Chapter 3

Systems Development Cycle and

Project Conception

Project Management for Business,

Engineering, and Technology

Proposal Preparation
Conception Phase

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Systems Development Cycle (SDC)
Phase A: Conception phase Phase B: Definition phase
Initiation stage (RFP) Project definition
Feasibility stage System definition
Proposal preparation User and system
requirements

Phase D: Operation phase Phase C: Execution phase

System maintenance Design stage
and evaluation Production/build stage
Fabrication
Testing
System System
Implementation stage
Improvement termination
Training
Acceptance tests
(To Phase A: Installation
repeat cycle) Termination

Proposal Preparation
Problem
Pre-Feasibility
IDEA
Stage Investigation
Opportunity

SDO Review feasibility RFP

study report

Top mgt.

Middle
mgt. Proposal
Preparation
Engineers

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Proposals
◼ The proposal is one of most important
documents in project life span.
◼ Purposes:
1. Sales
❑ SDO describes to customer what it will do
❑ Getting contract depends on proposal

2. Contract
❑ Customer assumes SDO will be able to deliver on what
is said in proposal
❑ If both customer and SDO sign off on proposal, contract
is created to deliver whatever SDO proposed

Summarizing with Q&A

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Contents of Proposal

Contents of Proposal
◼ Standard Contents
❑ Cover Page
❑ Executive Summary
❑ Technical Section (Statement of Work)
❑ Cost and Payment Section
❑ Legal Section
❑ Management/Qualifications Section

Appendix B - Page 637

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 Contents of Proposal

◼ Standard Contents
❑ Executive Summary
◼ Briefly state contractor’s qualifications and
experience
◼ Draw attention to unique features of proposal,
price, and contractor’s ability to do project

Explain the proposed solution

Draw attention to unique

features of proposal

Briefly state contractor’s

qualifications and experience

Proposed cost and time

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Contents of Proposal

◼ Standard Contents
❑ Executive Summary
◼ Briefly state contractor’s qualifications and
experience
◼ Draw attention to unique features of proposal,
price, and contractor’s ability to do project

One of the most important sections

of the proposal

Contents of Proposal (cont'd)

◼ Standard Contents
❑ Technical Section (Statement of Work)
◼ Gives scope of work and planned approach
◼ Describes realistic benefits in detail to demonstrate that
user needs will be fulfilled
◼ Major project phases and key deliverables
◼ Contains schedule when end-items will be delivered
◼ Recognizes and discusses any problems or limitations
to approach

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Contents of Proposal (cont'd)
◼ Standard Contents
❑ Technical Section (Statement of Work)
◼ Gives scope of work and planned approach
◼ Describes realistic benefits in detail to demonstrate that
user needs will be fulfilled
◼ Major project phases and key deliverables
◼ Contains schedule when end-items will be delivered
◼ Recognizes and discusses any problems or limitations
to approach
Should be specific to avoid misunderstandings
and demonstrate method and appropriateness
of approach, but not too specific

Contents of Proposal (cont'd)

◼ Avoid Giveaways
❑ Protect Intellectual Property (IP)
◼ Patents
◼ Trade secrets
❑ Customer can do on its own, or hire
another SDO to do it

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Contents of Proposal (cont'd)

◼ Standard Contents
❑ Cost and Payment Section
◼ Addresses contractual arrangement and method of
payment
◼ Breakdown of projected hours for direct, indirect, and
special activities, associated labor charges and
materials expenses, and price of project

Contents of Proposal (cont'd - Example)

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Contents of Proposal (cont'd)

◼ Standard Contents
❑ Legal Section
◼ Contains anticipated, possible, or likely problems and
provisions for contingencies
❑ Example – appropriate procedures for handling changes
due to scope of project or cost inflation, and for terminating
project for cause or for convenience

Escalation Provisions

Contents of Proposal (cont'd)

◼ Standard Contents
❑ Management/Qualifications Section
◼ Background of contractor organization, related
experience and achievements, and financial
responsibility
◼ Organization of management, and resumes of project
manager and key project personnel

Customer might select SDO based upon this and not SOW

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 Organization of
management, and
qualification of project
manager and key
project personnel

Background of
contractor organization,
related experience and
achievements

Summarizing with Q&A

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Proposal Preparation, Submission
and Evaluation

Preparation of Proposal

◼ Prepare Preliminary Project Plan

❑ Use basic planning tools to determine necessary work,
time, and cost for the project
◼ Involve Key People (Future Project Team)
❑ Especially SOW, technical section

◼ Issue: Who Pays for Proposal?

❑ Usually SDO, sometimes customer pays cost for
contract winner
❑ Falls under overhead

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 Proposals
◼ Issues
❑ Unsolicited proposal
❑ Customer sends RFP with no intent of
awarding contract
❑ Contractor sends proposal with no hope of
winning contract Proposal
◼ Bid Bond

RFP
SDO
Customer

Proposal Evaluation
Problem
Pre-Feasibility
IDEA
Stage Investigation
Opportunity

RFP

Proposal Proposal
Evaluation Preparation

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Customer Review of Proposal
◼ Customer evaluates
❑ Cost
❑ Benefits
❑ Likelihood of Success
❑ Contractor Reputation
❑ … to Narrow the List
◼ Often a handful of good proposals remain
after many others have been discarded.
These go to negotiation.

Selecting The Winning Proposal

Simple Rating

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Selecting The Winning Proposal

Weighted Rating

Negotiation

◼ Customer and SDO meet to

❑ Clarify terms (ensure common understanding)
❑ Reach Agreement on requirements, schedule, or
price

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Summarizing with Q&A

Project Contracting

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Contracting
◼ Every project involves contracting
❑ an agreement for one party (SDO) to do
something (project) for another (customer)

- RFP-Proposal Process
- Contract Administration
- Procurement Management

Contracting (Cont’d)

◼ Procurement management:
❑ Subcontractors are paid and controlled by SDO.
Management of procured goods and work services is
called procurement management.

◼ Contract Administration:
❑ Ensuring that work performed is in conformance with
the contract
❑ Ensuring that the contract is up-to-date regarding
ongoing changes in the project, customer needs, and
the contractor’s capability.

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Basic Kinds of Contractual Agreements

◼ Fixed Price Contract—Price paid by the

customer for the project is fixed regardless of the
costs incurred by the contractor.

Basic Kinds of Contractual Agreements

- Cost estimate: $100,000
- Fee: $10,000
- Target Price = $ 110,000

Fixed Price Contract

- How much does the contractor receive if actual
cost ends up to be $80,000? $110,000
- How much does the contractor receive if actual
cost ends up to be $140,000? $110,000
- What happens when the project actually costs 300,000?

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Basic Kinds of Contractual Agreements

◼ Cost-Plus Contract—Price paid by the

customer is based on the costs incurred in the
project plus the contractor’s fee.

Basic Kinds of Contractual Agreements

- Cost estimate: $100,000

- Fee: $10,000
- Target Price = $ 110,000

Cost-Plus Contract
- How much does the contractor receive if actual cost
ends up to be $80,000? $90,000
- How much does the contractor receive if actual cost
ends up to be $140,000? $150,000

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 Basic Kinds of Contractual Agreements

Project I Project II
Fixed Price Contract Fixed Price Contract
Cost Plus Contract Cost Plus Contract

Basic Kinds of Contractual Agreements

Fixed Price Incentive Cost-Plus

Contract Contract Contract

Contractor owns Contractor and Owner owns

the risk of cost owner share the the risk of cost
over-run risk of cost over-run over-run

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 Basic Kinds of Contractual Agreements

◼ Incentive Contract—Price paid by the customer

depends on the contractor’s performance in
comparison to the target price, schedule, or
technical specification.
❑ The contractor either receives a bonus for exceeding
the target, or must pay the customer a penalty for
falling short of the target.

Basic Kinds of Contractual Agreements

- Cost estimate: $100,000
- Fee: $10,000
- Target Price = $ 110,000

Incentive Contract (penalty or bonus is 50% of cost overrun or cost saving)

- How much does the contractor receive if actual cost ends
up to be $80,000?
$80,000 + $10,000 + (0.5 x $20,000) = $100,000
- How much does the contractor receive if actual cost ends
up to be $180,000?
$180,000 + $10,000 - (0.5 x $80,000) = $150,000

Fixed Price Incentive Fee Contract (page 118)

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Summarizing with Q&A

Conception Phase Outcomes

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 Systems Development Cycle (SDC)
Phase A: Conception phase
Initiation stage (RFP)
Feasibility stage
Proposal preparation
(Proposal/Contract)
Phase B: Definition phase
Project definition
System definition
User and system
requirements

Phase D: Operation phase Phase C: Execution phase

System maintenance Design stage
and evaluation Production/build stage
Fabrication
Testing
System System
Implementation stage
Improvement termination
Training
Acceptance tests
(To Phase A: Installation
repeat cycle) Termination

Phase A: Conception

◼ Outcomes
1. A clear problem formulation and list of user needs
2. A rudimentary but well-conceptualized system
solution (SOW in RFP, proposal, and contract)
3. An elemental plan for the project in the proposal
4. An agreement between the costumer and the
contractor (i.e., project has been approved and
funded).

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Summarizing with Q&A

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