPRAISAL:
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A newly joined trainee asks his boss "what is the meaning of appraisal?"
Boss: "Do you know the meaning of resignation?"
Trainee: "Yes I do"
Boss: "So let me make you understand what an appraisal is by comparing it with resignation"
Comparison study: Appraisal and Resignation
Appraisal Resignation
In appraisal meeting they will speak only about your weakness, errors and failures.
In resignation meeting they will speak only about your strengths, past achievements and
success.
In appraisal you may need to cry and beg for even 10% hike.
In resignation you can easily demand (or get even without asking) more than 50-60% hike.
During appraisal, they will deny promotion saying you didn't meet the expectation, you don't
have leadership qualities, and you had several drawbacks in our objective/goal.
During resignation, they will say you are the core member of team; you are the vision of the
company how can you go, you have to take the project in shoulder and lead your juniors to
success.
There is 90% chance for not getting any significant incentives after appraisal. There is 90%
chance of getting immediate hike after you put the resignation.
Trainee: "Yes boss enough, now I understood my future. For an appraisal I will have to resign ... !!!"
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TECHNO-ECONOMIC
FEASIBILITY
REPORTS( TEFR)
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Techno Economic Feasibility Reports (TEFR):
Macro Projects investment decisions represent major commitments of corporate resources and
have serious consequences on the profitability and financial stability of a corporation. In the
public sector, such decisions also affect the viability of Project investment programs and the
credibility of the agency in charge of the programs. It is important to evaluate facilities
rationally with regard to both the economic
feasibility of individual projects and the relative net
benefits of alternative and mutually exclusive
projects.
This chapter will present an overview of the decision
process for economic evaluation of Projects with
regard to the project life cycle. The cycle begins with
the initial conception of the project and continues
though planning, design, procurement, construction,
start-up, operation and maintenance. It ends with
the disposal of a facility when it is no longer
productive or useful. Four major aspects of economic
evaluation will be examined:
1. The basic concepts of Project investment evaluation, including time preference for consumption,
opportunity cost, minimum attractive rate of return, cash flows over the planning horizon and profit
measures.
2. Methods of economic evaluation, including the net present value method, net future value
method, the equivalent uniform annual value method, the benefit-cost ratio method, and the internal
rate of return method.
3. Factors affecting cash flows, including depreciation and tax effects, price level changes, and
treatment of risk and uncertainty.
4. Effects of different methods of financing on the selection of projects, including types of
financing and risk, public policies on regulation and subsidies, the effects of project financial planning,
and the interaction between operational and financial planning.
In setting out the engineering economic analysis methods for Project investments, it is
important to emphasize that not all Project impacts can be easily estimated in dollar amounts.
For example, firms may choose to minimize environmental impacts of construction or facilities in
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pursuit of a "triple bottom line:" economic, environmental and social. By reducing
environmental impacts, the firm may reap benefits from an improved reputation and a more
satisfied workforce. Nevertheless, a rigorous economic evaluation can aid in making decisions
for both quantifiable and qualitative Project impacts.
Fig: Project Portfolio Matrix
Economic Evaluation:
It is important to distinguish between the economic evaluation of alternative physical facilities
and the evaluation of alternative financing plans for a project.
Basic Concepts of Economic Evaluation
A systematic approach for techno-economic evaluation of facilities consists of the following
major steps:
1. Generate a set of projects or purchases for investment consideration.
2. Establish the planning horizon for economic analysis.
3. Establish and confirm the technicality of the analysis, take the back up of the proven ones.
4. Estimate the cash flow profile for each project.
5. Specify the minimum attractive rate of return (MARR).
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6. Specify the outcome, if it got success, and the probability of being success.
7. Establish the criterion for accepting or rejecting a proposal, or for selecting the best among a
group of mutually exclusive proposals, on the basis of the objective of the investment.
8. Perform sensitivity or uncertainty analysis, technically as well as economically.
9. Accept or reject a proposal on the basis of the established criterion.
It is important to emphasize that many assumptions and policies, some implicit and some
explicit, are introduced in economic evaluation by the decision maker. The decision making
process will be influenced by the subjective judgment of the management as much as by the
result of systematic analysis.
Once the management has committed funds to a specific project, it must forego other
investment opportunities which might have been undertaken by using the same funds.
In general, the MARR specified by the top management in a private firm reflects the opportunity
cost of capital of the firm, the market interest rates for lending and borrowing, and the risks
associated with investment opportunities. For public projects, the MARR is specified by a
government agency, such as the Office of Management and Budget. The public MARR thus
specified reflects social and economic welfare considerations, and is referred to as the social
rate of discount.
Regardless of how the MARR is determined by an organization, the MARR specified for the
economic evaluation of investment proposals is critically important in determining whether any
investment proposal is worthwhile from the standpoint of the organization. Since the MARR of
an organization often cannot be determined accurately, it is advisable to use several values of
the MARR to assess the sensitivity of the potential of the project to variations of the MARR
value.
Price Level Changes: Inflation and Deflation
In the economic evaluation of investment proposals, two approaches may be used to reflect the
effects of future price level changes due to inflation or deflation. The differences between the
two approaches are primarily philosophical and can be succinctly stated as follows:
1. The constant dollar approach. The investor wants a specified MARR excluding inflation.
Consequently, the cash flows should be expressed in terms of base-year or constant dollars, and a
discount rate excluding inflation should be used in computing the net present value.
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2. The inflated dollar approach. The investor includes an inflation component in the specified
MARR. Hence, the cash flows should be expressed in terms of then-current or inflated dollars, and a
discount rate including inflation should be used in computing the net present value.
:
Fig: Techno economic evaluation Process
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Uncertainty and Risk
Since future events are always uncertain, all techno and commercial estimates of costs and
benefits used in economic evaluation involve a degree of uncertainty. Probabilistic methods are
often used in decision analysis to determine expected costs and benefits as well as to assess the
degree of risk in particular projects.
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Fig: Customer to Project Implementation
In estimating benefits and costs, it is common to attempt to obtain the expected or average values of
these quantities depending upon the different events which might occur. Statistical techniques such as
regression models can be used directly in this regard to provide forecasts of average values.
Alternatively, the benefits and costs associated with different events can be estimated and the
expected benefits and costs calculated as the sum over all possible events of the resulting benefits and
costs multiplied by the probability of occurrence of a particular event:
Economic Costs and Benefits
The basic principle in assessing the economic costs and benefits of new facility investments is to find
the aggregate of individual changes in the welfare of all parties affected by the proposed projects. The
changes in welfare are generally measured in monetary terms, but there are exceptions, since some
effects cannot be measured directly by cash receipts and disbursements. Examples include the value of
human lives saved through safety improvements or the cost of environmental degradation. The
difficulties in estimating future costs and benefits lie not only in uncertainties and reliability of
measurement, but also on the social costs and benefits generated as side effects. Furthermore,
proceeds and expenditures related to financial transactions, such as interest and subsidies, must also
be considered by private firms and by public agencies.
To obtain an accurate estimate of costs in the cash flow profile for the acquisition and operation of a
project, it is necessary to specify the resources required to construct and operate the proposed
physical facility, given the available technology and operating policy. Typically, each of the man and
material resources required by the facility is multiplied by its price, and the products are then summed
to obtain the total costs. Private corporations generally ignore external social costs unless required by
law to do so. In the public sector, externalities often must be properly accounted for. An example is
the cost of property damage caused by air pollution from a new plant. In any case, the measurement
of external costs is extremely difficult and somewhat subjective for lack of a market mechanism to
provide even approximate answers to the appropriate value.
In the private sector, the benefits derived from a Project investment are often measured by the
revenues generated from the operation of the Project. Revenues are estimated by the total of price
times quantity purchased. The depreciation allowances and taxes on revenues must be deducted
according to the prevailing tax laws.
In the public sector, income may also be accrued to a public agency from the operation of the facility.
Interest Rates and the Costs of Capital
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Projects are inherently long-term investments with a deferred pay-off. The cost of capital or MARR
depends on the real interest rate (i.e., market interest rate less the inflation rate) over the period of
investment. As the cost of capital rises, it becomes less and less attractive to invest in a large facility
because of the opportunities foregone over a long period of time.
In economic evaluation, a constant value of MARR over the planning horizon is often used to simplify
the calculations. The use of a constant value for MARR is justified on the ground of long-term average
of the cost of capital over the period of investment. If the benefits and costs over time are expressed
in constant dollars, the constant value for MARR represents the average real interest rate anticipated
over the planning horizon; if the benefits and costs over time are expressed in then-current dollars,
the constant value for MARR reflects the average market interest rate anticipated over the planning
horizon.
Investment Profit Measures
A profit measure is defined as an indicator of the desirability of a project from the standpoint of a
decision maker. A profit measure may or may not be used as the basis for project selection. Since
various profit measures are used by decision makers for different purposes, the advantages and
restrictions for using these profit measures should be fully understood.
There are several profit measures that are commonly used by decision makers in both private
corporations and public agencies. Each of these measures is intended to be an indicator of profit or net
benefit for a project under consideration. Some of these measures indicate the size of the profit at a
specific point in time; others give the rate of return per period when the capital is in use or when
reinvestments of the early profits are also included. If a decision maker understands clearly the
meaning of the various profit measures for a given project, there is no reason why one cannot use all
of them for the restrictive purposes for which they are appropriate. With the availability of computer
based analysis and commercial software, it takes only a few seconds to compute these profit
measures. However, it is important to define these measures precisely:
1. Net Future Value (NFV) and Net Present Value (NPV). When an organization makes an
investment, the decision maker looks forward to the gain over a planning horizon, against what might
be gained if the money were invested elsewhere. A minimum attractive rate of return (MARR) is
adopted to reflect this opportunity cost of capital. The MARR is used for compounding the estimated
cash flows to the end of the planning horizon, or for discounting the cash flow to the present. The
profitability is measured by the net future value (NFV) which is the net return at the end of the
planning horizon above what might have been gained by investing elsewhere at the MARR. The net
present value (NPV) of the estimated cash flows over the planning horizon is the discounted value of
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the NFV to the present. A positive NPV for a project indicates the present value of the net gain
corresponding to the project cash flows.
2. Equivalent Uniform Annual Net Value. The equivalent uniform annual net value (NUV) is a
constant stream of benefits less costs at equally spaced time periods over the intended planning
horizon of a project. This value can be calculated as the net present value multiplied by an appropriate
"capital recovery factor." It is a measure of the net return of a project on an annualized or amortized
basis.
3. Benefit Cost Ratio. The benefit-cost ratio (BCR), defined as the ratio of discounted benefits to the
discounted costs at the same point in time, is a profitability index based on discounted benefits per
unit of discounted costs of a project. It is sometimes referred to as the savings-to-investment ratio
(SIR) when the benefits are derived from the reduction of undesirable effects.
4. Internal Rate of Return. The internal rate of return (IRR) is defined as the discount rate which
sets the net present value of a series of cash flows over the planning horizon equal to zero. It is used
as a profit measure since it has been identified as the "marginal efficiency of capital" or the "rate of
return over cost". The IRR gives the return of an investment when the capital is in use as if the
investment consists of a single outlay at the beginning and generates a stream of net benefits
afterwards.
5. Adjusted Internal Rate of Return. If the financing and reinvestment policies are incorporated
into the evaluation of a project, an adjusted internal rate of return (AIRR) which reflects such policies
may be a useful indicator of profitability under restricted circumstances. Because of the complexity of
financing and reinvestment policies used by an organization over the life of a project, the AIRR seldom
can reflect the reality of actual cash flows. However, it offers an approximate value of the yield on an
investment for which two or more sign reversals in the cash flows would result in multiple values of
IRR.
6. Return on Investment. When an accountant reports income in each year of a multi-year project,
the stream of cash flows must be broken up into annual rates of return for those years. The return on
investment (ROI) as used by accountants usually means the accountant's rate of return for each year
of the project duration based on the ratio of the income (revenue less depreciation) for each year and
the undepreciated asset value (investment) for that same year. Hence, the ROI is different from year
to year, with a very low value at the early years and a high value in the later years of the project.
7. Payback Period. The payback period (PBP) refers to the length of time within which the benefits
received from an investment can repay the costs incurred during the time in question while ignoring
the remaining time periods in the planning horizon. Even the discounted payback period indicating the
"capital recovery period" does not reflect the magnitude or direction of the cash flows in the remaining
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periods. However, if a project is found to be profitable by other measures, the payback period can be
used as a secondary measure of the financing requirements for a project.
Depreciation and Tax Effects
For private corporations, the cash flow profile of a project is affected by the amount of taxation. In the
context of tax liability, depreciation is the amount allowed as a deduction due to capital expenses in
computing taxable income and, hence, income tax in any year. Thus, depreciation results in a
reduction in tax liabilities.
It is important to differentiate between the estimated useful life used in depreciation computations and
the actual useful life of a facility. The depreciation allowance is a bookkeeping entry that does not
involve an outlay of cash, but represents a systematic allocation of the cost of a physical facility over
time.
Effects of Financing on Project Selection
Selection of the best design and financing plans for capital projects is typically done separately and
sequentially. Three approaches to facility investment planning most often adopted by an organization
are:
1. Need or demand driven: Public capital investments are defined and debated in terms of an
absolute "need" for particular facilities or services. With a pre-defined "need," design and financing
analysis then proceed separately. Even when investments are made on the basis of a demand or
revenue analysis of the market, the separation of design and financing analysis is still prevalent.
2. Design driven: Designs are generated, analyzed and approved prior to the investigation of
financing alternatives, because projects are approved first and only then programmed for eventual
funding.
3. Finance driven: The process of developing a facility within a particular budget target is finance-
driven since the budget is formulated prior to the final design. It is a common procedure in private
developments and increasingly used for public projects.
Typically, different individuals or divisions of an organization conduct the analysis for the operating and
financing processes. Financing alternatives are sometimes not examined at all since a single
mechanism is universally adopted. An example of a single financing plan in the public sector is the use
of pay-as-you-go highway trust funds. However, the importance of financial analysis is increasing with
the increase of private End Usership and private participation in the financing of public projects. The
availability of a broad spectrum of new financing instruments has accentuated the needs for better
40
financial analysis in connection with capital investments in both the public and private sectors. While
simultaneous assessment of all design and financing alternatives is not always essential, more
communication of information between the two evaluation processes would be advantageous in order
to avoid the selection of inferior alternatives.
There is an ever increasing variety of borrowing mechanisms available. First, the extent to which
borrowing is tied to a particular project or asset may be varied. Loans backed by specific, tangible and
fungible assets and with restrictions on that asset's use are regarded as less risky. In contrast, specific
project finance may be more costly to arrange due to transactions costs than is general corporate or
government borrowing. Also, backing by the full good faith and credit of an organization is considered
less risky than investments backed by generally immovable assets. Second, the options of fixed versus
variable rate borrowing are available. Third, the repayment schedule and time horizon of borrowing
may be varied. A detailed discussion of financing of constructed facilities will be deferred until the next
chapter.
As a general rule, it is advisable to borrow as little as possible when borrowing rates exceed the
minimum attractive rate of return. Equity or pay-as-you-go financing may be desirable in this case. It
is generally preferable to obtain lower borrowing rates, unless borrowing associated with lower rates
requires substantial transaction costs or reduces the flexibility for repayment and refinancing. In the
public sector, it may be that increasing taxes or user charges to reduce borrowing involves economic
costs in excess of the benefits of reduced borrowing costs of borrowed funds. Furthermore, since cash
flow analysis is typically conducted on the basis of constant dollars and loan agreements are made
with respect to current dollars, removing the effects of inflation will reduce the cost of borrowing.
Finally, deferring investments until pay-as-you-go or equity financing are available may unduly defer
the benefits of new investments.
It is difficult to conclude unambiguously that one financing mechanism is always superior to others.
Consequently, evaluating alternative financing mechanisms is an important component of the
investment analysis procedure. One possible approach to simultaneously considering design and
financing alternatives is to consider each combination of design and financing options as a specific,
mutually exclusive alternative. The cash flow of this combined alternative would be the sum of the
economic or operating cash flow (assuming equity financing) and the financial cash flow over the
planning horizon.
41
When asked if they understand what risk is, most people answer, “Yes,” but when asked to define it,
they hesitate. Go further and ask if they can tell which of two or more alternatives is riskier than the
others, they again answer affirmatively. But, when asked how much riskier one is than the other, they
have difficulty responding. This helps us understand the challenges that often face financial Project
Managers when making investment or Project Managerial decisions.
Consider these choices: crossing the street in a rural town, crossing the street in a small city, and
crossing the street in a major city. Clearly, they are not all equally risky. You have a sense of relative
risk. But, can you quantify it? Is crossing the street in the small city two or three times as risky as
crossing the street in the rural town or only a little riskier? Would you cross the street in the major city
the same way you would in the small city or the rural town? The answer to this last question is
obviously, “No,” unless the reward for doing so was very high.
Thus, it is with all risk decisions for most people, and that applies to financial Project Managers making
financial decisions as well.
The dictionary defines risk as “possibility of loss.” However, such a definition is not particularly helpful
in financial decision making. Consider these three examples of possible investments: A, B, and C. You
have carefully analyzed these three investment choices and have decided that you will invest, and will
invest in one of these three.
Investment A has a 25 percent probability that things will not go as well as is expected and as a result,
Investment A will yield a return of 9 percent. You have also determined that there is a 50 percent
likelihood that things will turn out exactly as anticipated, and as a result, Investment A will yield a
return of 10 percent. And, you have determined that there is a 25 percent probability that things will
turn out better than expected, and as a result, Investment A will yield an 11 percent return.
Invest B has a 25 percent probability that things will not go as well as is expected and as a result,
Investment B will yield a return of 5 percent. You have also determined that there is a 50 percent
likelihood that things will turn out exactly as anticipated and, as a result, Investment B will yield a
return of 10 percent. And, you have determined that there is a 25 percent probability that things will
turn out better than expected, and as a result, Investment B will yield a 15 percent return.
Investment C has a 25 percent probability that things will not go as well as is expected and as a result,
Investment C will yield a return of –10 percent. You have also determined that there is a 50 percent
likelihood that things will turn out exactly as anticipated, and as a result, Investment C will yield a
42
return of –10 percent, and you have determined that there is a 25 percent probability that things will
turn out better than expected, and as a result, Investment C will yield a –10 percent return.
In tabular form this situation looks like this:
Probability/Yield Investment A Investment B Investment C
25 Percent 9% 5% – 10%
50 Percent 10% 10% – 10%
25 Percent 11% 15% – 10%
Which of these choices is least risky? ______________________________
Why did you respond as you did? _________________________________
Many people respond that “A” is least risky, but the correct response is “C” because, in fact, C has no
risk at all. You know exactly what the result of an investment in C will be. In financial decision-making
terms, risk may be better defined as the uncertainty of result rather than the possibility of loss. In
principle, the amount of that uncertainty can be measured. The chapter on risk and return in any
finance textbook provides a detailed discussion of the process of measurement and the statistical
validity of such a measurement.
In this course, we recognize that risk is determined by the range of possible outcomes. The wider that
range and the greater the probabilities of high or low results, the greater the risk. To demonstrate how
this all works in finance, identify which of the investments we just described you would invest in.
Risk Aversion vs. Risk Taking
Realizing that a loss of 10 percent is not at all attractive, it is easy to assume that you will not choose
C, but between A and B, the decision is harder. You will note that the expected return on both A and B
is equal to 10 percent. You can determine this by multiplying the probability by the related expected
return and then adding the results. If you chose A, you are like most people, averse to risk. Because
both investment choices have the same expected result, you chose the one of lower risk. To consider
choosing a higher risk option, you would have to be offered a higher return, and that higher return
would have to reward you adequately for taking the higher risk. Crossing the street in the middle of
the block in a major city is obviously more dangerous than crossing at the corner with the light. To
take the additional risk, the reward for crossing there must be very attractive. Financial decisions are
43
similar. For a risk-averse person to take a high risk alternative, the reward must be enough higher to
overcome the aversion to risk.
If you chose B, you may be classified as a risk taker. This is because B is the higher risk choice, and
given that the expected result, 10 percent, is the same for both options, more attractive only to those
who have a relatively higher risk tolerance. The risk taker gets some additional reward from the
challenge; perhaps it is excitement at the prospect of a high return, 15 percent, if everything goes
better than expected. Perhaps it is a high level of optimism. Whatever it is, there must be an
additional reward, not necessarily financial, beyond the expected return.
If you originally chose A, consider your response if the return resulting from better than expected
performance for B were 20 percent. This would change the expected return (determined by the
multiplication and addition process described above) to 11.25 percent, 12.5 percent higher than
before. Would this be enough to persuade you to change to B?
This expands the definition of risk aversion: If two investments have equal return, the risk-averse
investor will choose the investment with the lower risk. If two investments have equal risk, the risk-
averse investor will choose the one with the higher return. And, further, the risk-averse investor will
demand a higher return if asked to take a higher risk.
We can state this as an investment, and general, rule:
The greater the risk, the greater the return must be.
This is the essence of risk and return and serves as the basis for all financial decision making. It can
be generalized to all investments, whether of time or money, whether personal or business.
Possibility of Loss
Having demonstrated this financial principle, let’s return for a moment to the dictionary definition. It is
not altogether wrong.
In our example the choice of B, the riskier of the two reasonable instruments A and B, includes the
possibility that the yield will be 5 percent. If that comes to pass, then the investor will have incurred
an opportunity loss since, had he or she chosen A and received the lowest yield, it would have been 9
percent. By choosing B, the investor incurred an opportunity loss of 4 percent.
For the risk taker, the potential higher return of 15 percent more than offsets the potential opportunity
loss if things turn out unfavorably. For the risk-averse investor the avoidance of this loss of return is
more attractive than the higher potential gain.
44
The Determination of Interest Rates
A logical next step is to examine the development of interest rates as a basis for determining how
investment decisions are made. Interest will serve as a starting point for the examination of all rates of
return.
If you had a cabin in the woods and someone wanted to use it for several months while writing a book,
you might, assuming everything else checked out, be willing to allow this writer to use the cabin. You
would expect to be paid some rent for its use, to compensate you for your costs and to reward you for
not being able to use it yourself.
The same is true with money. If you lend money to someone else, you expect to be paid rent for its
use and to compensate you for not being able to use it yourself. In addition to the charge for “rent”
and for lost opportunity, several other risks also require compensation.
As a general rule we can define the return you should receive for the use of your money as rent plus
compensation for the risks you incur, a premium determined by the types and severity of the risks.
The types of risk may be gathered into four basic types, each of which has a different consequence
and concept.
Characteristics of Different Types of Financial Risks
In considering financial investment decisions, and financial investments obviously include the
extension of business credit, there are a number of general risk types to evaluate. In particular, the
investor must consider default, inflation, maturity, and liquidity issues. In addition, when dealing
internationally, an investor must include currency risk, the possibility that due to changes in exchange
rates, the value of a transaction will change between the time of its initiation and its completion.
Default: the risk that you will not get your money, your principal, back on time or, perhaps, at
all.
Inflation: the risk that when you do get your money back, it will have lost some buying power.
Maturity: the recognition that if you have loaned your money to someone else you cannot use it
yourself, even if a better opportunity arises. Therefore, maturity premium may also be considered
an opportunity premium.
Liquidity: the risk incurred if you have to liquidate the loan before it matures. It is a measure of
the potential penalty that would be imposed by the market.
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Following are more detailed descriptions of these different types of risks and a discussion of the effect
that they have on interest rates and, because interest rates are the starting point, on all rates of
return.
Default Risk
Whether an investment is a loan or a purchase of equity, when we make the investment, we want to
protect our investment and assure ourselves that its value remains sound. In the case of a loan, we
eventually, at maturity, want this money back. When we determine what interest rate to charge, we
try to assess the probability that we might have difficulty getting repaid. We’ll charge more if we think
that probability is significant. What if we are sure we will get the money back, but we are not sure that
it will be paid on time? We’ll charge a higher premium for the uncertainty. Default risk is the risk type
that immediately comes to mind in any discussion of risk and interest charges.
If our investment is a purchase of equity, presumably we do not expect to receive our money back
directly. However, we still want the money we invest to be safe and profitable. Therefore, we
determine an expected rate of return on our equity, called the cost of equity capital, and expect the
investment to generate enough increased value to provide us such a return.
Almost all borrowers are subject to some default risk, however small. In the United States only the
federal government (or if we are considering another country, the government of that nation) is not
subject to default risk. If there were ever any possibility of default, the government would merely print
more money and the risk of default would vanish. Such an action would adversely affect the inflation
risk, but the default risk would be eliminated. Therefore, we consider government obligations to be
free of default risk.
If we are concerned that an equity investment is abnormally risky, we require an abnormally high rate
of return to compensate us for taking that risk. In the investment marketplace, equity investments in
start-up and early stage companies are very risky and the risk perceived is a form of default risk. As a
result, the investors (venture capital firms, for example) require extremely high expected returns to
make the investments.
Inflation Risk
Inflation has nothing to do with the specific investment. Nevertheless, it is a risk to the investor in that
there is, in the United States, no provision for an inflation-based increase in the amount to be returned
at the end of the investment term. (In some countries with continuously high inflation, there may be
an indexing process that takes the inflation rate into account in determining the amount to be repaid.)
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All borrowers are subject to inflation risk because there is nothing borrower-related in the
determination of inflation. Even the borrowings of the United States government are subject to
inflation risk. Therefore, inflation is described by some as a “nondiversifiable” risk and must be
included in any return requirement regardless of borrower.
Maturity Risk
Like inflation risk, maturity risk is not borrower-specific. Since it relates to time, the time your money
is committed for, it is not diversifiable. Interest rates in the United States are expressed in annual
terms, and maturity risk is a function of time. Maturity risk is really an opportunity risk because the
longer you commit your money for, the greater is the likelihood that there will be an opportunity to
invest your money at a higher rate, except that the money has already been committed. It applies to
loans with a term longer than one year. The maturity premium increases the longer the term of the
loan.
Consider this example. Suppose you agreed to lend your associate $1,000 for five years. You would
agree on a rate and complete the transaction. Now suppose, two years into the term of the first loan,
another associate offers you a better deal. Because the first loan used up the available money, you
cannot take advantage of the new deal. The maturity premium provides the lender with at least some
reward for the risk of missed opportunities. For this reason, the longer the loan contract, the higher
the maturity premium. This is the principal reason that long-term interest rates are generally higher
than short-term interest rates. If short-term interest rates are higher, a circumstance that results in an
inverted yield curve, it is an indication that rates are changing and an investor should reexamine his
or her investment portfolio.
Liquidity Risk
Sometimes you just have to get your money back sooner than you planned. The person to whom you
loaned the funds was not planning to repay the loan this soon and simply cannot do so. What do you
do? One choice is to sell the note you hold to someone else. How easily this is done, and how much of
a discount you would have to allow, is the essence of liquidity risk.
At the extreme, you could not sell the note to anyone. If you knew these circumstances in advance,
you would require a significant liquidity premium. At the other end of the spectrum is a loan to the
United States government. A loan to the Treasury, in the form of a Treasury bill, note, or bond, has
no liquidity risks for several reasons. First, there is a large and ready public market for Treasury
securities. Second, the government has guaranteed a market for its securities, and third, if pressed,
just as with default, the government could print money to repay its debts, even early.
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48
MANAGING THE
PROJECT SELECTION
PROCESS
49
Managing the Project Selection Process
The project selection process should be designed to ensure that project proposals are evaluated fairly
and objectively, with a focus on business value and project viability. Every project begins with a
proposal, but not every proposal can or should become a project. In a world of limited resources,
choices have to be made. Not every project has viability. And, amongst those that do, limited
resources (people, time, money and equipment), must be applied judiciously. Consider the risks if
resources are misapplied:
• Resources are "used up" before projects can be completed.
• Resources are wasted in projects of lesser value and priority.
• Credibility and influence are lost as perceived project failures pile up.
To maximize available resources, and avoid potential failures, project proposals must be evaluated and
selected on the basis of overall viability. In a business sense, project viability is the degree to which a
given project will provide the expected return on investment. Viability can be measured by three key
variables:
• Value: The project must provide measurable benefit to the organization, in terms of revenue,
cost reduction, productivity, or some other desired result.
• Alignment: The project must be consistent with, and supportive of, overall business goals and
objectives (including technology goals).
• Probability of Success: The project must present a realistic opportunity for success, relating
to outcome and process, and as can be measured by business, project management, and
technology standards.
Project Selection in Perspective:
Project selection is all about viability, and some projects are more viable than others - hence, the
choice. It can be said that viability exists at two levels:
• Level 1: Individual Viability. The degree to which a proposed project is viable as an
independent initiative. (Does the potential project provide value, is it in alignment with business
goals and objectives, and is it "doable"?). A lack of individual viability will lead to proposal
rejection before comparative is even considered. (If a project can't stand on its own, it should
not stand with others...)
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• Level 2: Comparative Viability: The degree to which an individual project retains its viability
when compared to other projects. Considering resource limitations, comparative viability will
determine project selection priority.
In order to meet the practical realities of project selection, any supporting process must allow for
proposal consideration at each of these levels. First, the project pool requirement must be addressed -
allowing for the submission and review of multiple project proposals according to a pre-defined
schedule. In addition, the project selection process must also allow for the unscheduled, as-needed
submission of individual project proposals.
As the Project selection process is developed, the following questions must be considered…
Project pool considerations:
• How will project proposals be submitted into the "pool" of potential projects?
• How often will the project "pool" process be undertaken (yearly, quarterly, monthly)?
• Who is responsible for managing the project "pool" selection process?
• How will project proposals be reviewed and evaluated?
• How will selection decisions be made?
• How will selection decisions be approved?
• How will selection decisions be communicated?
• How will disputes be resolved?
As- Needed Submission Considerations:
• Who is responsible for the review of "as-needed" project proposals? (e.g. project selection
committee, company management, line of business management, individual business units.)
• How will as-needed project proposals be submitted?
• How will as-needed project proposals be reviewed and evaluated?
• How will selection decisions be made?
• How will selection decisions be approved?
• How will selection decisions be communicated?
• How will disputes be resolved?
In order ensure that these questions are addressed, the project selection process must contain the
following structural elements:
• Organization
• Goals & Objectives
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• Deliverables
• Roles & Responsibilities
• Steps
• Standards
Process Component #1: Organization
Any effective project selection process must rely upon a pre-defined "organizational" hierarchy for
proposal review and selection. This organization will likely take a "committee" structure, allowing for
a sufficiently diverse membership, designed to ensure that all "perspectives" are considered as
projects are reviewed (e.g. business management, project management, finance, human resources,
technology, etc.). In addition, the project selection "organization" must also account for "as-needed"
project evaluation, where formal committee review may be too cumbersome and ineffective. In these
cases, project approval can be farmed out to a committee sub-set (by expertise or business area), or
to individual line of business management.
Tip: Establish thresholds for project selection - e.g. small projects can be "selected" outside the formal
committee organization.
Process Component #2: Goals and Objectives
The project selection process must be designed to meet certain key goals and objectives:
• To evaluate proposed projects according to a set of pre-defined criteria.
• To weigh proposed projects and make appropriate selections based on comparative viability.
• To engage in a collaborative process with all process stakeholders to ensure that all relevant
information and perspectives are considered.
• To review, approve and/or reject project proposals in a timely manner.
• To communicate status, issues, conclusions and justifications in an open and timely manner.
Process Component #3: Deliverables
The project selection process must rely upon, use, and produce specific project selection deliverables.
In order to facilitate the process, these deliverables should have a pre-defined format:
• Project Proposal: To provide basic project information, and activate the selection process (pool
or individual).
• Business Case: To provide the business justification needed to support proposal acceptance.
• Project Review Scorecard: To evaluate the proposal according to pre-defined criteria, providing
an objective review of the proposal on the merits.
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• Selection/Rejection Notification: To document and communicate the results of the selection
process.
Process Component #4: Roles and Responsibilities
The project selection process must specify the various "roles and responsibilities" to be assigned to
process participants and stakeholders:
• Management - to lead the process as project proposals are received, reviewed and evaluated.
• Participation - to complete assigned tasks for proposal submission, review, analysis, input, and
disposition (selection or rejection).
• Support - to promote the process within the organization.
Process Component #5: Steps
The project selection process should contain a series of defined steps, combined in sequence, with
appropriate decision checkpoints.
The project "Proposal" is prepared and submitted, along with a "Business Case" if needed. The
"Proposal" and "Business Case" are evaluated for sufficiency (i.e. Do these documents provide the
information needed to evaluate project viability?). If not, the items should be rejected for further
edification and revision.
The "Proposal" and "Business Case" are reviewed and evaluated according to the pre-defined criteria.
The extent of the "evaluation phase" will vary based on the whether this proposal is under review
individually, or as part of the proposal pool. Evaluation tasks typically include the review of proposals
by one or more individuals, documentation of the resulting scoring and ranking decisions, and
discussion of these tasks and deliverables in a collaborative setting.
Project selection choices are made (e.g. project proposals are approved, rejected or put on hold).
Process Component #6: Standards
The project selection process must specify the standards by which project proposals will be evaluated
and selected. These standards should be designed to address these four requirements:
Priority: The "discretionary" nature of the project proposal. Some projects will be mandatory, and
others must compete for viability and resources. Projects of a higher priority will set the "pace" for
project selection.
• Criteria: The specific characteristics for viability measurement.
• Score: The "degree" to which the various criteria are met (or not met).
• Weight: The comparative ranking of multiple project proposals.
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Concluded Note:
The goal of the project selection process is to analyze project viability, and to approve or reject project
proposals based on established criteria, following a set of structured steps and checkpoints. This type
of structured process offers several key benefits:
• Sets useful standards to guide decisions.
• Fosters "challenge" thinking (i.e. to review project proposals with a critical eye).
• Saves time and minimizes redundancies.
• Minimizes knee-jerk responses to project requests.
• Promotes cooperation and collaboration.
• Provides a "big picture" perspective, providing context for proposal review.
• Promotes priorities, ensuring that resources are applied to projects as needed and based on the
expected "return on investment".
As a final note, it is also important to keep the process in perspective. The project selection process
must be tailored to suit the needs of the organization and the types of projects faced. Obviously, large
scale, enterprise projects must be reviewed and selected via a formal process. As project size and
scope diminishes, process formality can be scaled appropriately, but basic process principles must
always apply.
Whether your projects are large or small, every project must make business sense. A well planned
selection process will help you achieve that goal.
54
BID DECISION
MATRIX
DEFINITION
55
Bid Decision Matrix Definition:
““YES” and “NO” are small words that produce great things.”
The Decision Matrix is also called Bid Decision Matrix, Comparison Matrix, Decision Alternative
Matrix, Evaluation Matrix, Government Decision Matrix, Importance vs. Performance Matrix,
Measured Criteria technique, Opportunity Analysis, Performance Matrix, Rating Grid, Scoring
Matrix, vendor comparison decision Matrix, Weighted criteria Matrix.
A Bid decision matrix allows decision makers to structure, and then solves their problem by:
1. specifying and prioritizing their needs with a list a criteria; then
2. evaluating, rating, and comparing the different solutions; and
3. Selecting the best matching solution.
POME Case Study:
Assessing Investment Choices
“Koppala, we’ve been looking at some new office space in town. The mortgage rates the bank offered
were 6.00 percent for 15 years, 6.25 percent for 30 years, and a quarter of a point less if we put up
more than 20 percent. I feel I can make excellent contributions in the area of space and functionality,
but I don’t understand why we’re being offered different rates or which deal is the best one for us.”
“That’s a good question. Let’s see if anyone else in the group has any ideas.”
“I think the difference in rates relates to risk and return. We’re growing rapidly and we expect that to
continue, but my parents still talk about the economic downturn in the early 1990s. Plenty of firms
downsized and the residential real estate market collapsed. It’s hard to predict the business cycle, and
if we had a severe recession, our market demand might dry up overnight.”
“The farther out you go in the future, the harder it is to predict, so the more return you have to
demand.”
“I agree with Les, Koppala, but I think there’s more to it than that. I think risk and return are also
related to the amount we’d have to put up as a down payment. Bankers want buyers to have some of
56
their own money at risk—they figure people will be more careful with their own money than with the
bank’s. But the difference in rates for different terms reflects the time value of money. We can
calculate net present value to see which rates are better for us.”
“Those are both good answers. This kind of thinking helps you make better decisions about Projects
finances and about your own finances. You shouldn’t finance any purchases without considering risk
and return and the time value of money.”
As is, a decision matrix is a decision tool used by decision makers as part of their Decision-Support
Systems (DSS).
The decision Matrix is called by several names in several Organizations, POME accumulated through
the brains storming techniques which it used with several sales Operation employees in different areas
of expertise.
In the context of procurement or fixing a bid, which is the solicitation and selection process enabling
the acquisition of goods or services from an external source, the decision matrix, also called scoring
matrix, helps determine the winning bid or proposal amid all those sent in response to an invitation to
do so that, depending of the best-suited solicitation process, could either be a:
• Request for Proposals (RFP),
• Invitation for Bids (IFB),
• Invitation to Bid (ITB), or
57
• Invitation to Tender (ITT).
A decision matrix is basically an array presenting on one axis a list of alternatives, also called options
or solutions that are evaluated regarding, on the other axis, a list of criteria, which are weighted
dependently of their respective importance in the final decision to be taken. The decision matrix is,
therefore, a variation of the 2-dimension, L-shaped matrix.
The decision matrix is an elaborated version of the measured criteria technique in which options are
given, for each criterion, satisfactory or compliance points up to a maximum (usually from 0 to 100)
that is predefined per criterion and may vary between criteria depending on its relative importance in
the final decision.
Decision Matrix Activity:
“Decision matrix philosophy lies in two words- SUSTAIN AND ABSTAIN”
Should you be involved in creating a decision matrix, here is the activity you will be engaged in. Use
the COWS method elucidated by POME, shown below, that describes all the information you should
come up with in order to make an impartial decision:
C Criteria.
Develop a hierarchy of decision criteria,
also known as decision model.
O Options.
Identify options, also called
solutions or alternatives.
W Weights.
Assign a weight to each criterion
based on its importance in the final decision.
S Scores.
Rate each option on a ratio scale by assigning it
a score or rating against each criterion.
Decision Matrix Example:
58
For our decision matrix example, let's consider the information below. Let's say we've identified criteria
C1, C2, and C3 playing a role in the final decision, with a respective weight of 1, 2, and 3. Moreover,
we've found 3 prospective providers A, B, and C, whose offer may constitute a good solution.
Creating a decision matrix:
It's critical to rate solutions based on a ratio scale and not on a point scale. For instance, the ratio
scale could be 0-5, 0-10, or 0-100. Should you feel you must use a point scale (for instance, maximum
speed, temperatures, etc.), you must then convert rating values on a ratio scale by assigning the
maximum ratio to the estimated maximum value, which could be, for instance, 5 (for a 0-5 scale), 10
(0-10), or 100 (0-100). Indeed, a point scale with high values introduces a bias even if it's of less
importance in the final decision.
POME laid out the information into a 2-dimension, L-shaped decision matrix as shown below, and then
compute the scores for each solution regarding the criteria with the formulas below:
Score = Rating x Weight
and then
Total Score = SUM (Scores)
The result is the following:
Scenario #1
ALTERNATIVES
Option A Option B Option C
CRITERIA Weight Rating Score(1) Rating Score(1) Rating Score(1)
Criterion C1 1 3 3 3 3 3 3
Criterion C2 2 2 4 1 2 2 4
Criterion C3 3 1 3 3 9 2 6
Total 6 4 10 7 14 7 13
(1)
Score = Rating * Weight
For a better interpretation, we can visualize the data in histograms. To do so, let's consider, as the
data source, the ratings and scores of evaluated solutions. Here is the result:
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Solution Ratings:
When we sum up the ratings, both solutions B and C are equivalent and outperforming solution A.
While similar globally, options B and C present different intrinsic strengths and weaknesses. Indeed,
option B is better than option C for the criterion C3, but weaker on C2, while option C distribute more
evenly its forces.
Therefore, Option B is usually called a best-of-breed solution, while Option C is a typical suite or
integrated solution.
POME applies the weights to the ratings now to obtain the...
Solution Scores:
While both options B and C were initially equivalent rating-ly speaking, weights applied to their ratings
exacerbate the strength of option B in criterion C3. Indeed, a higher weight was applied to its strength
and a lesser to its weakness, resulting in a first place. In this particular context, the better the solution
breed, the higher rank the solution gets.
We have here an interesting example of a battle opposing two alternatives at first sight equivalent, but
one showing an explicit, differentiated strength against an other solution seeming spreading its
strengths more evenly. Extrapolated, this battle is also called:
• The One versus The Best
• All-in-One versus Best-of-Breed
• Suite versus Best-of-Breed
• Best-of-Breed versus Integrated solutions
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To solve this dilemma, there's no answer. Rather, the answer is "It depends". Indeed, depending on
the contextual needs, one kind may be selected over the other. But, whatever the path chosen, the
decision matrix won't be of any help in this matter but raising the concern. You will have to decide
what's best for your organization's future. You could even build a meta decision matrix to help you
answer this question...
Let's take a look at what would happen should your priorities change, and then find out the...
Importance of weight distribution in the final decision:
In order to discuss about the relative importance or effectiveness of weights coupled with ratings in
the final decision, let's use the same aforementioned example and play with the weights, given the
ratings won't never change.
In the first scenario, the weights were distributed as 1, 2, and 3 respectively for criterion C1, C2, and
C3. Let's increase the second weight from 2 to 3. Here is the result:
Scenario #2:
ALTERNATIVES
Criterion C1 1 3 3 3 3 3 3
Criterion C2 3 2 6 1 3 2 6
Criterion C3 3 1 3 3 9 2 6
Total 7 4 12 7 15 7 15
(1) Score = Rating * Weight
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(2)
Solution Ratings:
Based on an initial, fair, and impartial evaluation, the ratings don't change since solution
capabilities remain the same. In some cases -we hope there're rare-, evaluators may be
tempted to change the ratings to give a favor to a so-illegitimately selected solution.
Then we obtain the new...
Solution Scores:
Because they are globally equivalent in their ratings, and given identical weights, both options B
and C are now ex aequo. But, still, as you may notice, their internal differences remain.
Now, let's keep the second weight at 3, and decrease the third from 3 to 2. Here is the result:
Scenario #3
ALTERNATIVES
Criterion C1 1 3 3 3 3 3 3
Criterion C2 3 2 6 1 3 2 6
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Criterion C3 2 1 2 3 6 2 4
Total 6 4 11 7 12 7 13
(1)
Score = Rating * Weight
Solution Ratings
Ratings still don't change, since the solution features and benefits are the same.
Now, let's keep the second weight at 3, and decrease the third from 3 to 2. As a result, these
are the new...
Solution Scores
While both options B and C were initially equivalent rating-ly speaking, the new weights applied
to their ratings inhibit what appeared to be a strength for option B in criterion C3. Indeed, a
lesser weight was applied to its strength and a higher to its weakness, resulting in losing the
first place in favor of option C.
Conclusion
Here is a recapitulation of the three scenarios with their respective weights:
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So, be careful in your interpretation of the result you get using a decision matrix. Indeed, you
have to question the validity of the path you took to reach the conclusion you found. To
challenge each step of your decision cycle, some features like sensitivity analysis and
robustness analysis are helpful.
Fig: Technical and Socio-cultural Dimensions of the Bid_Decision Process
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Fig: Screening Process Flow Chart in Bid Decision Process
The discussion of these related topics provides a basis and a setting for much of the material. Project
Managerial decisions, whether they are investment or financing choices, are often made by applying
the principles of the risk-return relationship. This discussion demonstrates that most people,
regardless of their responsibility, understand and apply these principles in their daily activities.
However, it is also important to understand how these principles apply in financial management and
how to measure the risk-return trade-off to permit sound decision making. Therefore, POME focuses
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on application and measurement. This material leads directly into the capital investment decision-
making discussion.
Fig:Project Screening Matrix
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REQUEST FOR
PROPOSAL ( RFP)
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Request for Proposal:
Also known as: Request for Proposal cover, letter of transmittal, RFP generic cover letter,
RFP invitation letter, transmittal cover letter.
The RFP Cover Letter:
A cover letter should accompany the RFP questionnaire. Why write a cover letter? Beyond being polite
and presenting your project, the RFP cover letter gives you a unique opportunity to emphasize the
timeline of your state-of-the-art RFP-based selection process, particularly the dates on which different
documents are due.
Highlight the major events and the due dates in the RFP Cover letter for submitting information:
The pre-proposal meeting, whether or not you choose to make it mandatory
Reservation of spots for the pre-proposal meeting. Decide whether or not vendors
must reserve spots for the pre-proposal meeting.
Questions for the pre-proposal meeting. For the sake of convenience, you may decide
to publish questions and answers on your web site. Providers may also be able to submit their
questions on-line.
The letter of intent. A model of a letter of intent should be provided in the RFP. Decide if
you want the letter of intent to be mandatory or to merely help you manage the process.
The proposal itself. Specify your requirements (number of copies, structure, formats,
electronic versions, etc.).
The contract award of the project to the most satisfactory proposal. It is not necessary
to commit to a firm date, but an estimated time frame could be provided.
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Regardless of the types of responses you receive, providing a clear, precise timeline will ensure that
your selection process is on time and in budget. In fact, by making certain you get the right
documents in a timely manner, you will avoid undue delays, and thus save money.
When giving a deadline, be aware of the non-interchangeability of the words "submit" and "receive".
More often than not, RFP authors write "submit the document no later than", but expect to receive the
document no later than that date, thus generating proposal disqualifications, protests, and significant
delays.
Again -it cannot be said enough-, make sure prospective providers understand which documents
to submit, receive detailed and precise instructions regarding the format of these documents,
and are aware of your deadlines for receiving them. A consistent RFP format for their proposal
will be very helpful in evaluating all responses in a faster and more precise manner.
Fig: RFP Process
The RFP, the Request for Proposal is an essential tool for purchase planning and solutions analysis. As
a physical "process deliverable", the well planned and produced RFP will help you to make effective
purchasing decisions, considering multiple factors and priorities. Whenever alternative hardware,
software and service solutions are available from multiple sources, at multiple prices, and with varying
terms, the RFP can be used to compare and contrast said alternatives in a structured, comprehensive
manner.
As with most other process deliverables, RFP's are best prepared through a collaborative process,
structured for a full consideration of needs and requirements.
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The key elements to RFP process "success" are timing and preparation. The RFP process can begin as
soon as the foundational requirements are fully defined. (See A Process for Project Requirements).
Obviously, sound purchasing decisions cannot be made until all needs, constraints and assumptions
are known and quantified. In the event that said requirements cannot be sufficiently quantified, the
RFI (Request for Information) can be used as a fact gathering pre-cursor to the RFP.
The RFP Process: From Planning to Selection
In order to maximize process success, RFP production should cover all of the following elements:
• RFP Planning: The RFP process is planned, including the selection of the RFP Team,
identification of the chosen bidders, creation of the RFP timeline, requirements development
and creation of the response evaluation criteria.
• RFP Preparation: The RFP draft is prepared.
• RFP Review: The RFP draft is reviewed to ensure that all documentation requirements are
met, and comments and feedback are provided.
• RFP Revision: The RFP draft is revised to reflect required changes as identified in the "review"
phase.
• RFP Approval (Final): The revised RFP is approved and the final version is produced.
• RFP Distribution & Support: The RFP is distributed to the selected bidders, and support is
provided as needed, including the RFP conference (if required).
• RFP Response Evaluation: RFP responses are reviewed and evaluated according to the
established criteria.
• RFP Selection: The RFP winner and alternative are selected, and the RFP is used to create a
contract and/or Statement of Work as needed. The losing bidders are notified to close the RFP
process.
As the process proceeds, certain decision checkpoints must be addressed:
1. Who will be involved in the RFP production process (for planning, preparation, review &
approval)?
2. Who will be involved in the RFP evaluation process (to review responses and select the winning
proposal)?
3. Will you need an RFI to further refine requirements and narrow the range of viable options?
(Tip: RFI's can be used to pare down the number of bidders).
4. How many bidders are required for optimum "alternatives analysis"? (Tip: Keep the number of
bidders as small as possible, from 3 to 5).
5. What format will be utilized (RFP or RFQ)?
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6. How will RFP's be transmitted to the selected bidders (electronic or "on paper")?
7. Will you need to hold a bidders conference, or can questions be handled informally and
individually?
8. What is the expected RFP process timeline? (Tip: Make sure sufficient time is provided for
bidder response preparation, minimum 30 days. This timeframe should be built into your
overall project plan).
9. How will responses be reviewed, evaluated and scored?
RFP Document Creation Process
The figure below shows that the creation of a request for proposal (RFP) document typically
involves content and feedback from multiple departments within a company. Approval and
formatting requirements come from the purchasing department, terms and conditions from the
legal department, financing terms from the accounting department, company background
information from the public relations (PR) department, and critical date requirements from the
operations (Ops) department.
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The Bid/RFP Proposal Cover Letter:
Also known as: Request for Proposal cover letter, Request for Proposal cover, letter of
transmittal, letter of submittal, proposal transmittal letter, proposal/bid cover letter.
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Why and how to write an RFP proposal cover letter?
Beyond being polite and presenting what you have to offer, the RFP proposal cover letter gives
you a unique opportunity to emphasize (1) how your offering matches the RFP issuer's needs,
and (2) what are the benefits they may thus reap from identifying your solution as the best
match for their requirements. These two ensure you that your reader will seize your unique
qualifications that no one else can offer, what exactly makes your organization stand out of
competitors. At the same time, the proposal cover letter represents the official authorization of
your proposal by your organization.
Have you ever realized that your RFP Proposal Cover Letter plays exactly the same role as the
Cover Letter for a résumé? So, take a particular attention on how you write your RFP Proposal
Cover letter.
It is highly recommended that you to read the suggestions below in order to properly and
successfully use the RFP proposal cover letter.
The RFP Proposal/Bid Rejection Letter:
Also known as: RFP proposal rejection letter, letter of non-responsibility, proposal rejection
letter, letter of non-responsiveness, proposal decline letter,
An RFP rejection letter is sent to the prospective provider whose proposal has been rejected for
very specific reasons that are explicitly exposed in the RFP rejection letter. In fact, it should be
more accurately called RFP proposal or bid rejection letter since it is the proposal or bid that
is rejected and not the RFP itself. In return, the provider whose bid or proposal has been
rejected has the right to protest against that rejection by writing a protest letter.
You want to reject a bid or proposal? Fine, but don't slam the door at the provider's face.
Instead, writing a rejection letter in a tactfully manner leaves that same door open for future
Projects.
A complaint-proof rejection or refusal letter should:
1. state and substantiate the reasons for rejection,
2. inform the requester about his or her right to seek a review of the refusal determination
process, and
3. Specify the procedures for requesting such a review.
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NON
RESPONSIVENESS
DURING THE TENDER
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Non- Responsiveness during the Tender:
Why we had lost the
Tender when we
considered minimum
estimation cost?
Boss, our Need a response!
competitors had
bribed the
consultant, where
as our ethics
wont allow us to
do so?
Definition of non-responsiveness:
A non-responsive proposal would, for example, neglect to provide mandatory information or
documents requested in the RFP.
Definition of non-responsibility:
A non-responsible provider, although supplying all necessary information, would, for example, not be
able to fully satisfy requirements defined in the RFP or would be financially unstable or unable to
complete the project in a timely manner.
Elements of responsibility may include integrity, competency, capacity, capability, credit, financial
status, and past performance.
For instance, the POME Acquisition Regulation (POMEAR), setting forth basic policies and procedures,
specifies that, to be determined responsible, a prospective contractor must:
a. Have adequate financial resources to perform the contract, or the ability to obtain them.
Be able to comply with the required or proposed delivery or performance schedule, taking into
consideration all existing commercial and governmental business commitments;
b. Have a satisfactory performance record. A prospective contractor shall not be
determined responsible or non responsible solely on the basis of a lack of relevant performance
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history.
c. Have a satisfactory record of integrity and Projects ethics;
d. Have the necessary organization, experience, accounting and operational controls, and
technical skills, or the ability to obtain them (including, as appropriate, such elements as
production control procedures, property control systems, quality assurance measures, and safety
programs applicable to materials to be produced or services to be performed by the prospective
contractor and subcontractors).
e. Have the necessary production, construction, and technical equipment and facilities, or
the ability to obtain them and
f. Be otherwise qualified and eligible to receive an award under applicable laws and
regulations.
So, a prospective provider having a financial viability, a satisfactory performance record, and all
needed resources (people, budget, time, and facilities), among other things, is likely to be deemed
responsible. The opposite is not necessarily true Furthermore, a prospective provider that has been
seriously deficient in contract performance is likely to be presumed nonresponsible unless was
demonstrated that corrective actions were taken. Determination of the provider's nonresponsibility
may be based upon a reasonable perception of inadequate prior performance, even though the prior or
current contract was not terminated for default.
Documenting the reasons why a proposal is rejected is far more difficult than merely identifying the
proposal as non-compliant. Spend the time needed to honestly and properly communicate the reasons
for the rejection. The more specific, exhaustive, and honest the reasons for the rejection are, the more
difficult it becomes for the provider to contest your decision to reject the proposal.
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SELLING/MARKETING/
ESTIMATING A
PRODUCT/SERVICE
77
Selling/ Marketing/ Estimating a Product/Service:
While, for strategic marketing and estimating a product, There are three very important considerations
to keep in mind if we want to successfully implement a practice. These considerations are PROCESS,
PEOPLE and TECHNOLOGY.
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does what and what tool/technique to should be used. A basic but driving insight is that PROCESS and
PEOPLE make an effort effective, and TECHNOLOGY at best can make an effort efficient. With this in
mind, we need to do all three because if we focus on:
Just TECHNOLOGY.............we become very efficient about being ineffective!
Just PROCESS-PEOPLE.......we become very effective about being inefficient!
Focusing PROCESS, PEOPLE and TECHNOLOGY at the same time is the key to being effective and
efficient!
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Proper pricing, complete and accurate quotations, choosing the terms of the sale, and selecting the
payment method are four critical elements in selling a product or service overseas, as per POME. Of
the four, pricing can be the most problematic, even for an experienced exporter.
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Process
From a PROCESS perspective, we must know about RM strategies and the tasks for not only the RM
process but for the closely related change management process. In addition, deliverables need to be
identified that support and are consistent with our RM strategies/process. You will see examples of
many of the items as we explore designing a RM practice document.
People
From a PEOPLE perspective, we must identify/define system development roles because each of these
roles is either the source of requirements, the person(s) responsible for eliciting/analyzing the
requirements or the consumer of the requirements for designing, coding or testing purposes. To
successfully execute a RM process we will need to employ techniques. It is very helpful to identify
favored techniques and demonstrate how they work together to facilitate a common understanding of
the requirements across all roles.
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Technology
From a TECHNOLOGY perspective, we must identify the tool of choice. Keep in mind, the tool of choice
can be paper, MSWord, Excel, database or a requirements management repository,).
Pricing Considerations:
The price considerations listed below will help an exporter determine the best price for the
product overseas.
• At what price should the firm sell its product in the foreign market?
• What type of market positioning (customer perception) does the Project want to convey from
its pricing structure?
• Does the export price reflect the product's quality?
• Is the price competitive?
• Should the firm pursue market penetration or market-skimming pricing objectives abroad?
• What type of discount (trade, cash, quantity) and allowances (advertising, trade-off) should the
firm offer its foreign customers?
• Should prices differ by market segment?
• What should the firm do about product line pricing?
• What pricing options are available if the firm's costs increase or decrease? Is the demand in the
foreign market elastic or inelastic?
• Are the prices going to be viewed by the foreign government as reasonable or exploitative?
• Do the foreign country's antidumping laws pose a problem?
As in the Domestic market, the price at which a product or service is sold directly determines a firm's
revenues. It is essential that a firm's market research include an evaluation of all of the variables that
may affect the price range for the product or service. If a firm's price is too high, the product or
service will not sell. If the price is too low, export activities may not be sufficiently profitable or may
actually create a net loss.
The traditional components of determining proper pricing are costs, market demand, and competition.
Each of these must be compared with the firm's objective in entering the foreign market. An analysis
of each component from an export perspective may result in export prices that are different from
Domestic prices.
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It is also very important that the exporter take into account additional costs that are typically borne by
the importer. They include tariffs, customs fees, currency fluctuation transaction costs and value-
added taxes (VATs). These additional costs can add substantially to the final price paid by the
importer, sometimes resulting in a total of more than double the Domestic price.
Independent vs. Dependent Demand
Independent Demand
(finished goods and spare parts)
A Dependent Demand
(components)
B(4) C(2)
D(2) E(1 D(3) F(2)
)
Foreign Market Objectives:
An important aspect of a company's pricing analysis is determining market objectives. For example, is
the company attempting to penetrate a new market, looking for long-term market growth, or looking
for an outlet for surplus production or outmoded products? Many firms view the foreign market as a
secondary market and consequently have lower expectations regarding market share and sales
volume. This naturally affects pricing decisions.
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Marketing and pricing objectives may be general or tailored to particular foreign markets. For example,
marketing objectives for sales to a developing nation where per capita income may be one tenth of
that in the United States are necessarily different from the objectives for Europe or Japan.
Costs :
The computation of the actual cost of producing a product and bringing it to market is the core
element in determining if exporting is financially viable. Many new exporters calculate their export
price by the cost-plus method. In the cost-plus method of calculation, the exporter starts with the
Domestic manufacturing cost and adds administration, research and development, overhead, freight
forwarding, distributor margins, customs charges, and profit.
The effect of this pricing approach may be that the export price escalates into an uncompetitive range.
the below table gives a sample calculation. It clearly shows that if an export product has the same ex-
factory price as the Domestic product; its final consumer price is considerably higher once exporting
costs are included.
Marginal cost pricing is a more competitive method of pricing a product for market entry. This method
considers the direct, out-of-pocket expenses of producing and selling products for export as a floor
beneath which prices cannot be set without incurring a loss. For example, additional costs may occur
due to product modification for the export market that accommodates different sizes, electrical
systems, or labels. On the other hand, costs may decrease if the export products are stripped-down
versions or made without increasing the fixed costs of Domestic production.
Other costs should be assessed for Domestic and export products according to how much benefit each
product receives from such expenditures. Additional costs often associated with export sales include:
• Market research and credit checks;
• Business travel;
• International postage, cable, and telephone rates;
• Translation costs;
• Commissions, training charges, and other costs involving foreign representatives;
• Consultants and freight forwarders; and
• Product modification and special packaging.
After the actual cost of the export product has been calculated, the exporter should formulate
an approximate consumer price for the foreign market.
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Table 4
Sample Cost-Plus Calculation of Product Cost
Domestic Sale Export Sale
Factory price $7.50 $7.50
Domestic freight .70 .70
subtotal 8.20 8.20
Export documentation .50
subtotal 8.70
Ocean freight and insurance 1.20
subtotal 9.90
Import duty (12 percent of landed cost) 1.19
subtotal 11.09
Wholesaler markup (15 percent) 1.23
subtotal 9.43
Importer/distributor markup 2.44
subtotal 13.53
Retail markup (50 percent) 4.72 6.77
Final consumer price $14.15 $20.30
Market Demand:
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For most consumer goods, per capita income is a good gauge of a market's ability to pay. Some
products may create such a strong demand such as popular goods like Siemens, that even low
per capita income will not affect their selling price. Simplifying the product to reduce its selling
price may be an answer for the exporter to most lower per capita income markets. The firm
must also keep in mind that currency fluctuations may alter the affordability of its goods. Thus,
pricing should try to accommodate wild changes in the domestic and/or foreign currency. The
firm should anticipate the type of potential customers. If the firm's primary customers in a
developing country are expatriates or belong to the upper class, a higher price might be feasible
even if the average per capita income is low.
Competition:
In the Domestic market, few companies are free to set prices without carefully evaluating their
competitors' pricing policies. This situation is true in exporting, and is further complicated by the
need to evaluate the competition's prices in each potential export market.
If there are many competitors within the foreign market, the exporter may have little choice but
to match the market price or even under price the product or service in order to establish a
market share. On the other hand, if the product or service is new to a particular foreign market,
it may actually be possible to set a higher price than in the Domestic market.
Pricing Summary:
In summary, here are the key points to remember when determining your product's price:
• Determine the objective in the foreign market.
• Compute the actual cost of the export product.
• Compute the final consumer price.
• Evaluate market demand and competition.
• Consider modifying the product to reduce the export price.
• Include "nonmarket" costs, such as tariffs and customs fees.
Exclude cost elements that provide no benefit to the export function, such as Domestic advertising.
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BUDGETTING
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Budgetting:
Budget Eléments:
The typical elements of a budget include a list of expenses, as well as support and revenue.
When you begin to assemble the budget, it's helpful for your Projects, to prepare a worksheet that
includes a list of all projects and non-projects (i.e. indirect supporting) expenses related to the
operation of the project. Consider any new costs that will be incurred if the project is funded (i.e.
temporary employees or consultants), as well as any ongoing expenses for items that will be allocated
to the project. Non-personnel costs might include items such as travel, equipment, office supplies and
postage.
Personnel items might include salaries and benefits. Full time employees who will be assigned to work
on the project should be included in the budget at the
appropriate percentage of time. For example, if the
administrative assistant plans to spend 20 hours of her 40
hour work week involved with a project that is expected to
last one year, you may budget for 50% of her total salary
for the twelve-month period.
NOTE: Be careful not to put "Other" on a line with a
substantial amount next to it. Remember that funders
want to look at a budget and see that it is a reasonable
representation of costs for your program. Make sure that
"Other" does not take up too high a percentage of the
total. A small amount, however, is perfectly reasonable.
Your list of budget items and the calculations you have
done to arrive at a dollar figure for each item all should be
summarized on worksheets. These can be essential when
you need to remind yourself how the numbers were
developed, when you are writing the proposal, and, at a later stage, discussing it with funders.
Revenue :
If grant support has been already committed to your project through foundation funding, in-kind
(non-monetary) gifts, government sources or individual contributions, you will need to provide
this information in a support and revenue statement.
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The total grant support already committed should then be deducted from the "Total Expenses"
line on the budget to give you the "Balance Requested". Any earned income anticipated also
should be estimated on the support and revenue statement.
For instance, if you work for a local theater group and expect
50 people to attend a performance, charged at $10 per ticket,
on each of the four nights, your line of income would show
"Ticket Sales" at $2,000.
If you are submitting proposals to several different
foundations, it is usually a good idea to indicate this in your
proposal. For example, you might state, "In addition to your
foundation, this proposal is being submitted to the ABC
Foundation and the XYZ Foundation" or "We have already received a grant of $30,000 from the
ABC Foundation, and are requesting $15,000 from your foundation, which is the balance
required for the project."
What is a budget?
A budget is a plan for spending and saving your money.
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What are the benefits of having a budget?
Making and following a budget means you can have money for the things you want. When
you're not tracking your expenses, cash seems to disappear. You don't know where your money
goes, and perhaps you can't afford things you'd like to have. When you know where your money
goes, you feel more in control. It's easier to pay your bills on time, save money each month,
and avoid money problems.
Proposal Budget Basics:
Proposals must include a budget, a detailed breakdown of the financial support requested from the
sponsoring agency. The budget should reflect the best estimate of the costs requested to conduct the
work outlined in other sections of the proposal.
Preparation
Most sponsors provide detailed instructions for budget preparation; many provide budget forms
or require a specific format. Always read the agency guidelines before preparing a proposal
budget.
Cost Categories
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Proposal budgets generally include two basic categories of costs: direct costs of the proposed
project and facilities and administrative (F&A or indirect) costs. Both are real costs. Direct costs
plus F&A costs equal total costs.
a. Direct costs:
Direct costs are incurred in the performance of the project and must be directly attributable to
the project and must be considered reasonable, allocable, and allowable. Direct costs include
categories such as salaries, fringe benefits, consultant costs, equipment, supplies, travel, sub
agreements, alterations or renovations, and other costs.
Salaries and Wages
For each project participant, list the:
• Name (or "To Be Named" for an unfilled position)
• payroll title
• Nature of the position (e.g., nine month or 12 month appointment)
• Current annual or monthly salary (summer salary for faculty with nine-month appointments
should be listed as a separate line item)
• Number of months per year and/or percentage of effort
• Total salary requested
For multiple-year budgets, include:
• Projected cost of living increases, specifying the period to which they apply, with an explanation
of the basis for calculating the rates
• Projected merit increases, specifying the period to which they apply, with an explanation of the
basis for calculating the rates
Fringe Benefits
Use the actual rates if known. State if the budget uses are based on historical rates for the individual
employees.
Consultant Costs
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Consultant fees may generally be paid only to individuals not employed by the Project who can provide
special knowledge or advice necessary for the project. For each individual, specify the name, daily rate
of pay, and number of days each consultant will be paid. Documentation supporting the
reasonableness of the pay rate should be provided. Any costs of travel and others should be specified.
Sub agreements
A sub agreement (subcontract, sub grant, or sub award) must be included in the proposal when a
portion of the project is to be performed at another institution or organization. The total costs for a sub
award (the sub recipient direct costs and indirect (F&A) costs) are considered direct charges to the
budget of the prime applicant. The proposal should incorporate documentation from each sub
recipient’s authorized official, including a complete itemized budget, with justification, a statement of
work to be performed, and description of the sub recipient’s qualifications to to that work, and include
and a letter of commitment signed by the authorized official.
Other Direct Costs
Use previous projects and operations experience when available. Always follow Project guidelines on
direct costs in proposal budgets.
b. Indirect (Facilities and Administrative) Costs
Indirect (or facilities and administrative (F&A) or overhead) costs represent those expenses that
cannot be easily identified to any specific project, but that are incurred for common or joint
objectives. Indirect cost elements include items such as operation and maintenance of facilities,
including building depreciation, library expenses, space, utilities, payroll, accounting, and other
services. Different rates are applied to on and off project research and other activities.
Other Costs:
Cost Sharing and Matching Funds
Some funding agencies require the grantee institution to demonstrate its financial commitment to the
project, or the commitment of other funding sources, by sharing the project costs.
Cost sharing should be included in the proposal only when the sponsor requires cost sharing as
a condition of applying for an award. Cost sharing must be documented in the same way as other
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charges. Unfulfilled cost sharing commitments or lack of documentation may result in a reduction of
costs allowed against the sponsored project and a return of funds to the agency.
Project Budget
Year 1 Year 2 Year 3
Direct Costs Indirect Costs
Hardware Your people’s time
Software and effort
Contractor fees Estimated time on
Estimated hours project
Hourly Rates per Estimated cost
contractor based on hourly
Various contractor rate
rates
Other’s time and effort
Training
Opportunity cost
Fanfare
What projects or
Other tasks are NOT
going to get done in
TOTALS order to get this
project done?
Types of cost sharing:
• Direct-Cost: Direct-cost cost sharing is the provision of the Projects time and related fringe
benefits, dedicated equipment, computer support, and other resources as direct support for the
project, as well as related indirect costs.
• Indirect (F&A) Cost: This type of cost sharing occurs any time the University agrees to recover
less than the federally negotiated indirect cost rate. Approval from the UC Office of the President is
required if an indirect cost rate is lower than the university applied rate.
Budget Justification:
94
The budget justification provides the rationale for proposed expenditures. The primary purpose
of a justification is to provide support for the funds requested to ensure adequate funding.
Follow the guidelines to prepare budget justifications; requirements for the amount of
documentation to support proposed costs and the detail of cost descriptions vary by sponsor.
Major items to include in budget justifications:
• Salaries for engineers and other administrative facilities staff
• Permanent equipment
• Large or unusual categories of supplies
• Foreign travel and extensive domestic travel
• Use of consultants (e.g., why the expertise is not available in-house, unique qualifications of
individuals)
• Sub agreement costs
• Construction
• Others
Budgeting Sample Format:
95
Formulae for the llustratation:
Total Expenses= Salaries+Expenses+Contingency+Depreciatin+Interest
96
Profit Before Tax= Gross Margin-Total Expenses
Gross Margin=Sales- COGS
COGS=(Total Production Cost/Add: Production(Stock of Finished Goods)) *(Sales(Stock of Finished
Goods))
Sales= (unit Price* no of widgets sold)+ Inflation
Production Cost= Raw Material( widgets)+ Direct Labour+ Factory Expenses +Rent+ depreciation +
Contingency
For cost control on a project, the plan and the associated cash flow estimates can provide the baseline
reference for subsequent project monitoring and control. For schedules, progress on individual
activities and the achievement of milestone completions can be compared with the project schedule to
monitor the progress of activities. Contract and job specifications provide the criteria by which to
assess and assure the required quality of Project. The final or detailed cost estimate provides a
baseline for the assessment of financial performance during the project. To the extent that costs are
within the detailed cost estimate, then the project is thought to be under financial control. Overruns in
particular cost categories signal the possibility of problems and give an indication of exactly what
problems are being encountered. Expense oriented planning and control focuses upon the categories
included in the final cost estimation. This focus is particular relevant for projects with few activities and
considerable repetition such as grading and paving roadways.
For control and monitoring purposes, the original detailed cost estimate is typically converted to a
project budget, and the project budget is used subsequently as a guide for management. Specific
items in the detailed cost estimate become job cost elements. Expenses incurred during the course of
a project are recorded in specific job cost accounts to be compared with the original cost estimates in
each category. Thus, individual job cost accounts generally represent the basic unit for cost control.
Alternatively, job cost accounts may be disaggregated or divided into work elements which are related
both to particular scheduled activities and to particular cost accounts. Work element divisions will be
described.
In addition to cost amounts, information on material quantities and labor inputs within each job
account is also typically retained in the project budget. With this information, actual materials
usage and labor employed can be compared to the expected requirements. As a result, cost
97
overruns or savings on particular items can be identified as due to changes in unit prices, labor
productivity or in the amount of material consumed.
The number of cost accounts associated with a particular project can vary considerably. For
constructors, on the order of four hundred separate cost accounts might be used on a small
project. These accounts record all the transactions associated with a project. Thus, separate
accounts might exist for different types of materials, equipment use, payroll, project office, etc.
Both physical and non-physical resources are represented, including overhead items such as
computer use or interest charges. Table below summarizes a typical set of cost accounts that
might be used in building construction. Note that this set of accounts is organized hierarchically,
with seven major divisions (accounts 201 to 207) and numerous sub-divisions under each
division. This hierarchical structure facilitates aggregation of costs into pre-defined categories;
for example, costs associated with the superstructure (account 204) would be the sum of the
underlying subdivisions (ie. 204.1, 204.2, etc.) or finer levels of detail (204.61, 204.62, etc.).
The sub-division accounts in Table below could be further divided into personnel, material and
other resource costs for the purpose of financial accounting, as described in Section Table
TABLE: Illustrative Set of Project Cost Accounts
201 Clearing and Preparing Site
202 Substructure
202.1 Excavation and Shoring
202.2 Piling
202.3 Concrete Masonry
202.31 Mixing and Placing
202.32 Formwork
202.33 Reinforcing
203 Outside Utilities (water, gas, sewer, etc.)
204 Superstructure
204.1 Masonry Construction
204.2 Structural Steel
204.3 Wood Framing, Partitions, etc.
204.4 Exterior Finishes (brickwork, terra cotta, cut stone, etc.)
204.5 Roofing, Drains, Gutters, Flashing, etc.
204.6 Interior Finish and Trim
204.61 Finish Flooring, Stairs, Doors, Trim
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204.62 Glass, Windows, Glazing
204.63 Marble, Tile, Terrazzo
204.64 Lathing and Plastering
204.65 Soundproofing and Insulation
204.66 Finish Hardware
204.67 Painting and Decorating
204.68 Waterproofing
204.69 Sprinklers and Fire Protection
204.7 Service Work
204.71 Electrical Work
204.72 Heating and Ventilating
204.73 Plumbing and Sewage
204.74 Air Conditioning
204.72 Fire Alarm, Telephone, Security, Miscellaneous
205 Paving, Curbs, Walks
206 Installed Equipment (elevators, revolving doors, mailchutes, etc.)
207 Fencing
In developing or implementing a system of cost accounts, an appropriate numbering or coding system
is essential to facilitate communication of information and proper aggregation of cost information.
Particular cost accounts are used to indicate the expenditures associated with specific projects and to
indicate the expenditures on particular items throughout an organization. These are examples of
different perspectives on the same information, in which the same information may be summarized in
different ways for specific purposes. Thus, more than one aggregation of the cost information and
more than one application program can use a particular cost account. Separate identifiers of the type
of cost account and the specific project must be provided for project cost accounts or for financial
transactions. As a result, a standard set of cost codes such as the MASTERFORMAT codes may be
adopted to identify cost accounts along with project identifiers and extensions to indicate organization
or job specific needs. Similarly the use of databases or, at a minimum, inter-communicating
applications programs facilitate access to cost information.
Converting a final cost estimate into a project budget compatible with an organization's cost accounts
is not always a straightforward task. Cost estimates are generally disaggregated into appropriate
functional or resource based project categories. For example, labor and material quantities might be
99
included for each of several physical components of a project. For cost accounting purposes, labor and
material quantities are aggregated by type no matter for which physical component they are
employed. For example, particular types of workers or materials might be used on numerous different
physical components of a facility. Moreover, the categories of cost accounts established within an
organization may bear little resemblance to the quantities included in a final cost estimate. This is
particularly true when final cost estimates are prepared in accordance with an external reporting
requirement rather than in view of the existing cost accounts within an organization.
One particular problem in forming a project budget in terms of cost accounts is the treatment of
contingency amounts. These allowances are included in project cost estimates to accommodate
unforeseen events and the resulting costs. However, in advance of project completion, the source of
contingency expenses is not known. Realistically, a budget accounting item for contingency allowance
should be established whenever a contingency amount was included in the final cost estimate.
A second problem in forming a project budget is the treatment of inflation. Typically, final cost
estimates are formed in terms of real dollars and an item reflecting inflation costs is added on as a
percentage or lump sum. This inflation allowance would then be allocated to individual cost items in
relation to the actual expected inflation over the period for which costs will be incurred.
Example: Project Budget for a Design Office
An example of a small project budget is shown in Table below. This budget might be used by a design
firm for a specific design project. While this budget might represent all the work for this firm on the
project, numerous other organizations would be involved with their own budgets. In Table below, a
summary budget is shown as well as a detailed listing of costs for individuals in the Engineering
Division. For the purpose of consistency with cost accounts and managerial control, labor costs are
aggregated into three groups: the engineering, architectural and environmental divisions. The detailed
budget shown in Table applies only to the engineering division labor; other detailed budgets amounts
for categories such as supplies and the other work divisions would also be prepared. Note that the
salary costs associated with individuals are aggregated to obtain the total labor costs in the
engineering group for the project. To perform this aggregation, some means of identifying individuals
within organizational groups is required. Accompanying a budget of this nature, some estimate of the
actual man-hours of labor required by project task would also be prepared. Finally, this budget might
be used for internal purposes alone. In submitting financial bills and reports to the client, overhead
and contingency amounts might be combined with the direct labor costs to establish an aggregate
billing rate per hour. In this case, the overhead, contingency and profit would represent allocated costs
based on the direct labor costs.
100
TABLE Example of a Small Project
Budget for a Design Firm
Personnel Budget Summary
Architectural
Division $ 67,251.00
Engineering
Environmental 45,372.00
Division 28,235.00
Total $140,858.00
Other Direct
Expenses
Travel
Supplies 2,400.00
Communication 1,500.00
Computer 600.00
Services 1,200.00
Total $ 5,700.00
Overhead $ 175,869.60
Contingency and $ 95,700.00
Profit
Total $ 418,127.60
Engineering
Personnel Detail
Senior Engineer
Associate Engineer $ 11,562.00
Engineer 21,365.00
Technician 12,654.00
Total $ 45,372.00
101
Example: Project Budget for a Constructor
Table below illustrates a summary budget for a constructor. This budget is developed from a project to
construct a wharf. As with the example design office budget above, costs are divided into direct and
indirect expenses. Within direct costs, expenses are divided into material, subcontract, temporary work
and machinery costs. This budget indicates aggregate amounts for the various categories. Cost details
associated with particular cost accounts would supplement and support the aggregate budget shown in
Table below. A profit and a contingency amount might be added to the basic budget of $1,715,147
shown in Table below for completeness.
TABLE: An Example of a Project Budget for a Wharf Project (Amounts in Thousands of Dollars)
Material Cost Subcontract Work Temporary Work Machinery Cost Total Cost
Steel Piling $292,172 $129,178 $16,389 $0 $437,739
Tie-rod 88,233 29,254 0 0 117,487
Anchor-Wall 130,281 60,873 0 0 191,154
Backfill 242,230 27,919 0 0 300,149
Coping 42,880 22,307 13,171 0 78,358
Dredging 0 111,650 0 0 111,650
Fender 48,996 10,344 0 1,750 61,090
Other 5,000 32,250 0 0 37,250
Sub-total $849,800 $423,775 $29,560 $1,750 $1,304,885
Summary
Total of direct cost $1,304,885
Indirect Cost
Common Temporary Work 19,320
Common Machinery 80,934
Transportation 15,550
Office Operating Costs 294,458
Total of Indirect Cost 410,262.
Total Project Cost $1,715,147
Forecasting for Activity Cost Control
For the purpose of project management and control, it is not sufficient to consider only the past
record of costs and revenues incurred in a project. Good managers should focus upon future
revenues, future costs and technical problems. For this purpose, traditional financial accounting
102
schemes are not adequate to reflect the dynamic nature of a project. Accounts typically focus on
recording routine costs and past expenditures associated with activities. Generally, past
expenditures represent sunk costs that cannot be altered in the future and may or may not be
relevant in the future. For example, after the completion of some activity, it may be discovered
that some quality flaw renders the work useless. Unfortunately, the resources expended on the
flawed construction will generally be sunk and cannot be recovered for re-construction (although
it may be possible to change the burden of who pays for these resources by financial
withholding or charges; End Users will typically attempt to have project executors organization
pay for changes due to quality flaws). Since financial accounts are historical in nature, some
means of forecasting or projecting the future course of a project is essential for management
control. In this section, some methods for cost control and simple forecasts are described.
An example of forecasting used to assess the project status is shown in Table below. In this
example, costs are reported in five categories, representing the sum of all the various cost
accounts associated with each category:
• Budgeted Cost
The budgeted cost is derived from the detailed cost estimate prepared at the start of the
project. The factors of cost would be referenced by cost account and by a prose description.
• Estimated total cost
The estimated or forecast total cost in each category is the current best estimate of costs based
on progress and any changes since the budget was formed. Estimated total costs are the sum
of cost to date, commitments and exposure. Methods for estimating total costs are described
below.
• Cost Committed and Cost Exposure!! Estimated cost to completion in each category in
divided into firm commitments and estimated additional cost or exposure. Commitments may
represent material orders or subcontracts for which firm dollar amounts have been committed.
• Cost to Date
The actual cost incurred to date is recorded in column 6 and can be derived from the financial
record keeping accounts.
• Over or (Under)
A final column in Table below indicates the amount over or under the budget for each category.
This column is an indicator of the extent of variance from the project budget; items with
unusually large overruns would represent a particular managerial concern. Note that variance is
used in the terminology of project control to indicate a difference between budgeted and actual
expenditures. The term is defined and used quite differently in statistics or mathematical
103
analysis. In Table below, labor costs are running higher than expected, whereas subcontracts
are less than expected.
The current status of the project is a forecast budget overrun of $5,950. with 23 percent of the
budgeted project costs incurred to date.
TABLE: Illustration of a Job Status Report
Budgeted Estimated Total Cost Cost Cost To Over or
Factor Cost Cost Committed Exposure Date (Under)
Labor $99,406 $102,342 $49,596 --- $52,746 $2,936
Material 88,499 88,499 42,506 45,993 --- 0
Subcontracts 198,458 196,323 83,352 97,832 15,139 (2,135)
Equipment 37,543 37,543 23,623 --- 13,920 0
Other 72,693 81,432 49,356 --- 32,076 8,739
Total 496,509 506,139 248,433 143,825 113,881 5,950
For project control, managers would focus particular attention on items indicating substantial deviation
from budgeted amounts. In particular, the cost overruns in the labor and in the "other expense
category would be worthy of attention by a project manager.
A next step would be to look in greater detail at the various components of these categories. Overruns
in cost might be due to lower than expected productivity, higher than expected wage rates, higher
than expected material costs, or other factors. Even further, low productivity might be caused by
inadequate training, lack of required resources such as equipment or tools, or inordinate amounts of
re-work to correct quality problems. Review of a job status report is only the first step in project
control.
As a numerical example, suppose that the average unit cost has been $50 per unit of work, but the
most recent figure during a project is $45 per unit of work. If the project manager was assured that
the improved productivity could be maintained for the remainder of the project (consisting of 800 units
of work out of a total of 1600 units of work), the cost estimate would be (50)(800) + (45)(800) =
$76,000 for completion of the activity. Note that this forecast uses the actual average productivity
achieved on the first 800 units and uses a forecast of productivity for the remaining work. Historical
changes in productivity might also be used to represent this type of non-linear changes in work
productivity on particular activities over time.
104
In addition to changes in productivities, other components of the estimating formula can be adjusted
or more detailed estimates substituted. For example, the change in unit prices due to new labor
contracts or material supplier's prices might be reflected in estimating future expenditures. In essence,
the same problems encountered in preparing the detailed cost estimate are faced in the process of
preparing exposure estimates, although the number and extent of uncertainties in the project
environment decline as work progresses. The only exception to this rule is the danger of quality
problems in completed work which would require re-construction.
Three Views of Cost
105
106
SALES
ACQUISITIO&
GO/ &O GO
DECISIO&
107
Sales Acquisition Go/ No Go Decision:
Sales Funnel Tracking (Project List):
A Sales Funnel is a useful prognostic and forecast instrument. It is recommended to create a Sales
Funnel tracking tool. It helps to know about the previous experience with the customer, and whats the
probability of getting the contract.
The concept is, to track the projects from scratch in terms of number of projects and Its individual
sales values and Gross Margins. The Sales Funnel tracking starts before the respective offers are
reaching the order intake status in the accounting and reporting Books. Therefore, potential projects
will be tracked when they still are leads, prospects, Bids (proposals/quotations) and bids in negotiation
phase.
A major indicator of success in the sales phase is the Strike Rate. Strike Rate is defined as the number
of orders in percentage of the number of bids released. The strike rate has to be captured engineer
wise on regional basis. Format of sample Sales Funnel enclosed below:
Sales Funnel Sample Format:
GAUTAM KOPPALA ORG SALES
FUNNEL
108
Project Products Project
Sales Project
Customer Segment / Branch Contact & Classification
Region Person Number
Application Systems (A,B,C,D,E,F)
WR SDV 1 GE-FANUC Healthcare MUM MEP HVP A
Offer Details
Export Credit
Offer
Offer Number Decision Control Approval
Date
(Y / N) (Y / N)
1-
GEORGE/MUM/AKK/1/1 Jan- B: Bid N: No Y: Yes
09
Status
Loss
Price
Order Order Order
Level Order
Category Expected Won Loss
(w.r.t. Lost To
Date Date Date
SBU
Cost)
1-Jan- 1-Jan-
W:Won 20.0
06 06
109
Values
Chance
Remarks
ELECRONICS ELECTRICAL SOFTWARE Total (A/B/C)
L1
1.0 1.0 1.0 3.0
tender
POME LIGHTER VEIN:
The Buzz Phrase Generator
Stuck for a suitably meaningless expression to bamboozle that know-it-all idiot who picked on
you in that meeting the other day? Try this for size!
Pick any three-character number, then choose the appropriate combination of words from each
column in turn, e.g. 204 = Systematised Management Mobility. Voilà! Your rival has to spend
ten minutes working out what that means, while you get on with your presentation in peace!
Column 1 Column 2 Column 3
0 Integrated Management Options
1 Total Organisational Flexibility
2 Systemised Monitored Capability
3 Parallel Reciprocal Mobility
4 Functional Digital Mobility
5 Responsive Logistical Concept
6 Optimal Transitional Time-Phrase
7 Synchronised Incremental Projection
8 Compatible Third-generation Hardware
110
9 Balanced Policy Contingency
Credit check and credit evaluation for Go/ No Go Sales Evaluation:
Based on the monthly sales funnel, all projects with a volume greater than some specified amount and
with probability (Higher value Orders) are referred to Corporate Finance(CF) for obtaining the sanction
of credit limit in the below format. This process could be applicable for all new customers. For existing
customers, the limits are fixed together with Corporate Finance, basis being the projected volume and
exposure. This exercise is done annually. Below fund the sample format of Credit Check and Credit
Evaluation.
111
112
Credit Check Sample Format:
Date :
Customer &ame (Country):
Project &ame (Country):
&ew Offer: Current Status:
Particulars Credit Limit – INR million
Requesting Division & Contact Total Credit Exposure – INR million ____ Unexecuted Order
Person Value(UOV) ____ +
Rec. ____)
Tender Due Date Total Over dues – INR million
Value – INR million (all

inclusive)
Expected Collection Plan of Over dues
Sales margin (%) ___%
112
Existing Unexecuted Order Value( UOV)
Turnover Plan
EBIT (%) ___%
Existing Unexecuted Order Value (UOV)

Collection Plan
Payment Terms • Credit Rating / Bankers’

Opinion:
•
• Customer’s Internal Rating To be filled

by CF
Order backed by which negotiation SFS Country Rating To be filled by CF

instrument
Delay in Payment factored in order ____ days processing time for ____% dues External Rating To be filled by CF
Financing cost factored _____% of order value (@____% pa)
Expected Turnover Plan Bankers’ Opinion To be filled by CF
Expected Collection Plan Past Experience (____ Div.) _____ months delay
Name of multilateral agency funding

the Project
Business Case: CF Views:
113

• •
• •
• Forex Risk -
Particulars USD EUR
Exports
Imports
Assumed Rate
Possible Actions:
To be filled by Chief Financer( CF)
&otes: -
a) Please ensure that only brief information is given so as to fit in the said format preferably, in 2 pages with Business Case / Risks starting on the
nd
2 page. Any additional information could be given in Annexures.
114

b) Information needs to be given against all the headings (except wherever marked “To be filled by CF”) & wherever &ot Applicable, please
mention &A.
c) Forex risks / details to be provided for respective Exports & Imports currencies and the I&R conversion rates assumed for same.
Contract Acceptance Procedure ( CAP) Review Sample Format for Higher Order Values:
GAUTAM KOPPALA ORG Contract Review Checklist for Offer Submission /Order Confirmation > x%
Greater Value( as per the company norms)
Location / PC
Enquiry No. & date
Offer No. & Date
Client
End User
Tender Requirement/ Order

Commercial / Technical Aspects Offer Conformity to Tender Remarks
Specifications
115

Commercial
EMD BG/DD/Not Required Yes / No
Bid due date Specify Yes / No
Offer Validity Specify Date Yes / No
Divisible/ Indivisible / Ex-Works/

Type of Contract FOT Site Yes / No
EPCG Benefits / STPI/ Free Zone

benefits available & considered Yes / No Yes / No
Price Basis Firm / Variable Yes / No
Delivery / Completion Specify Date /Period Yes / No
Terms of Payment Specified/Not specified Yes / No/ NA
LD / Penalty Clause for delay Applicable/Not Applicable Yes / No
LD / Penalty Clause for

eqpt.performance Applicable/Not Applicable Yes / No
Warranty/Guarantee Specified/Not specified Yes / No/ NA
Insurance Required/Not Required Yes / No
Bank Guarantee Required/Not Required Yes / No
Arbitration Specified/Not specified Yes / No
116

Force Majeure Specified/Not specified Included /Not included
Statutory Variation in taxation Allowed/Not Allowed Yes / No
Any special comments Specify Yes / No/ NA
Technical
Single Line Diagram Required / Not required Included / Not Included
System Architecture Required / Not required Included / Not Included
Data Sheets Required / Not required Included / Not Included
GA Drawings/Dimensions –
Indicative Required / Not required Included / Not Included
Technical Clarifications / Deviations Required / Not required Included / Not Included
Technical product / system Specs Required / Not required Included / Not Included
Screens for Software Required / Not required Included / Not Included
Scope of Supply/ Itemized BOQ Required / Not required Included / Not Included
Reference Lists Required / Not required Included / Not Included
Catalogues Required / Not required Included / Not Included
Accepted / Not accepted /

List of Makes, where applicable Specified / Not Specified Suggested
117

QAP Required / Not required Included / Not Included
Project Schedule bar chart Required / Not required Included / Not Included
Type of execution SL Standard / Non-Standard Considered / Not considered
Applicable Standards Specify Yes / No
Comm. / Maint.spares Specify scope Included / Not Included/ NA
Training to client Required / Not required Included / Not Included
Special / Type Tests Required / Not required Included / Not Included
Third Party Inspection Required / Not required Included / Not Included
Statutory Approvals Required / Not required Included / Not Included
Any specific information related to

projects Specify Included / Not Included/ NA
Note : For Documents required during execution, please enter in

"Remarks" column.
The offer has been checked for The order has been checked for
completeness and adequacy. completeness and adequacy.
Project Commercial Project Manager Group Leader
( Signature) ( Signature) ( Signature)
118

119
The Technical Discussions related to the Deviations to be given by sales to customers during the technical discussions Meeting,
with the help of Sales supporting Engineering Team and also internally to evaluate the techno economic reports to be made
about the feasibility of the success of the project ideally and practically.
Price Calculation sheet available with this document is to be followed for project cost calculation. It must check the EBIT
(Expenditure before Interest and Taxes). Normally, it to be looked in the regional level.
Sample Price calculation Sheet:
GAUTAM KOPPALA ORG
Price Calculation Sheet
For Domestic Projects Offer No.
Department Order No.
Customer Tech Name Checked by Offer date
Project Comm Name Checked by Order date
Consultant
Price Basis - Inhouse Products Price valid for For Imports
Delivery upto Months Costing with ____% CD
119
F Price Basis: Inst/Comm upto Months Source of Licence
Discounts Total execution Months CIF Considered _____%
Time of Clearance charges _____%
Offer validity for Months Rate for imports Currency:
Subsidies placement of order Date Cost of licence
Price Variation Clause Specify as per tender documents
Exchange Rate Variation-A/C gautam koppala org / Customer / Sub-supplier
Payment Conditions : Supply ( As per tender conditions ) Payment Conditions: Instl. & Comm.( As per tender conditions )
Item Supply Supply Installation & Total
Description In-house Bought-out Commissioning
Currency INR INR INR INR
Planned Cost
PIP expected Rs.
Expected Cost
Excise duty
Sales Tax &Works Contract Tax ( WCT)
Freight & Octroi
Total Expected Cost
Price Increase
Sum additions (a)
120

Agency Commission
Financing Cost
Insurance
Bank Guarantees Charges
Taxes, Duties, if any
Any other inclusions
Contingency
Negotiation Margin
Sum Inclusions (b)
HO Charge
Net Selling Costs
Operating Profit
Gross Operating Profit (c)
Total Factor=(100+a)/[100-(b+c)]
K-Price
Excise duty
Sales Tax & WCT
Freight & Octroi
K Price to client - with Negotiation Margin
K Price to client - without Negotiation Margin
121

EBITwith negotiation margin
EBITwithout negotiation margin
Financing Cost Calculation Module
Comp. of Work. Cap % &umber of Rate of Factor
Months Interest p.a. %age
CAP 10 19.00
Against dwg. approval 10 19.00
Debtors with Taxes & Duties 70 19.00
Retention 10 19.00
Retention 19.00
122

&ett for Drs/CAP
Advance to suppliers 10 19.00
Creditors/Anticipation 40 19.00
Unbilled Cost 10 19.00
&ett Financing
Bank G'tees
For Advance 20 0.50
For Performance 10 0.50
&ett Bank G'tees
&ote : Financing cost to be calculated based on the tender conditions.
Note : 'Number of Months' denote the period for which either CAP( Contract Acceptance Period) will remain open or the number of months from the
date of invoicing till collection of payment. Similarly for UBC( Inbilled Cost), this would mean the number of months costs would
123

remain unbilled on an average.
124

125
Project risk analysis has to be performed based on a case to case basis based on the following criteria (LOA Process)
125
126
QUOTATION
PREPARATION
126
Quotation preparation:
All proposals are to be prepared in line with the following guidelines. The regional authorization must
have a guideline as per respective “Corporate Policy Manual” is implemented and followed, The
checklist to be prepared in Commercial and Technical aspects to be made more lucid.
Fig:Sales Enquiries, Quotations/Proposals and Purchase Orders Sub-System
127
A quotation describes the product, states a price for it, sets the time of shipment, and specifies
the terms of the sale and terms of the payment. Since the foreign buyer may not be familiar
with the product, the description of it in an overseas quotation usually must be more detailed
than in a Domestic quotation. The description should include the following 15 points:
1. Seller's and buyer's names and addresses.
2. Buyer's reference number and date of inquiry.
3. Listing of requested products and brief description.
4. Price of each item (it is advisable to indicate whether items are new or used and to quote in
domestic cuurency to reduce foreign-exchange risk).
5. Appropriate gross and net shipping weight (in metric units where appropriate).
6. Appropriate total cubic volume and dimensions packed for export(in metric units where
appropriate).
7. Trade discount (if applicable).
8. Delivery point.
9. Terms of sale.
10. Terms of payment.
11. Insurance and shipping costs.
12. Validity period for quotation.
13. Total charges to be paid by customer.
14. Estimated shipping date from respective nations seaport or airport.
15. Currency of sale.
Note: The below are of assumed only to make understand the what would be the appropriate terms
and conditions for POME pupil.
Standard terms and conditions to be considered while submitting the quotation in the
bid, as per sample format:
This type of format needs to be enclosed, when ever the quotation provided to the customer, in order
to be safeguarding our organization and its projects, Products contractually. The terms and conditions,
that should be there in detail, is been illustrated in separate chapter in detail.
Sample Terms & Conditions for Supply/ Service of Equipment.
128
1. DELIVERY
The delivery of the equipment offered would commence within __ months and would be completed
within ____ months thereafter.
Delivery period shall be reckoned from the date of receipt of your technically and commercially clear
order and advance payments whichever is later. The delivery period may stand revised in case of
changes in order specifications. The delivery would be made in complete unit or standard transport
sections.
We have assumed that in order to adhere to the quoted delivery period, the following
commitments must be observed:
Activity Action Commencement Completion
By
Tech. & Commercially clear Client
Purchase Order and advance.
Project Inputs & GFC Drawings Client
Submission of Drawings for Organiza
information/ records (for Major tion/
Equipment only) Manufact
urer/
Supplier
Approvals; within 10 days of Client
submission.
Only basic documents like technical submittal, system architecture, panel wiring drawings, cable
routing drawings etc., which would propose the scheme/ arrangement in principle shall only be
submitted for approvals.
In case of delays in furnishing or change in specs/ drawings by you beyond the stipulated /
agreed time schedule, the prices as well as delivery periods shall be subject to changes and shall be
mutually discussed and agreed between us.
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Approval received on submission of drawings will be considered as your final approval of drawings
for the equipment which will then be strictly manufactured accordingly. However, please note that
corrected drawings as above will not be resubmitted to you for approval again. No further changes
shall be accepted by us without repercussions on the stated delivery and prices.
The delivery indicated above has been in good faith, subject to force majeure conditions.
2. PRICES & VALIDITY
Our offer is valid up to ___________ and valid for delivery up to ……... The prices quoted are on
Ex-works basis inclusive of standard roadworthy packing.
3. TAXES & DUTIES
The prices are exclusive of Excise Duty, Sales Tax (i.e. central and / or state sales tax and /or
Works Contract Sales Tax and / or Turnover Tax and / or Additional Tax and / or surcharge commonly
known as sales tax, recovery whereof from customers is not prohibited under the provisions of the
relevant law), and / or any other Central and / or Local Tax and / or Surcharge of any kind, which if
levied will be charged extra. Octroi (if applicable) and any other taxes and duties (including customs
duty), shall be paid extra at actuals at the rates prevailing at the time of delivery. Exchange rate
variation, if any, shall be to your account.
For own manufactured items, the Sales Tax is computed as per the prevailing rates against
appropriate form, prescribed by the concerned sales tax authorities, to be furnished by you. For
bought out items we have considered sale in course of transit subject to your furnishing appropriate
form prescribed by the concerned sales tax authority. For such transactions, sale will be by
endorsement of documents while goods are in transit.
The lump sum excise duty and sales tax amount shown is indicative only. The excise duty and
sales tax shall be reimbursed at actuals against submission of documentary proof along with dispatch
documents.
The prices normally on lump sum turnkey basis including clearing, forwarding, transportation,
insurance and octroi where applicable. x% Works Contract Tax on total contract has been included in
the prices. For the services portion indicated separately in the price schedule y % service tax as per
Government notification has been included.
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3. SCOPE OF SUPPLY
The scope of supply for all the items considered have been clearly brought-out as per the price
schedule. The prices indicated by us have been calculated based on the same. In case of quantity
variation our basic prices/unit rates/delivery will be mutually agreed. Quantity supplied as per
approved drawing, if becomes surplus at site and is not installed shall be purchaser’s property and will
not be taken back by us.
4. TERMS OF PAYMENT FOR SUPPLY PORTION
Note: In few cases, advance won’t be given by Buyers.
Normally, at least x% of the total Contract Price as Initial interest free advance along with
LOI/PO/Brief order and against the organization submitting a corporate guarantee for equivalent
amount and valid up to completion of deliveries. The value of the guarantee shall be reduced on pro-
rata basis every month against supplies.
(100-x)% of the contract price along with 100% taxes and duties (where applicable) and full price
variation amount with 100% taxes and duties thereon (where applicable) on pro-rata basis (as per
billing schedule to be furnished by us on receipt of LOI) immediately on submission of dispatch
documents. Timely payment shall be the essence of the contract.
In case of default in payment or indefinite hold on project, from your side, unadjusted advance, if any,
would be used to clear our outstanding payment.
5. WARRANTY
The equipment supplied by the organizations is warranted for ‘z’ months from the date of supply or ‘y’
months from the date of commissioning (whichever is earlier). Should the equipment become
defective under proper use due to faulty material or workmanship, the same shall be repaired by us
free of cost. You shall inform us in writing of any defect in equipment noticed during guarantee period.
On receipt of the written notice, the Organization shall repair free of cost, equipment supplied by us.
You shall not return the equipment to us before receiving our confirmation to this effect. The
equipment in such cases shall be returned to the works informed by us on freight to pay basis. The
warranty under this clause is subject to the condition that you shall not have subjected the equipment
to alteration, addition or repair by anyone except us or our authorized representative.
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6. TRANSPORT & INSURANCE
The prices quoted are on Ex-works basis. Transport shall be to your account. The dispatch of our
equipment shall be made by Road Transport only, for which we would engage our approved transport
contractors.
Insurance shall be to the customers account. Manufacturer would intimate the particulars of the
equipment being dispatched for your information within 48 hours of dispatch.
The prices are on all inclusive lump sum turnkey basis.
8 ARBITRATION
All disputes / differences whatsoever, which shall arise between parties hereto during the continuance
of this Agreement /Contract or afterwards, touching this Agreement / Contract or the construction or
application thereof or any clauses contained on the rights, duties, liabilities of either party in
connection therewith, shall be referred to a Sole Arbitrator to be appointed with the consent of both
the parties. The place of arbitration shall be at “ some place” and the Arbitrator appointed shall have
held the office of a judge of any Court. In the event of the parties not being able to agree to a Sole
Arbitrator within a period of 15 days from being called upon to agree such appointment, then in that
event organization shall have the right to nominate such Sole Arbitrator with a similar qualification and
his decision will be binding on the Parties. Such Arbitration proceedings will be held in the consonance
with the provisions of Arbitration and Conciliation Act of 1996 or any statutory modification or re-
enactment thereof for the time being in force.
9. LIMITATION OF LIABILITY
No Other Warranties / Guaranties:
Organization to the maximum extent permitted by applicable law, disclaim all warranties / guaranties,
either express or implied, other than what is expressly stated in this Agreement / Offer / Order
Confirmation.
No Liability for Damages:
Organization, to the maximum extent permitted by applicable law, in no event shall be liable for any
damages whatsoever, including without limitation, special, incidental, consequential, direct or indirect
damages, for personal injury, loss of business profits, business interruptions, loss of business
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information, or any other pecuniary loss, arising out of the use of or inability to use the products /
equipment / systems.
10. CHANGE ORDER
If the Purchaser desires any variations in any part of the Contract, notice in writing shall be given to
the Contractor by the Purchaser so as to enable the Contractor to make necessary arrangements
and/or procedures, and to enable the Purchaser and the Contractor to reach the mutual written
consent, and in case the Equipment is already manufactured or in the course or manufacture, or any
matter done or drawings or patterns made that require to be altered, a reasonable sum to be mutually
agreed on in respect thereof shall be paid by the Purchaser.
In this case, the reasonable time of extension of delivery shall be granted. All extra costs or
reductions of costs due to variations shall be paid by either party as greed upon.
11. FORCE MAJEURE
In the event of, stoppage of work in any establishment of ours/our suppliers during the delivery
period owing to war hostilities, acts of the public enemy, civil commotion, riots, acts of terrorism,
sabotage, fires, floods, power cuts, earthquake, tempests, explosions, epidemics or any acts of God,
quarantine restrictions, strikes, lockouts, trade disputes, concerted action of workman, breakdowns,
accidents, etc. as well as transport embargoes, failures or delays in transportation, Governmental
decree and/or causes beyond our control, deliveries may be postponed or partially or wholly cancelled
by us.
12. INDEPENDENCE OF CONTRACT
In the event the Purchaser awarding contract(s) the execution of such awards contract(s) shall be
treated to the bidder against this offer, the execution of such awarded contract/s shall be treated
independently all other contract/s which the purchaser may place or may have placed with Bidder. In
other words, there shall be no inter-connection technically and/or commercially, including deduction of
any nature related to other contract/s between the contract/s already awarded and the contract now
to be awarded against this offer.
GAUTAM KOPPALA ORG (Signtaure of the concerned Authority of the organisation)
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Risk assessment for all offers of Higher Value Orders has to completed and sent to Corporate Risk
Management, and needs to approved by the respective management authoritative.
Where the tender specifies commercial terms and conditions, a contract review needs to be done for all
offers which are of bigger contract values espscially.
Received tenders are kept secure and unopened until the closing date, when they are opened in the
presence of nominated officers and formally recorded. Late tenders are opened and recorded before
being returned to the tenderer. Now a days, it is currently exploring and working towards electronic
tendering so that tenders can be transmitted electronically. Presently documents can be downloaded
electronically and sent to the Customer in hard copy in the normal manner described here.
Opened tenders are passed to the contract officer for evaluation, which may take a few days or several
weeks. All tenderers are notified of the outcome in writing and the successful tenderer will be issued
with a contract.
Effective contract management is key to a successful relationship between both Customer and the
contractor/supplier.
Then the sales executive to meet up with the customer with the freezed BOQ, and also participate in
Technical Bid. If the technical bid got success, then goes for the Bid Approval.
Then comes the Contract Negotiation/ Price comparisons with other bidders
And normally, No biased upon any vendor and the Price bids are kept in the secret lockers. Buyer/
Customer goes for L1 Policy normally (L1= lowest bid, L2= Next lowest Bid…….. H2: Next Highest Bid,
H1: Highest bid)
Then officially, would be confirmed whether the Project is won or lost.
POME LIGHTER VEI&:
Software Development Cycle:
Programmer produces code he believes is bug-free.
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Product is tested. 20 bugs are found.
Programmer fixes 10 of the bugs and explains to the testing department that the other 10
aren't really bugs.
Testing department finds that five of the fixes didn't work and discovers 15 new bugs.
Repeat three times steps 3 and 4.
Due to marketing pressure and an extremely premature product announcement based on
overly-optimistic programming schedule, the product is released.
Users find 137 new bugs.
Original programmer, having cashed his royalty check, is nowhere to be found.
Newly-assembled programming team fixes almost all of the 137 bugs, but introduce 456 new
ones.
Original programmer sends underpaid testing department a postcard from Fiji. Entire testing
department quits.
Company is bought in a hostile takeover by competitor using profits from their latest release,
which had 783 bugs.
New CEO is brought in by board of directors. He hires a programmer to redo program from
scratch.
Programmer produces code he believes is bug-free...
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THE RFP LETTER
OF INTENT(LOI)
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The RFP Letter of Intent (LOI):
Also known as: LOI, letter of intent to bid, notice of intent, letter of intent to submit a
proposal, letter to submit a bid, letter of expression of interest, non-binding LOI.
The letter of intent tells the company issuing the RFP that you are interested not only in submitting a
proposal in response, but also in receiving all RFP updates and modifications. It is highly recommended
to read the recommendations below in order to properly and successfully use the letter of intent.
Before even writing your letter of intent, you have to decide that bidding is a good option, you have a
significant, substantial, realistic chance of winning, that is. This decision is the result of an analytical
process, the bid/no-bid analysis.
We received LOI,
But need to teceive
the Contract
Purchase Oder.
Bid/No-Bid Analysis:
The letter of intent is sent after having performed a bid/no-bid analysis. The bid/no-bid analysis
assesses (quantitatively, qualitatively, or both) all risks inherent in submitting or not submitting an
offer. The analysis process relies on building a list of relevant questions, called the bid/no-bid
checklist. On the basis of this checklist, a bid/no-bid analysis matrix will be created, which will
determine the worth of sending a bid. If the decision is to bid, a letter of intent will be sent to the
purchasing officer. If the decision is not to bid, then a no-bid letter, explaining the reasons, will be
sent.
Is your Letter of Intent Binding or Non-Binding?
Remember, getting a contract and replacing the title with Letter of Intent won't make it a legitimate
letter of intent. And that's exactly what people often do, maybe considering the reassuring character of
the document title.
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So in this case, they should skip the step of writing a letter of intent and write directly a contract. As
far as the letter of intent does not contain provisions we must encounter in a contract to qualify it as
is, you're safe.
Indeed, a letter of intent is an agreement to agree, stating that both parties are looking for a deal that
will be effective should only certain circumstances happen, like a definitive agreement being executed.
A badly-written letter of intent will scare the reader by stating neither party is bound by it, it's not
an agreement, that is; giving the impression that you are not sure about what you're doing so badly
that you are not able to give a written commitment, but you tried your best.
A well-written letter of intent, instead, will please the requesting organization by encouraging them
to do whatever it takes to come to a definitive agreement,.
Because, unlike a contract, it should not contain elements or provisions that would otherwise make of
that document an agreement between parties, such a state-of-the-art letter of intent hampers either
party, even though some have vainly tried in the past, to enforce it as an agreement.
Ok. But how to make sure your letter of intent is non-binding?
How to make your Letter of Intent Non-binding
If you want your letter of intent to display an explicit non-binding character, clearly write it, but not in
a form that would scare the reader or make him feel that you don't want to commit because you aren't
dependable enough to know what you're doing, as shown below:
"This letter of intent is neither an offer nor a contract. Neither party is bound by its terms and,
therefore, assumes any liability."
It may be satisfactory on a legal point of view, but doesn't leave a good impression to the
reader, does it?
So, instead of using such a negative syntax, convert your writing into a positive form, like the
examples below:
"Terms of this letter of intent are valid until (a certain date, usually 30, 60, or 90 days; or any
other circumstance happens)."
or
"Terms of this letter of intent are informational until they become contractual should a definitive
agreement be executed."
or
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"Terms of this letter of intent will become effective and enforceable when a definitive agreement
is executed."
The latter examples are still binding somehow, but the secret tour de main is they rely upon the
occurrence of a given event, whether a definitive agreement or a deadline.
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NO BID AND
PROTEST
LETTER’S
140
No Bid and Protest Letters:
The No-Bid Letter:
Also known as: no bid letter, no-bid decision letter, RFP declination letter, IFB declination
letter, no-bid notice, intent to no-bid letter, no-bid response.
“A man who can not sit still… and can not say no…. is not fit for business.”
What is a No-Bid Letter?
No-Bid Letter definition
A no-bid letter is a letter to the organization that invited you to bid or submit a proposal, notifying
them that you will not do so. To remain potentially involved in future opportunities, the provider
should state in the no-bid notice the reasons for declining such an invitation.
Before even writing a no-bid letter, you have to decide not to bid. This decision is the result of an
analytical process, the bid/no-bid analysis, also called the bid/no-bid decision process.
Bid/No-Bid Analysis
The no-bid letter is sent after having performed a bid/no-bid analysis. The bid/no-bid analysis assesses
(quantitatively, qualitatively, or both) all risks inherent in submitting or not submitting an offer. The
analysis process relies on building a list of relevant questions, called the bid/no-bid checklist. On the
basis of this checklist, a bid/no-bid analysis matrix will be created, which will determine the worth of
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sending a bid. If the decision is to bid, a letter of intent will be sent to the purchasing officer. If the
decision is not to bid, then a no-bid letter, explaining the reasons, will be sent.
How to stay in the Bidders List
For the contracting officer who sent you the invitation to bid, the no-bid letter demonstrates that,
while you are not interested in bidding for a particular project for specific and valid reasons, you are
still interested in competing for future opportunities, and want to stay on the prospective bidder list.
This is why it’s important to take the time to write a professional no-bid letter.
The RFP/Bid Protest Letter
Also known as: RFP award protest letter, contract award protest letter, federal procurement
protest letter, bid award protest letter,
What is a Protest Letter?
Protest Letter Definition
In the solicitation and selection context, a protest letter is a letter sent by a prospective provider who
is aggrieved in connection with the RFP/IFB/ITB/ITT specifications, the solicitation process, or award of
the contract and would like to file a protest.
Protest Letter Grounds & Guidelines
The protest must be specific, factual, substantiated, and timely. To be deemed so, the protest has to
follow strict rules, otherwise it will automatically be dismissed. Notwithstanding such procedures
specified directly in the document setting forth the requirements, external regulations may applying
the context of a government contract for instance.
The scope of the grounds of the RFP protest letter is limited to errors related to proper proposal
scoring, violation of law or procedures set forth in the RFP, conflict of interest, partiality or
discrimination.
Note: No protest may be filed if the RFP is cancelled or if all proposals received in response to
the RFP are rejected.
Solicitation and Selection Process Debriefing:
Before a contract is, eventually, awarded, bids and proposals are evaluated, compared, and the best
offer, if any, is selected.
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Like any other provider whose offer was excluded or otherwise eliminated from the competitive range
whether before of after award, you may ask the people responsible for handling procurement, namely
the Contracting Officer (CO), for a debriefing). It is the unique occasion to get some feedback on the
reasons that hampered your organization from being awarded the contract, and, eventually, how you
could improve your future submissions in order to increase you chance to win. It is one of the chief
efficient ways of improving your win ration.
POME LIGHTER VEI&:
Management Principles
Several years ago, the founder of Wrigley Chewing Gum was on a flight from New York to his home in
Chicago. The passenger in the next seat recognized the chewing gum tycoon and asked him a
question. "Mr. Wrigley, I know your company enjoys over 90% of the chewing gum market. Yet, last
week I read where you are increasing your advertising budget by over 30%. With such a large share of
the market, why do you continue to spend so much on advertising? Why not save that money or use it
for something else?"
Mr. Wrigley replied, "How fast do you think this airplane is flying?" The man answered, "Oh, I guess
about 600 miles per hour." Mr. Wrigley responded. "I think that's fast enough, don't you?" The man
agreed that indeed, it was fast enough. "Well then," asked Mr. Wrigley, "why doesn't the pilot turn off
the engines and save all that expensive jet fuel?"
Sole Source Protest Letter:
Also known as: sole source complain letter, sole source protest, no-bid contract protest letter,
sole source award protest letter.
What is a Sole Source Protest Letter?
Sole Source Protest Letter Definition
In the sole source solicitation and selection context, a sole source protest letter is sent by a
prospective provider who is aggrieved in connection with the sole source solicitation process and
resulting award of the contract to another provider, and would like to file a protest.
"Protest" means a written objection by an interested party to any of the following:
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1. A solicitation or other request by an agency for offers for a contract for the procurement of
property or services.
2. The cancellation of the solicitation or other request.
3. An award or proposed award of the contract.
4. A termination or cancellation of an award of the contract, if the written objection contains an
allegation that the termination or cancellation is based in whole or in part on improprieties
concerning the award of the contract.
Sole Source Justification and Approval (J&A):
Also known as: sole source justification form, sole supplier justification, sole sourcing
justification, sole distributor justification, sole source approval,
Sole Source Definition
What is Sole Source? For a sole source definition and further information about:
• the difference between sole source, single source, and sole brand;
• the benefits of sole sourcing;
• how and when to use sole source as a contracting method;
Letter to Decline an RFP Proposal
Also known as: bid decline letter, proposal decline letter, RFP decline letter, vendor decline
letter, letter for unsuccessful bid, unsuccessful vendor letter,
A complaint-proof decline letter should:
1. state and substantiate the reasons why the proposal was declined,
2. inform the requester about his or her right to seek a review of the decline determination
process, and
3. specify the procedures for requesting such a review.
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The RFP Contract Award Letter
Also known as: bid acceptance letter, bid award letter, RFP award letter, proposal award
letter, contract award letter, vendor award letter,
A contract award letter is sent to the provider whose solution, in terms of value, best addresses the
requirements defined in the request for proposal (RFP).
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ORDER
BOOKING
146
Lot many
approvals
required for
Order Booking: simple order
booking!!!
This is an optional order booking procedure used to book Project Jobs that are determined to be low-
risk, with a Contract Value, and contain approved terms and conditions. A simple Order Acknowledgment
letter is provided to the customer in lieu of extensive contract negotiations and the Regional Contract
Manager handles any customer disagreements as the job proceeds through construction.
This policy is applicable only to Install or Service Jobs with a contract value.
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Sales Rep submits bid Contract
with Company Manager resolves Customer
Standard T&C or the Dispute Challenges Order
Industry Standard Acknowledgement?
T&C
Sales Rep Sales Rep send Contract
Receives PO and full Manager
Purchase Order Booking approves
(“PO”) Package to Booking and
Contract prepares Order
Booking Admin sends
Order
Yes Acknowledgement to
customer and books the
Sales Rep send Booking Admin job
PO ≥ $
specified value?
PO and full approves
Booking Booking and
Package to prepares Order
Booking Admin Acknowledgeme
No
1. This procedure Requires a bid on approved Industry Standard Terms & Conditions.
2. The Sales Rep decides whether he/she would like to use the procedure to book a job and submits
request (including full Booking Package - signed Purchase Order, Honeywell bid and CAP) to
Contract Manager (≥ $ specified value) or Booking Admin.
3. The Contract Manager (≥ $ specified value) or Booking Admin (< $ specified value) determines that
the job meets the conditions of the Policy i.e. :
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• Bid must be on approved Industry Standard Terms & Conditions;
4. Booking Admin sends the template Order Acknowledgement to the customer. This template must
be approved by Contract Management.
5. Booking Admin ensures approved job is booked.
6. If the customer has questions or concerns regarding the Order Acknowledgement and our stated
terms and conditions, the Contract Manager will work with the customer to reach a mutually
satisfactory agreement as the booked job proceeds through construction.
Order confirmations:
Written Order confirmations are to be issued to acknowledge Purchase Orders, Contracts, Letter of
Awards from customers and would be wholesome to send an order acceptance signed by sales
execution and controller pointing out deviation if any, from agreed terms & conditions.
This acknowledgment must contain.
• Claim for advance payment if applicable
• Deviations not agreed by sales
• Overall Project execution schedule
Project Reporting under POC:
Model with the revenue recognition following the rules of the POC method (Percentage of
Completion) on cost to cost basis adopting would be salubrious. The POC chapter would explain about
the features of POC.
Project Account for each Order:
For each individual order, a project account (WBS) and Order Booking Document must be opened in
the Enterprise Resource Planning (ERP) system, immediately upon receipt of the purchase order/
Contract from the customer. For different domain contracts, under those domains wise WBS elements
to be opened, however the sales order will be one and based on customer contract.
149
150
Order Booking Document Sample Format:
GAUTAM KOPPALA ORG
ORDER
BOOKING
DOCUMENT
Booking Div/Vert
Project Name CAP No.
Ref Mrkt
Financial
Summary
Customer Customer In Order

Name PO No. Currency
List
0.00
Price
Project Local In US
End User
Start Date Currency Dollars
Selling
Price 0.00
Project Local In US
Payment terms
End Date Currency Dollars
Direct
Cost -
150
Earning Exch.
Warranty
Project No. Margin Billing Rate –
Period
Factor USD
Approval
PO Ref Revenue Cost
Check List
CAP Process Yes / No /

Completed NA
Terms
&Conditions Yes / No /
approved by NA
Contracts Mgr
Confirmed
order received Yes / No
from Customer
Approval
Received from Yes / No
SBU
Sales Estimate
Attached to this Yes / No
Document
Estimate
Reviewed / Yes / No /
Approved by NA
Eng
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Order type:
Line of Business
Projects
Line of Business
Add on Orders
Mini projects
Spare parts/
Others
Maintenance
contract
Spot Service
Small
Works/Channels
Add any
comments if
required:-
Total 0 0
Account
Date: Sales Leader Date:
Manager
152

BOOKING ADMINISTRATOR Date:
Documents to
be attached:
1. Copy of
Purchase order
2. Copy of CAP
Approval / Sign
off
3. Initial sales
estimate as per
Estimate
Format
153

154
Sales Margin:
Causes of not attaining Sales Margin, mentioned in the order booking:
New items considered, due to flaw in design.
Wrong Ordering
Over run on Bought outs
Overrun on Site Preparations
Matching the Customers Requirements
Short Supplies
Short coming in Logistics
Short coming in Indents
and others
Over Head Costs:
Causes of Over Head Costs, mentioned in the order booking:
Oral commitments
Commercial/ Logistics Hurdles
Unproductive like excessive Demo or Publicity costs
Too many site trips by too many people
Diversion costs
Communication Costs
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Poor Projections
Transit damage due to long storage of material
Quality Costs
Less Control on cash flows
Others
Orders Report
Short Cycle Orders Report
The Orders Report provides high-level new orders and backlog orders information by SBG and SBU.
As defined in this report, “orders” are sales revenues from customer orders received. Based on the
nature of the sales cycle of Company’s lines of business, two separate reports are issued: Short Cycle
Orders Report and Long Cycle Orders Report. The data that is captured in these reports are compiled
from each SBG’s corresponding ERP system.
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The Short Cycle Orders Report captures new orders by SBG and for specific SBUs whose sales cycle is
short. The report includes actual orders received Quarter-to-date (QTD), an orders forecast for the full
quarter; and shows comparisons vs. latest forecast, and Prior Year (PY). The Short Cycle Order Report
is a weekly report.
The Long Cycle Orders Report captures backlog orders information by SBG and for specific SBUs whose
sales cycle is long, as in the case where sales are tied to long-term contracts. The report includes
backlog orders by month from the beginning of the current year; and shows comparisons vs. PY. The
Long Cycle Orders Report is a monthly report.
Key Financial Metric(s):
The following metrics are captured in the Short Cycle Orders Report:
QTD Current Year (CY ) vs. PY %
 Current Quarter Orders Received QTD 
 
 ÷  −1
 
 PY Quarter Orders Received QTD 
QTD % Complete vs. PY % Complete
 (Current Quarter Orders Received QTD/latest forecast Full Quarter Orders)
 
 ÷  −1
 (PY Quarter Orders Received QTD/PY Full Quarter Orders) 
 
Current Quarter Run Rate
PY Full Quarter Order x (1 + Average Daily Orders Rate %)
Within this metric calculation, the Average Daily Order Rate (ADOR) % is calculated as follows:
 (Current Quarter Orders Received QTD/QTD Working Days) 
 
 ÷  −1
 
 (PY Quarter Orders Received QTD/ LY QTD Working Days) 
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Required Daily Orders To Make QTR
 (Latest forecast Full Quarter Orders - Current Quarter Orders Received QTD )
 
 ÷ 
 Remaining Working Days of the Quarter 
 
The following metric is captured in the Long Cycle Orders Report:
Current Month Ending Backlog
+ Ending backlog last month
+ New orders
– Shipments
+ Other Orders
= Current Month Ending Backlog
Sales Flash Report
The monthly Sales Flash Report provides high-level external sales and operating revenue data. The
report includes: segment revenue information by SBG and SBU for current month, quarter-to-date
(QTD) and year-to-date (YTD); and shows comparisons vs. latest forecast, Annual Operating Plan
(AOP) and Prior Year (PY).
Revenue Growth %
Current Period
Net Sales & Operating Revenue – External (FM)
÷ -1
Comparison Period
Net Sales & Operating Revenue – External (FM)
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Variable Margin % (
Variable Contribution
÷
Net Sales & Operating Revenue – External
The numerator in this metric calculation is Variable Contribution. The following calculation is
performed to report the “external” view of Variable Contribution:
+ Total Revenue (Internal & External)
– Total Variable Cost of Goods Sales
= Variable Contribution
Gross Margin %
Gross Profit
÷
The numerator in this metric calculation is Gross Profit. Within FM, the following calculation is
performed to report the “external” view of Gross Profit:
+ Variable Contribution
– Total Fixed Cost of Goods Sold
– Other Manufacturing Costs
– Distribution & Logistics Expense
– Other Operating Expense
= Gross Profit
Research, Development and Engineering Expense (RD&E) as a % of Sales
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Research, Development & Engineering Expense
÷
Selling & Marketing Expense (S&M) as a % of Sales
Selling and Marketing Expense
÷
General and Administrative (G&A) Expense as a % of Sales
General and Administrative Expense
÷
Total Fixed Cost as a % of Sales
Total Fixed Cost
÷
159
The Total Fixed Cost grouping on the Income Statement Report is made up of all other operational
costs that are not considered variable costs including Corporate approved adjustments. This cost
grouping is used exclusively for internal management reporting purposes and is only referenced on the
Income Statement Report. Total Fixed Cost should not be confused with the term Fixed Cost of Goods
Sold defined in the Corporate Management Income Statement Chapter. Total Fixed Costs is the sum
of the following cost components:
+ Total Fixed Cost of Goods Sold
+ Other Manufacturing Costs
+ Distribution & Logistics Expense
+ Other Operating Expense
+ Research, Development & Engineering Expense
+ Selling, General & Administrative Expense
+ Corporate Assessment (COGS) Pre Tax
+ Corporate Assessment (SG&A) Pre Tax
+ Margin Adjustment Pre Tax
+ Defined Pension Adjust Pre Tax
= Total Fixed Costs
Operating Margin %
Operating Income Measurement Basis
÷
The numerator in this metric calculation is Operating Income Measurement Basis. Within FM, two
calculations are performed to obtain Operating Income Measurement Basis:
1st) + Gross Profit
– Research, Development & Engineering Expense
– Selling, General & Administrative Expense
= Operating Income Pre-Assessment
2nd) + Operating Income Pre-Assessment
– Corporate Assessment (COGS) Pre Tax
160
– Corporate Assessment (SG&A) Pre Tax
– Margin Adjustment Pre Tax
– Defined Pension Adjust Pre Tax
= Operating Income Measurement Basis
Profit Before Tax (PBT) Margin %
PBT Measurement Basis (Ongoing)
÷
The numerator in this metric calculation is PBT Measurement Basis (Ongoing). Within FM, two
calculations are performed to obtain PBT Measurement Basis (Ongoing):
1st) + Operating Income Pre-Assessment
+ Other Non-Operating Income & (Expense)
= Profit Before Tax
2nd) + Profit Before Tax
– Corporate Assessment (COGS) Pre Tax
– Corporate Assessment (SG&A) Pre Tax
– Margin Adjustment Pre Tax
– Non US Defined Pension Adjust Pre Tax
– Income Adjust Pretax
– Allocated Financing Charge Pre Tax
– Non US Defined Pen Adj Bef Tax-ContraCorp
+ Special Items – Initial (Exp) Pre Tax
+ Special Items - Transfers (Exp) Pre Tax
= PBT Measurement Basis (Ongoing)
Return on Sales %
161
Net Income Measurement Basis (Ongoing)
÷
The numerator in this metric calculation is Net Income Measurement Basis (Ongoing). Within FM, two
calculations are performed to obtain Net Income Measurement Basis (Ongoing):
1st) + Profit Before Tax
– Total Income Taxes
+ Net Income from Disposed Businesses
= Net Income
2nd) + Net Income
– Corp Assessment After Tax
– Margin Adjustment After Tax
– Defined Pension Adjust After Tax
– Income Adjustment After Tax
– Allocated Financing Charge After Tax
+ Special Items After Tax (Exp) – Initial
+ Special Items After Tax (Exp) - Transfers
= Net Income Measurement Basis (Ongoing)
POME LIGHTER VEIN:
Project Manager Performance Appraisal
Here are some more well-turned phrases to help you judge your charges' capabilities:
Performance Far Exceeds Exceeds Meets Needs some Does not meet
Factors Requirements Requirements Requirements Improvement Requirements
Leaps tall Needs a running Cannot
Can only leap Crashes into
Quality buildings with a start to leap tall recognize
small buildings buildings
single bound buildings buildings
162
Is faster than a Is as fast as a Not quite as fast Is as fast as a Wounds self
Timeliness
bullet bullet as a bullet slow bullet with gun
Is stronger
Is stronger than Is stronger than Smells like a
Initiative than a Shoots the bull
a bull elephant a bull bull
locomotive
Walks on water Walks on water Washes with Passes water in
Adaptability Drinks water
consistently in emergencies water emergencies
Talks with Loses those
Communication Talks with God Talks to self Argues with self
Angels arguments
Order Bookings Steps:
This is to facilitate the correct process for entering and managing bookings from approval to pursue
opportunity/prospect to customer order and to define the Inputs, responsibilities and information flow
for prospect/bookings
Note Who Details
#
1 Sales Sales opportunity
(Prospect) has been
identified and approval to
pursue has been obtained
in line with Approval
Matrix and in accordance
with company
policies/procedures.
2 Sales Ensure all prospects have
Managers been approved to pursue
in accordance with
163
Company
Policy/Procedures,
contract approval
process.
3 Sales Enter the Prospect into
ERP including but not
limited to:
• Clear General Description of
Opportunity with Company
reference first then description
of opportunity (Eg: BP –
Blending System)
• Order date and Estimated finish
• Transaction Type (TTP) ie. Base,
Variation
• Status ie 1 Identified Project,
etc.
• Select Type ie. Project,
Contract, Spot or Other* (refer
definitions at the end of
procedure)
• Term & Multiplier (if applicable)
• Order Value
• C/b ratio
• Probability fields of Project and
Us
Enter details in the
Prospect footer screen
Including but not limited
to:
164
• Allocate Sales Engineer % of
booking value
• Enter Customer Details:
Customer Name, key influences,
End User, Contractor
• Enter Prospect Allocation fields
ie. Proposal #, Proposal date,
Competition, Department, BU,
LOB, Market, Team
Note: ERP/ PMIS
automatically allocates a
Prospect Number
4 Sales; If the approved
Project opportunity is a variation
Managers; to an existing Project
Team enter into ERP (for Project
Leaders Managers/Team Leaders)
including but not limited
to:
• As per Item 3 above
• Project/Contract Number
• Estimated breakdown of labour
& Non-labour
• Populate book/bill profile
• Allocate Engineer
Complete All other
mandatory fields
165
5 Sales and where Determine if the
applicable; Project Customer is a New
Managers & Team Customer or existing.
Leaders
• If the Customer is New advise
Credit Department of
prospective Customer details,
prospect number, amount and
brief description of opportunity
being quoted to allow Credit
Department to preliminary
check credit worthiness.
• If the Customer is an existing
Customer advise Credit
Department of Customer,
prospect number and amount to
allow Credit Department to
preliminary check existing
Customers credit limit.
Note: These checks are
only preliminary and
more detailed checks will
be required when
opportunity is close to
final stage.
6 Credit Advise Originator of
Department status of preliminary
credit check in a timely
manner.
166
7 Sales and where Ensure status of prospect
applicable; always contains accurate
Project Managers & Team information and are
Leaders updated prior to the 1st
Wednesday of the fiscal
month to ensure that
book/bill forecast is
accurate.
Important Note: Prospect
data forms the book/bill
part of the financial
forecast.
8 Sales Managers Check ERP prospects for
accuracy, ensuring that
all of items in Step 3 & 4
have been included and
that they contain up to
date information.
Ensure that all prospects
are updated prior to the
1st Wednesday of the
fiscal month and updated
before the close of
business at the end of the
fiscal month (if required).
9 Project Update prospect status
Managers; and information
Team immediately a change is
Leaders required. If there are any
major changes escalate to
167
Sales Manager.
10 Finance Manager As part of forecast cycle
review book/bill data and
validate with Sales
Management where
applicable.
11 Sales At final stage of proposal
to ensure Customer has
completed appropriate
Credit application forms,
where applicable, in
accordance with the
business policies and
procedures.
Forward completed credit
application to Credit
Department for Credit
worthiness checking along
with prospect number,
purchase order (if
received) and any other
information.
12 Credit Department Credit check Customer for
credit worthiness etc in
line with Company policy
and ACS policy.
13 Sales When purchase order
received from Customer
168
update prospect and
probability fields to 100%
complete handover to
Project Operations
including but not limited
to Purchase order,
contract, signed,
Proposal, etc.
14 Credit Department Ensure prospect is
updated to include status
of credit worthiness
check.
Advise originator and
Project Manager of
approval or otherwise.
15 Project Ensure that prospect is
Managers; checked and consistent
Team with proposal, contract,
Leaders; customer order..
Others Submit to Operations
where Management for
applicable approval.
16 Operations Ensure prospect is
Manager; accurate and review for
Service consistency with proposal,
Manager contract, customer order
and any other relevant
documentation.
169
Approve prospect in ERP
by changing the status to
BO (booked) in a timely
manner prior to month
end.
Advise Originator or
newly created job number
if Base Order booking,
where applicable.
Definitions PROJECT - "Projects and
Renewals" - Projects and
Renewals Guidelines
"Contract" - these
involves having
maintenance contracts
with the customer to
perform work for a set
period of time, usually
one year or more. The
revenue for the
nominated time period is
a set figure. The cost
may be an estimate only.
"Spot" - these jobs are
smaller in value and
shorter in timeframe.
Order value is generally
less than US$20K and for
unexpected less than 5
months.
For the purposes of this
170
procedure the following
definitions have been
highlighted:
Spot is defined as work that is small in
value, delivered in a short period of
time (considered 1 month) and does
not involve a sales representative
bid/estimate process. For spot work,
revenue should be recognized based on
billings and costs recognized as
incurred. Cost may be accrued if it is
determined that the revenue has been
recognized with incomplete cost
recognition.
All orders that do not fit
the Spot, Parts or Periodic
definition. This type of job
requires Project
Management planning
and controls. Is usually
delivered over an
extended period of time
and includes both labour
and parts provision.
POME LIGHTER VEI&:
You see a gorgeous girl at a party.
You go up to her and say, "I am very rich. Marry me!"
That's Direct Marketing.
171
You’re at a party with a bunch of friends and see a gorgeous girl.
One of your friends goes up to her and pointing at you and says,
"He's very rich. Marry him."
That's Advertising.
You go up to her and get her telephone number.
The next day you call and say, "Hi, I’m very rich. Marry me."
That's Telemarketing.
You're at a party and see a gorgeous girl.
You get up and straighten your tie; you walk up to her and pour
her a drink.
You open the door for her; pick up her bag after she drops it,
offer her a ride, and then say,
"By the way, I'm very rich. Will you marry me?"
That's Public Relations.
You're at a party and see a gorgeous girl.
She walks up to you and says, "You are very rich."
That's Brand Recognition.
You go up to her and say, "I'm rich. Marry me"
She gives you a nice hard slap on your face.
That's Customer Feedback!!!!
172
PROJECT’S
HANDING OVER
FROM SALE’S TO
OPERATION’S
173
174
175
Projects Handing over from Sales to Operations:
The project is handed over from the Sales Acquisition group to the Project/Operations Execution
Group, after the receipt of the contract. There after, the project execution commences.
The Detailed Order Information (DOI) of the Project and the Project Charter needs to be filled in by the
Sales, and signals the Project handover to the Execution Group. Apart from DOI, also Contract Review
Checklist at Order Stage ,Risk Analysis ,Bought out equipment( Local and Import), offers,etc are also
to be handed over to the Execution Group.
Communication
Source: Seven Traits of Successful Product Managers;
To ensure timely project execution starts, it is recommended to systematically measure the time
elapsed between:
The date of the contract conclusion
The date of the handover meeting between sales and project management
After the contract receipt, then the order needs to be booked.
Sales Handover Checklist
175
Project Name:
Customer Name: Contact:
Proposal No: Project No:
The sales handover meeting should cover the following items. Records of actions/comments
should be filed in the Project File. Use additional pages if necessary
Summary Of Project
Details:
Products
Owner User
Consultant Full Specification Available
(Y/N/NA)?
contractor Contract Conditions Available
(Y/N/NA)?
Builder Head Contract Available (Y/N/NA)?
Time Frame Works Programme Available
(Y/N/NA)?
Location
Project Type Installed Larg Small Servic Large Small
(tick) e e
Booked Value C/B
Proposal and Project Review:
Item Y, N Comment/Action (add
or NA pages as necessary)
Proposal Checklists reviewed and verified
• Sales Estimate Tool
• Risk Reviews and Actions
• Estimate Inclusions and Actions
• Beta Site Application
Post Tender Negotiations reviewed and
recorded
• Verbal
• Minutes of Meetings
• Correspondence
Review Order versus Proposal
• Order value matches proposal
• Scope of work and terms and conditions
match
• Initial Start-Up Audit agreed with Customer
• Order/contract has been scanned into Zylab
• The contract name is unique and site specific
to meet Zylab requirements
• Proposal Reviewed and Project/Service
Contract overview provided by Sales
Engineer
• System Architecture
• Equipment Type/Layout
• Programme/Schedule
• Sub Contractor Quotes
176
• Outside Purchases
• Special Interfaces
• Special Software
• New Products
• Special Tools or Special Calibration
Requirements
Terms and Conditions of Contract Reviewed
• Liquidated Damages
• Critical Dates
• Response Times
• Documentation Requirements
• Product Traceability Requirements
Proposed Implementation Reviewed
• Project Team
• Specific Quality Requirements
• Site Procedures
• Induction Procedures
Other Items (detail)
Sales Engineer:
Project Engineer/Serv. Tech:
Supervisor/Team Leader:
Additional Documents / Information being handed over :-
A Project Hand-over meeting between Sales, and Project Management prior to project commencing is
mandatory. The following issues have to be discussed in addition to standard Job Transfer sheet.
• Technical specifications,
• Project deliverables(Accountability and Delegation)
• Project risk assessment, if applicable.
The date of the start of project execution
177
Step Who Steps/Notes
1 Project Review the proposal, as prepared by Sales,
Manager and any other associated documentation for
/ the following:
Engineer/ Ensure that the Sales Estimate Tool is
Lead available for review.
Ensure a consolidated estimate has been
prepared incorporating all changes to the
original proposal. All quotations must be
documented along with a clear scope of
work.
Ensure any subcontractors' scope of work
aligns with Project Organization's.
Ensure Project Organization's scope of work
is clearly defined with the customer.
Ensure contract documentation is clear,
specifically what documentation forms the
contract.
Review contract conditions and identify
major risks, including health and safety
risks.
2 Project Should the Sales documentation or
Manager information be lacking or not in accordance
/ with the requirements of the project
Engineer/ methodology, the project should be handed
Lead back to Sales for rectification. Check for the
following:
Scope is well defined
Risks are identified
Costs and margin are clear
Schedule has been outlined
Resources have been identified
Once this documentation has been
reviewed, prepare for and organize a formal
handover meeting with Sales staff. Include
relevant project and supervisory personnel.
3 Project During the handover meeting, resolve any
Manager questions arising out of the review of the
/ documentation, or at least plan their
Engineer/ resolution, and document those responsible
Lead for actions. Sales staff is responsible for
actions resulting from this meeting.
178
Project
Manager
Use either the Sales Handover Checklist and
4 /
minute the meeting.
Engineer/
Lead
A major part of any handover is a review of
the scope of the project. What is included,
what is excluded, what is specified but
potentially difficult to deliver.
Poorly defined scope and scope risk is a
major contributor to project slippage. Often
what appears to be well defined in the mind
of the salesman is not well defined when an
argument arises on site.
Most arguments will result from exclusions
at the proposal stage not being transferred
to the project order or qualifications on
scope given by the customer. Some of the
multitude of possibilities are as follows:
UPS Power to all Installed Equipment
Power requirements (number of power
points locations etc)
Steel Conduit versus Plastic Conduit
Interfaces to unknown equipment
Note All Fire proofing of penetrations
Quantity of spare points
Level of Documentation
Monitoring fees
Supply of telephone lines and fees
Ongoing Licensing fees
Mounting of equipment, consoles desks etc
Recesses or rooms to locate equipment
Temporary works
Marking of cables
Allowance of undefinable scope such as
tenancy variations
Plumbing and piping of sensors
Flow meters
Energy meters
Latent Conditions
This is just a short list of any number of
scope variation issues that could lead to a
179
misunderstanding of what was sold and
what needs to be delivered..
During the review phase you must go through every
exclusion listed on the proposal and cross reference
the scope documents such as specification, drawings
Project
etc. Invariably if we have excluded it but the scope
1 Manager /
documents require it, an argument over whether it is
Engineer
in or out or subject to variation will result. This will
generally not be a win situation for Project
Organization.
There are a number of solutions to the dilemma of
scope.
Should the scope differ from the proposal, ask the
client for an order amendment referencing the
proposal and its exclusions.
Include the Project Organization proposal as part of
the contract documents.
Project
Revise the proposal and price to suit the required
2 Manager /
scope
Engineer
Increase the cost of the project (i.e. slip C/B) allowing
for the extra work prior to project booking.
Negotiate the individual points of contention with the
client prior to commencing work
Walk away from the contract should the risk of
slippage be unacceptable.
Ideally this should be handled in the sales phase of the
180
project, however history has shown that Operational
involvement is such negotiations leads to a more
acceptable outcome for all parties, including the
customer.
After a scope review has taken place the following
must have been identified:
Differences between proposal and scope documents
(Spec Drawings etc)
Questionable scope items that have neither been
allowed for nor excluded
Scope items that are not possible to deliver
Project Grey areas or areas of ambiguity in the scope
3 Manager / documents that may lead to argument at a later time.
Engineer An example of this would be the statement for flow
measurement by others” Annubar is a brand name,
not a product type and a sensor is required to convert
the output of this device into something useful. What
is therefore by others, the complete assembly, a water
mounted pitot probe or some other suitable flow
measuring device?
Transfer areas of deemed risk to the prospect in the
risk management area.
Project Following Handover and contract and scope
1 Manager / acceptance by the required parties, update the
Engineer prospect details.
Project The contract payment terms will then need to be
2 Manager / forwarded to Accounts receivable for cross checking of
Engineer suitability and if they are appropriate credit signoff will
181
be given and the limit raised on the prospect.
Project The prospect may now be submitted to the Operations
3 Manager / Manager/regional Manager for booking.
Engineer
Some items that must be setup in the prospect prior
to booking include :
Correct Business Unit, LOB and team
Correct Booking Split and Multiplier
Correct Start and finish dates
Project
Correct Billing Profile and Cost Profile
4 Manager /
Engineer Correct Labour allocation (WBS)
Correct Material Allocation
Correct Risk allocation
When booked the project will be assigned a unique
project number which will stay with the project during
it’s life cycle.
Generally, this exclusion should occur immediately
after the base booking.
Project
The management of Warranty monies for the Defects
5 Manager /
Liability Period must be in accordance with the
Engineer
company policies of Warranty.
The process for managing Warranty is contained within
Note All the Finance procedures.
1 Project Using the job number created in ERP, create a job file
182
Administrator in the local server Systems directory Use the following
format to allow consistent identification of the project
:-
/Project Number - Project Description (eg
42701539 - Jackpots Casino Security)
Extract the standard job file format into the directory
created. It is important to obtain the jobfile structure
from this intranet site to ensure that the most recent
templates and tools are made available to the project
team.
Using the Job File Index template, create Binder
covers and binder spines for the project. The number
of binders required will depend on the size and
Project duration of the project. The Project Engineer /
2
Administrator Manager may be able to provide an indication of the
number of folders required.
Collate all hardcopy project documentation and file in
the project job file under the relevant sections.
All electronic project documentation is to be stored in
this file structure (including project related emails).
3 Project Team
The storage of project files on local drives 'eg C:/'
should be avoided where practical.
Ensure that a consistent file naming convention is
deployed for the project. A suggested convention is :-
Project Number-XYZ-ABC whereby,
4 Project Team Project Number is the job number created in ERP
XYZ is a three letter identifier for the file type
ABC is a unique sequential number for the file
For example,
183
42701539-RMP-001 (Risk Management Plan)
42701539-RFI-001 (Request For Information)
42701539-FAX-001 (Facsimile)
42701539-EOT-001 (Extension of Time)
42701539-SSP-001-R03 (Site Safety Plan, Revision 02
- with previous revisions 01 and 00 stored as
superseded files)
The customer may also dictate the preferred file
naming convention for the project, in which case these
requirements should be included in the Project Plan.
It is quite likely that any major project undertaken will
have associated contract terms and conditions or a
contract that can be modeled on a number of different
Standards.
The contract must be checked by the Legal
Department or the Contracts Department for risk.
There are some areas that can be contained within a
contract that cannot be accepted by Project
Project Organization e.g. Unlimited Liability or uncapped
1 Manager / Damages, professional indemnity Insurance or
Engineer unfavourable payment terms.
Should these conditions form part of the contract
conditions negotiations must take place to mitigate or
minimise the risk. If unsuccessful the project cannot
be booked and the work cannot go ahead.
The Contract Abstract tool gives an overview of areas
that need to be checked for acceptability to Project
Organization. Using the Contract Abstract Checklist,
review the contract and ensure all pertinent elements
184
are understood and catered for in the project plan.
If you are in doubt as to whether a contract can be
signed or accepted ask your Team Leader, Operations
Manager, Legal or Contract Department.
Project Where a purchase order is received referencing a
2 Manager / Project Organization proposal and no other contract
Engineer terms and conditions, no review is necessary.
Project
Where a purchase order is received and no Terms and
3 Manager /
Conditions are attached, no review is necessary.
Engineer
Where a purchase order is received that references
Project
terms and conditions directly with no contract (e.g.
4 Manager /
damages payment terms etc). These must be cleared
Engineer
by your manager before the project can be booked.
Generally terms and conditions of contract are
reflected as constraints in the project plan. Ensure all
onerous terms and conditions, in particular provisions
for damages, are identified together with treatment
measures. Review with your supervisor and forward
the contract to our legal office as required. Refer to
the HBS Authority Matrix for approvals required in
Project
relation to the contract value and indirect and
5 Manager /
consequential damages. Familiarize yourself with time
Engineer
bars and notification requirements for EOT and
variation claims. Clearly identify contract
administration process, eg. EOT, variations and the
like.
If final contract documentation is forwarded after
letter of acceptance, carry out thorough comparison
with the documentation used during the tender. As
185
necessary, conduct negotiations with the client to
minimise the contractual risk for Project Organization.
Unlimited damages cannot, under any circumstances,
be agreed to.
Following agreement to the terms and conditions with
your supervisor, arrange for the execution of the
contract. Should you have any legal based queries,
Project please refer to our Legal Department for further
6 Manager / assistance.
Engineer Also note progress claim requirements and plan
accordingly. Finally review insurance and site
commencement requirements so these provisions are
in place before installation commences.
186
Any Questions?
Comments? For
better
improvement
Contact:
georgegautam@gmail.com
00918912550564
187
© 2007, POME, Gautam_Koppala, All Rights Reserved
188
Heated gold becomes ornament. Beaten copper becomes
wires. Depleted
stone becomes statue. So the more pain you get in life you
become more valuable.
But year's later collection of

mistakes is called experience,
which leads to success.
189
190

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1

Kanaka maha lakshmi Thalli

Be bold when you loose and be calm when you

"Changing the Face" can change nothing.

2007, POME, Gautam_Koppala, All Rights Reserved

Credit Check Sample Format:

Customer &ame (Country):

Project &ame (Country):

&ew Offer: Current Status:

Particulars Credit Limit – INR million

Tender Due Date Total Over dues – INR million

Value – INR million (all

Expected Collection Plan of Over dues

Sales margin (%) ___%

EBIT (%) ___%

Existing Unexecuted Order Value (UOV)

Payment Terms • Credit Rating / Bankers’

• Customer’s Internal Rating To be filled

Order backed by which negotiation SFS Country Rating To be filled by CF

Financing cost factored _____% of order value (@____% pa)

Expected Turnover Plan Bankers’ Opinion To be filled by CF

Name of multilateral agency funding

Business Case: CF Views:

2007, POME, Gautam_Koppala, All Rights Reserved

Particulars USD EUR

To be filled by Chief Financer( CF)

2007, POME, Gautam_Koppala, All Rights Reserved

Enquiry No. & date

Offer No. & Date

Tender Requirement/ Order

2007, POME, Gautam_Koppala, All Rights Reserved

EMD BG/DD/Not Required Yes / No

Bid due date Specify Yes / No

Offer Validity Specify Date Yes / No

Divisible/ Indivisible / Ex-Works/

EPCG Benefits / STPI/ Free Zone

Price Basis Firm / Variable Yes / No

Delivery / Completion Specify Date /Period Yes / No

Terms of Payment Specified/Not specified Yes / No/ NA

LD / Penalty Clause for delay Applicable/Not Applicable Yes / No

LD / Penalty Clause for

Warranty/Guarantee Specified/Not specified Yes / No/ NA

Insurance Required/Not Required Yes / No

Bank Guarantee Required/Not Required Yes / No

Arbitration Specified/Not specified Yes / No

2007, POME, Gautam_Koppala, All Rights Reserved

Statutory Variation in taxation Allowed/Not Allowed Yes / No

Any special comments Specify Yes / No/ NA

Single Line Diagram Required / Not required Included / Not Included

System Architecture Required / Not required Included / Not Included

Data Sheets Required / Not required Included / Not Included

Technical Clarifications / Deviations Required / Not required Included / Not Included

Screens for Software Required / Not required Included / Not Included

Reference Lists Required / Not required Included / Not Included

Catalogues Required / Not required Included / Not Included

Accepted / Not accepted /

2007, POME, Gautam_Koppala, All Rights Reserved

Type of execution SL Standard / Non-Standard Considered / Not considered

Applicable Standards Specify Yes / No

Comm. / Maint.spares Specify scope Included / Not Included/ NA

Training to client Required / Not required Included / Not Included

Special / Type Tests Required / Not required Included / Not Included

Third Party Inspection Required / Not required Included / Not Included

Financing cost factored _% of order value (@% pa)