My Work Log

While we would have gone through various training sessions and taken certification on aspects of the financials of a project – it is only on the ground experience which moulds the nitty-gritty of a project commercials proposal into you.

 

Let me get straight to the point instead of beating round the metadata (read bush!!! ).

 

Broadly the breakup of the Commercials is as follows

a.       Effort required to develop the application

b.      Services Cost

c.       Software licensing costs

d.      Hardware licensing costs

e.      Hardware maintenance costs

f.        System Maintenance cost

g.       Warranty Costs

h.      Program Management Cost

i.         Travel and Logistics Cost

j.        Implementation Timelines

k.       Terms and Conditions

l.         Payment Milestones

 

Each of the above can be suitably elaborated.  However a primary driver for an organization which we serve would be the $$ which the organization would retain and the pass-thru costs.

 

Effort required to Develop the application

Ideally the basis for this would be a function point estimate or a use-case estimate – which would serve as the base.  Once the FP count has been converted into man days of effort – then the effort is extrapolated into various categories of development such as:

Requirement Elaboration

Solution Design

UI Design

Construction & Unit Testing

Functional Testing (System-Integration)

Performance Testing

Application Deployment

User Acceptance Testing

Onsite Project Management / Coordination

Offsite Project Management / Coordination

Documentation and Online Help

User Manual

Once the effort for each of the above activities has been mapped then the type of resource who would execute each of the above is also arrived at.  With that information a 25% contingency buffer is added to the effort and the cost is arrived at.  Ideally the cost would be arrived with a rate reference which is to be held separately in a different worksheet and the same has to be referred to as a formula.  If during rate negotiation there is some difference – then the separate worksheet can be independently updated and the remaining worksheets would fall in place.

 

Services Cost

While broadly the above section covers the effort and cost required – there are categories apart from the above – who contribute to the success of the project – like niche skill testing personnel, organizational change management consultants, project management etc.  Here again their presence onsite and offshore would be calculated and a suitable rate applied. 

 

Software Licensing costs

When an application is being developed it would need necessary software, operating systems, database etc. Again this environment would need to be deployed in suitable places like

                       i.            Development Environment

                      ii.            UAT and Staging Environment

                    iii.            Production Environment

                    iv.            Backup Environment for Production

Again the cost would vary depending on where each of the above environment is being deployed.  Ideally the Development Environment would be offshore and the rest onsite.  So the vendor prices at both these locations for the same software would vary.  Hence the vendor has to be contacted and the list price and discounted prices have to be negotiated. 

 

While proposing the commercials to the client and while budgeting – the list price is what has to be considered.  Later the discounted price can be driven during the actual expenditure.  This should be kept in mind – especially if one person has done the budgeting and another person is doing the expenditure tracking.  It could create a potential risk of paying more while you can get for less ……..if you don’t track this fact judiciously.

 

Another aspect of the commercials is the markup prices.  While you as a services organization may quote a certain price to the customer for the software licensing – that cost should also include the markup costs.  Markup costs are generally 10% and what it means is that you will be charging your customer 10% more than the price which you will be buying the software from the vendor. You will keep the 10% to yourself.  Generally the markup costs are not exposed to the customer and are made intrinsic in your quote.

 

Hardware Licensing costs

The same set of factors which influence the software licensing – would also influence the hardware licensing costs.  Generally if you are developing a purely application based system which would run on the server – then you will have to take into account the server, switches and firewall.  If the system has some other hardware which are specialized – then you would have to take into account that as well.  Again if that hardware is something which you will have to import into that country – then there would be import duty, freight/handling charges and stock. 

 

Import Duty is the duty you will have to pay to the country customs – where you are importing the special hardware.  Freight/handling charges are those you would give to the shipping company which would courier it to the destination.  Stock is the ‘backup quantity’ of the hardware in question.  To elaborate further – if there is a specific hardware of quantity 50.  Of that quantity – there is a possibility that 10% or 5 units of it could be faulty or damaged in transit.  To counter this we should add 5 more pieces of the hardware and charge the customer accordingly.

 

The quantity of the hardware and the configuration of the hardware would depend on the various environments in which this would be deployed and the peak load which you foresee for it.  The environments are similar to the Software Licensing Costs factors. Other factors like discount price vs. list price, markup price are all applicable here as well. 

 

Maintenance costs

This would primary take into account the number of people who would be involved to maintain the system during the first year of installation of the system.  Typically the system deployment costs would include the maintenance costs – so this would have to be transparently accounted for.

 

Generally what it would include would be any specialized hardware maintenance and also the number of people who would be dedicated to maintain the software throughout the year. 

 

Also if the customer requires a helpdesk to be setup – then the costs to setup the same would also have to be accounted for depending on the location of the helpdesk (onsite/offshore).

 

Implementation Timelines

The overall implementation sequence and months where the different modules of the system would be implemented should be indicated.  Generally the sequence would include the development timelines, UAT timelines, go-live timelines, post-go-live support timelines.  A Gantt-chart or a similar representation should be used for this.  Visio and Microsoft Project have Gantt-chart features which can be used to create the same and later posted in the commercials document.

 

Services Costs

If there are any specialized services to be used during the creation of the system like a DBA or an Organization Change Consultant – then their service costs would have to be accounted for.  Again the duration for which the service is required at onsite and offshore would be key factors along with the per day costs would need to be factored in.

 

Travel and Logistics Costs

The number of people travelling onsite and the duration of their stay onsite would be the key factors used for this.  At times clients pay for the travel and stay and at others if it is as turn-key solution – then the services organization would have to bear the cost. 

 

Program Management Costs

Apart from the project management – there would be effort spent by senior management in this whole project – perhaps throughout the duration of this project.  This would have to be accounted for.  Generally it would be calculated as 1 person for the entire duration of the project.  Taking his per day rate (which is generally higher than the rest) it would be multiplied into the no. of months for which the project spans with the no. of days in each month (generally 20 or 21 or 22 – as what the services organization considers as the standard).

 

Bridge PO Costs

Generally the effort spent to do this whole planning and creating of the commercials – would be priced here as Bridge PO costs.  Mostly the actual project would not have started and hence there is no project-order (PO) which would have already been placed.  So the effort spent to do this entire activity would be accounted here.

 

Terms and Conditions

All assumptions and payment terms and conditions would be exhaustively listed here.  This would form a key input to the legal team.

 

Milestone Payments

The sequencing of the payment from the client and the activities which would serve as the basis before a certain payment is made and who decides when the specific activity is completed – is what is elaborated here.

 

Meta Advice

1.       Generally usage of excel is best advised for the elaboration of the commercials

2.       A summary sheet should be the driver sheet which links to various sub-worksheets which elaborate each of the above.

3.       The summary sheet may have graphs/charts which would visually represent which categories take what chunk of the costs. 

4.       Usage of hyper-links in the summary sheet is advised.  When you quote a certain category and a total figure against it …………….it is advisable to link the figure to the total figure from the sub-sheet where the category is elaborated.  Also a back-link from the sub-sheet to the summary sheet is also advisable. 

5.       All totals and any figures should be preferably formula driven – where possible.

6.       The services rates should be mentioned in a separate sheet.  These rates should be used, through formulas, throughout the document.  The reason for this is that during the negotiations – it is the service rates which are the most common point of negotiation.  So it is easy to just change the rate sheet and the rest of the document automatically gets updated.  An advice about formulas is that sometimes they play up.  So a good review of all formulas should be done before submitting the document to the customers.