This blog posting primarily covers the process of vendors bidding for a project (mostly an IT project) from a customer organisation.  While we primarily give a lot of importance to RFPs (although it deserves that importance!!!) we need to see this as one of the thicker spokes in the wheel of winning a bid.  The other spokes are discussed in reasonable detail.  This is not a very elaborate exposition of the entire bidding process – but would serve as a good overview.

I would be dedicating a separate blog posting to the RFP process itself sometime later.  But for now this ………

Before we get down to dirty our hands with the bidding process – let us try to understand why customers choose to outsource and various other aspects of outsourcing which are decision drivers.

There are various reasons why customers outsource their work. Cost is not the only reason – although it is the most common one. Other reasons are:

• • Expertise, Skill Gap – The customer does not have the necessary resources with a particular skill/expertise to implement the project. Hence they would like to outsource.
  • Risk Mitigation – The customer’s core line of business is different from what the particular project/work demands. Hence the customer outsources as it is risky for the customer to do it himself as it is not in line with his core line of business. But giving out the work to a vendor would also have its own risks. This is where penalty clauses come into picture which would protect the customer from the risk of outsourcing to the vendor.
  • Time Constraints – The customer has limited resources and other priorities rather than execute a particular project.
  • Strategic Drive – There may be other strategic reasons why a customer may choose to partner with a vendor (or rather a very specific vendor).
  • Core Competency – Where the customer wants to focus only on his core competency and nothing else.
  • Bundled Offering – The customer bundles a lot of work to a vendor and keeps the main key work pieces only with himself. This way with a single vendor handling bundled work – the customer incurs some cost savings and it is less time consuming.
  • Cost Saving

While that sums up some of the drivers which makes the customer decide on wether to outsource or not ………let us now look at what a customer might look at in potential vendors while outsourcing.

1. Capability
   • Experienced
   • Demonstrated. In case the technology is new or the work is somewhat new then does the vendor company have a demonstrated capability to do it (need not have experience on it).
2. Track Record. Is this company longstanding
3. Stability. Has there been any bad publicity or turbulence within the vendor org.
4. Value Delivery. Is the organisations market share-value good. How much value does the vendor give to the client. How much importance is given to value addition.
5. Processes. CMMi and other value additions to the client.
6. Resources. Good quality resources. Certifications. Industry experience.
7. Culture Fit. The client company may belong to a different country like Japan and the vendor may belong to say Egypt – so there may not be a good culture fit.

Let us now look at the different types of Outsourcing:
1. Staff Augmentation. The client company requests the vendor company for x no. of resources for y no. of months. After that the vendor role ends. There is not much value add to either parties here.
2. Project Based
   • Time and Material
   • Fixed Bid
3. Annuity Based. A 30 million dollars for 5 years is 6 million annuity per year. Its more like a Fixed Bid where the price is fixed for 5 years. For a client the annuity based is more profitable. It’s a high risk project

The key decision makers at the customer end who decide on outsourcing have to consider the below mentioned specific parameters while preparing an outsourcing report to get a buy in from other stakeholders.  These are:

• Need Assessment
• Cost Benefit analysis
• Risk Assessment
• Industry Know-how – of both the customer and potential vendors.
• Political Influencers – like employee unions, local political parties etc. who may have a vested interest in not allowing the outsourcing to happen.

Now comes the main part of this blog posting which covers the processing of bidding and winning a project:

1. Request for Information(RFI). After the client decides to outsource they identify potential vendors in the industry who are capable of doing this work. The client org tries to understand the vendor by requesting the vendor to give information about themselves. This could include details on the working that the vendor org is doing/has done and the customers they have etc. The information that is requested is at a high level and they will not ask for details of how the vendor would go about delivering for a particular requirement.
2. Request for Proposal (RFP). The shortlist from the RFI process would be contacted for the RFP. The client company depending on its maturity would give a schedule to the vendors and in some cases also provide a standard template on which they can revert back. Once the vendors revert back – the client team would come up with some evaluation and scoring mechanism with a set of parameters in mind. They would use this to evaluate each response proposal. The proposal should be fairly in-depth with technical overview and timelines. SLAs are also brought up here.
3. Due Diligence(DD). In some client organisations they also ask the vendor org to come forward and do a due-diligence. In some cases the due-diligence at the client place would have to be done discretely so that people on the ground don’t realize that a particular work is going to be outsourced. This stage gives an opportunity for the vendor org to assess how well their proposal has been and to assess how complex the system of the client org is. Also risks, culture, environment, legal regulations and other parameters are assessed. Sometimes multiple vendor organisations do the due-diligence in parallel. The Due Diligence also gives an opportunity for the client organisation to get a feel of the vendor org and their culture fit.
4. Proposal Update . The proposal of the RFP is updated based on the DD stage. Most of the time – there will be some cost variation from the original RFP quote of the vendor.  The client org may not permit a huge cost variation from the RFP quote.
5. Proposal Presentation. This is where the vendor org would make the presentation to the customer org that going with them is the best bet for the customer. Typically senior people in the vendor organisation and technically very sound people who have exposure to the technologies involved and the work that is going to be done ………are the people who will make the presentation. In turn the client org will look for the confidence level and passion which the vendor team reflects in trying to meet the client teams objectives while implementing the proposal.
6. Reverse Due Diligence. After further shortlisting ……..the client team comes to the vendor organisation and checks their team, location, culture to see wether the are what they claim they are and they do what the claim they have been doing. At times here is where the client sees how much more you can give beyond the basic stuff like meeting SLAs etc. This process helps the client team to further shortlist.
7. Contract Negotiations. This is the last stage of shortlisting. Here various aspects of the contract, payment terms, payment schedule – what is non-negotiable point and what is negotiable point. The vendor teams which are involved in contract negotiations are the legal, finance, delivery units, sales, pre-sales
8. Contract Signing.

Each of the above stages is discussed in fair detail below

RFI Stage. The drivers for the RFI are:

1. Consideration Set: Here the client comes up with a list of parameters used to evaluate vendors and a set of vendors who are being considered for the bid (consideration set) is arrived at.
2. Company and Capability Information: Here the client tries to evaluate various potential vendors.
3. A high level profile match: The client does a high level match based on parameters
4. Screening: Weeds out vendors whom they think don’t fit the match
5. High Value/High risk projects: Some vendors may be capable but may not be able to handle a very high value/high risk project. So this is another parameter which is crucially considered while deciding on the RFI

The vendor role in the above is quite minimal unless the client company requests for some additional information.

RFP. The proposal aids in the following:

1. 1. Helps in shortlisting the consideration-set for further screening
   2. Approach to address client needs
   3. Assessing the ability of the vendor
   4. Provides for evidence of ability
   5. Technical Conviction from the vendor in implementing the solution. This is an important criterion for the vendor that the technical conviction flow through every page of the RFP.
   6. High Level Cost of the vendor for delivering the solution

From the vendor end ..a good RFP would cover the following areas:

1. The technical and business solution to the work which the client envisages
2. Clarity and Depth of the presentation
3. Evidence of value delivery. Without the client asking …how can we give them more value than what they ask for. This is important.
4. Client Testimonials. This is very important.
5. Strength and Longevity of other engagements. How many people have been involved in a particular project and for how long have they been with the vendor.
6. Maturity (how has the vendor approached the RFP)
7. Input to Bid. The vendor team might decide to bid or not to bid for the RFP due to various factors.

Some client organisations call RFP as RFQ (Request for Quote). When the organisation calls it RFQ then it means that they are leaning towards cost.

As I mentioned earlier – I will be dedicating a separate blog posting to RFPs alone ………..sometime later.

Due Diligence:

• Done to have a greater understanding of the customer requirements
• The vendor demonstrates his ability of approach, technology and capability at the customer location while studying the system
• The kind of people who go to the client location to do the due diligence is important as that reassures the customer of the kind of investment we are prepared to do to win the deal.
• The approach that we use during the due diligence is important. If we use a value approach wherein the customer gets the idea that we have more to offer in terms of value add to the customer – then they would be more interested.

• The vendor role is significant in that it involves:
  • Validating with the customer the solution that we propose is what fits the requirement
  • Fine tuning the approach where needed
  • Presentation (clarity and approach). How the vendors present themselves and carry themselves – so that it builds a good professional impression with the customer as also helping in building a good rapport with the customer
  • Personnel skill: It is important for the vendor to establish a solid working relationship with key personnel of the customer so that this can be carried forward right into the working of the whole project.
  • Finally the lessons learnt have to be carried into the proposal and it would have to be updated suitably.

Proposal Presentation – Drivers:

• Conviction – Is the solution convincing
• Robustness – Will the proposal fall apart with some deep questioning on the solution and its technical features. Will the solution scale up.
• Understanding of the requirement and its subtler aspects.
• Approach. Sometimes a proof-of-concept might help to demonstrate how we might do this.

The team involved would be:

• Technical team which would most likely to implement the solution
• The senior people in the vendor company, the sales people would also be there in the presentation

Reverse Due Diligence:

It is generally done by the customer at the vendor location. The key objectives are:

• Validation of what the vendor claimed to be true
• Understanding the vendor setup and environment
• Get a feel of things at vendor location
• Assess the risk
• Check wether there is any culture mismatch
• Build a relationship and identify the key people with whom the interaction base would have to be built.

The vendor role here is to

• Facilitate validation
• Risk mitigation. When the customers perceive a certain risk – to address it and try to mitigate it as much as possible.
• Evidencing capabilities
• Build a rapport with the customers.

Contract Negotiation. The key points that are considered here are:

• Risk assessment. Which factors pose a risk to either parties in executing the deal.
• Stress Points. Which factors on either side are stress areas
• Breakpoints. What are the stretch limits in some factors which could sabotage and break the deal
• Key drivers of the entire deal
• Risk mitigation. What needs to be done to mitigate risks
• Conflict management. How do we handle areas of conflict.
• IP aspects. What can be reused and what cant. What are the safeguards around IP and what could be the penalty factors.
• A contract compliance monitor is established so that all key parameters of the contract are monitored throughout the engagement.

The people from the vendor company who would be involved here are:

• Contract negotiation team
• Legal team

The vendor teams mentioned above would take care of SLA information in the contract and performance factors related to systems and value adds which we have added in the proposal

Post Contract Signoff:

Once the contract is signed off and the project kicks off then the following key aspects would have to be taken care of

1. A monitoring and reporting mechanism has to be arrived at and the frequency of reporting and content of reporting has to be mutually arrived at.
2. SLAs have to be adhered to. This also is part of the reporting framework.
3. A value register has to be created. All small and big value additions have to be recorded here as and when they are created.
4. A risk assessment and mitigation has to be arrived at. This is also linked to the reporting framework.
5. Cost Benefit analysis. This has to be worked out both for the customer and for the vendor. Periodically the cost benefit analysis has to be done to track the cost.
6. The contract compliance monitor is constantly updated.

The vendor responsibility is primarily the following:

• Ensure a defect free delivery
• Follow a value driven approach
• Constant risk assessment and mitigation
• Records and MIS has to be continually updated

Broadly that covers the entire process of bidding and winning a project.  Before I wrap up I would like to summarize the list of various teams involved from the customer and vendor end who would be part of the above process.

Various functions involved in overall process:

1. Sales
2. Marketing
3. Advisory Agencies
4. Research Firms. Some vendor organisations have their own research bodies which identify opportunities in various industries.
5. Pre Sales
6. Finance
7. Contracts cell
8. Legal
9. Compliance
10. Delivery Teams
11. HR/CS/Training
12. Other units like BPO

The commercial aspect of a proposal is a very key driving artifact on which most often – the entire deal wrests.  Here is a listing about the various aspects of the commercial proposal:

1. Application Development Effort
2. IT Hardware and Software cost
3. Specialized Hardware cost
4. Maintenance Support cost
5. Onsite Application installation service cost and specialized service cost
6. Travel and Logistics
7. Implementation Timelines
8. Payment Milestones
9. Terms and Conditions

While broadly the above encompass most aspects of the proposal details are provided below

Application Development Effort

This summarizes the estimate to develop the application (function point or use case) and thereon goes on to map this development estimate to the resources, their role level and the duration for each resource to develop the application.  From there it elaborates the cost of each resource in terms of offshore development rates and then this is multiplied with duration for each resource – to give the total.   In this case the customer retains the IP.

At times organizations choose to employ a licensing model – wherein they do not expose these details to the customer.  They simply charge the customer a standard licensing cost for the entire software and retain the IP with themselves (vendor company).   This strategy is more so suited when the vendor organization suspects that the same software (which is being developed) would be installed in our sites as well.

IT Hardware and Software Cost

To support the software you need servers, operating systems, databases, user management and other software.  You need the server hardware and the software licenses.  These are elaborated here.  At times the vendor organization even prices the customer for the development servers/licenses also along with the production servers/licenses

Specialized Hardware Cost

If the system which is being developed has some specialized hardware – then details of this hardware and its costs are provided here.  If these have to be imported – then the import duty, along with freight, insurance, backup stock are also factored in here.  The bill of material of this hardware has to also be included.

Maintenance support Cost

Once the application goes live then what kind of support structure does the customer wants.  Does he want onsite support or offshore oncall support? Does he need a helpdesk? These costs would be factored in here.

Onsite Application installation service cost and specialized service cost

During application hardware/software installation at onsite and also during onsite UAT – there could be a host of services which would have to be rendered at onsite costs.  These would be elaborated here along with the duration of this service.

Travel and Logistics

The travel, lodging, conveyance, food, per-diem and such kind of logistics costs would be elaborated here.  For this we would need to know how many people would be at onsite for what duration and this should be elaborated.  At times the vendor organization would absorb these into their costs.  At times the customer would provide for this – on giving bills-on-actuals

Implementation Timelines

Here the development/uat/go-live timelines are elaborated here

Payment Milestones

Here the various milestones for payment during the entire progress of the system development is provided. 

Breakup could be like this:

Terms and Conditions

Here all the terms , conditions, assumptions, constraints from either end would be listed out.  This has to be fairly elaborate and the vendor has to cover his arse properly.  Consultation and buy-in from legal team would be good here.

Meta Information

1. After all this is done – a buy-in and approval from the Finance team should be got
2. In all categories – a markup of 20% should be provided.  This generally is done to give a buffer – so that while negotiating with the customer ….it could be brought down to 10%.  This is to provide for some negotiating leverage.
3. It is better to do this exercise on excel
4. On the excel one should have a ‘Summary’ sheet in the very beginning – from where the various other categories mentioned above – should be linked …….to separate sheets.   The summary should show the sub-totals of each category and the grand total.  It should be organized neatly to indicate to the reader how he should see this document.  As mentioned there should be hyperlinks and formula reference throughout. 
5. The rates for resources should be on a separate sheet.  All other sheets which need resource costs should refer to this sheet through forumlas. 
6. Hard-coding should be avoided as much as possible. 
7. Each sub-sheet should have a link-back to the ‘Summary’ sheet.

While I have already elaborated on what goes into a project commercial proposal and also the whole process of project initiation and where the technical proposal and commercial proposal stand in that scheme of things ……………I haven’t spoken about what goes into a Technical Proposal.  Here is the run down on it:

I am pasting the TOC – which would serve as a self explanatory scroll-down on various sections of the technical proposal.  Some sections which need a bit of elaboration have been mentioned within brackets.  While this is not elaborate ……I should caution the reader that in some contexts the technical proposal may contain additional sections and in some a couple of sections could be redundant.

1    Project Background

1.1    About This Document

2    Intended Audience

3    Scope of Implementation

4    Scope Exclusions

5    Solution Overview

6    Technology Overview

7    Solution architecture and design

8    Execution Model (Sequence of activities during implementation)

9    Quality Assurance plan (Details about testing activities and all aspects of testing)

10    Change Request Management

11    Deliverables and Acceptance Criteria

12    Work Plan  - The various phases of the project and the mpp which gives complete project plan.

13    Deployment Plan – All aspects of go-live and dependencies/sequencing of deployment

14    Hardware Procurement Plan

14.1    Hardware Installation Details

14.2    Hardware Details

16    Support Phase

17    Warranty and Maintenance Support

18    Governance Model

18.1    Governance Overview

18.2    Governance Operating Model

19    Program Management

20    Requirements from Customer and End User

21    Key Assumptions

22    Commercials

23    Terms & Conditions

24    Conclusion

25    List of Annexure

Here are some of the activities which are normally done before a project begins.  It may not be exhaustive …………..but at least its close.  Its certainly not the bookish PMBOK stuff.  These activities are part of a non-competitive bid – where the customer is already the captive of a service organization and you are initiating a new project.

 

Principally after the discussions and due diligence/requirements gathering of the project you come up with your findings – which could be in the form of a set of requirement gathering artifacts or due diligence findings.  After you get the acceptance and signoff from the customer for these artifacts here is what you would do:

 

1. Proposal preparation
   1. Technical Proposal
   2. Commercial Proposal
   3. Contract

The proposal would have three parts to it which are:

 

 

The Technical Proposal is generally prepared by the Pre-sales team with inputs from the architects and the infrastructure teams.  While the architecture team would create the technical architecture document – and provide the list of software needed for the system ………….the infrastructure team would use these as inputs to come up with the list of hardware for the system.    The infra guys would also need the loading information for the system and the scalability needs to determine the configuration of the hardware needed. 

The procurement team would also be contacted to get the prices of the hardware and the software.

 

The Commercial Proposal would also be created by the pre-sales team and would be whetted by the finance guys.  An earlier blog posting already covers the various aspects of a commercial proposal.

 

The contract would be finalized with huge inputs from the legal team.  They would provide templates based on the context and finally approve the finalized document.

 

2. Proposal Review

A senior team of managers would review the overall proposal along with the sales, finance and legal teams.  Once the approval is procured from all it would be sent to the client for their review.

 

3. Client Proposal Review

The client would be sent the above artifacts to give them time to review these.

 

4. Client Proposal Discussion

The service organization team would discuss the proposal with the client either across the table or through telephonic means.  Once the various areas are settled – then the proposal would be finalized.  Typically the sales team would negotiate the commercial and legal aspects – while the delivery team would discuss the technical aspects.

 

5. Issue of P.O.

Once the proposal has been finalized the client would issue the project order to the service organization.  This would generally provide the price the customer has finally agreed to along with references to other terms/conditions and legal paraphernalia.

 

6. Team Readiness
   1. Specialized skills needed: Resources with special skills like a DBA or an architect or a change specialist or a quality consultant or specialized testing skills have to be identified early on as it takes more time to procure such resources.
   2. How many general resources needed: A pattern of ramp-up and ramp-down has to be identified with the number of resources needed at any time during the project execution identified.  This would give a good heads up to identify those resources.
   3. Visa arrangements: if the resources have to travel onsite – then we have to arrange for their travel.  Typically some country visas take months to arrange for (especially US /UK). 
   4. Business Unit Ownership: Internally which business unit would own this project has to be decided.  For some service organizations – the unit which does the pre-sales also owns the project.  However the structure within some organizations is not that straight forward.  Apart from that – some aspects of the project could be owned by some units and some by others.  So the revenue accrual model also has to be decided based on that.

This is something which is internal to the service organization.  Once the proposal preparation has been  initiated – the team readiness is something which kicks off in parallel.  This has many sub-aspects

 

7. Preparatory Workshop

A workshop involving all stakeholders within the service organization has to be arranged – which would typically present what was done earlier and what needs to be done next, who will own what and within what timelines, the project flow etc.   It will also prepare the entire team for the kickoff meeting.

 

8. Kickoff Agenda Preparation

This has to be done with the customer in view.  An agenda has to be circulated along with necessary supporting artifacts to the customer to prepare for the kickoff

 

9. Travel

Necessary resources who have to travel onsite would do so for the project start.

 

10. Kickoff Meeting

This meeting will have all customer and service organization stakeholders and map the way forward.  This would happen typically two days after the resources arrive at the client location.

The kickoff meeting will identify who among the customer – will lead and what the communication model is (when the status calls will be, escalation model, processes etc.).  It will also identify what the expected deliverables are and what the timelines would be.  What the customer responsibilities are and what the vendor responsibilities are (while already decided) would be clearly enunciated.

 

The project then starts

I keep a small cloth in my bag with which I clean it everyday.  Every weekend I spray a cleanser and remove finger prints etc.

May laptop is a HCL one with an LCD screen, inbuilt video camera, memory card reader, cd writer, data card slot, mike and the other standard stuff (usb ports, head phone socket etc.).  The only hitch is that my laptop is a Core Duo and not a Core 2 Duo processor.

Of late I have this itch of making my laptop boot and shutdown real fast.  The first thing I did was to upgrade my RAM from 1 GB to 1.5 GB.  It didn’t make a great difference and so I did not bother to upgrade it further to 2 GB.

I further did some research on the internet on improving your system performance.  Along with that I installed a software from the DIGIT magazine software dump cds.  While it made some of the applications run faster – my boot time is still 60 seconds.  It take 1 whole minute before I can get started with any work.  No matter what I did – I could not get further.

While I was doing this – I had these thoughts on minimalism.  The whole thing goes like this fundamentally:

I install only what I need on my laptop and at all times I stick to only what I need. My boot sequence, desktop feel, boot type, file organisation, usage of drives – everything should be aesthetic, minimalistic and clean.  Aesthetics is also the key here.  While some features really add to the aesthetics – they bring down the performance.  In such a case – I take a call on a case-by-case basis and balance out aesthetics and performance.

So the key words are:

1. Minimalism
2. Aesthetics and Beauty
3. Performance
4. Cleanliness
5. Organizing  data neatly

Before I sign off I would like to mention the following resources:

http://avesh.com/blog/DesktopZenReducingVisualClutterOnYourDesktop.aspx

The above URL has a nice and crisp exposition on keeping a zero icon desktop – while still making it functional.  My wife …….while she appreciates a minimal icon desktop – simply does not like a zero icon desktop.  As for me I don’t mind a zero icon desktop.

Two other resources on system boot tuning are:

http://www.pcmag.com/article2/0,2817,1819187,00.asp

http://www.extremetech.com/article2/0,2845,1785999,00.asp

Two softwares which helped me tune my system are:

RegToy and

Bootvis .

Would like to leave the reader with a picture of my desktop. My taskbar is these days on the top instead of the bottom (as usual).

” A poorly crafted business graphic is like wearing sweaty gym clothes to walk the red carpet at the Academy Awards.  You’ll definitely get attention, but is that really the impression you want to make?”

Elsewhere she also mentions …………its the content that matters and the way you present it. These should only go to hilight the content and not kill it or hilight it in the wrong way.  She compares it to a lady with good body features – who chooses an attire and jewellery ……..to hilight her features and not to hilight the attire itself. 

She also quotes Coco Chanel ……”Dress sharply and they notice the dress. Dress impeccably and they notice the woman.”

So it is very mandatory to choose the appropriate kind of way to present whatever you want to present. 

We tend to ignore the way we compose our mails.  We are okay if it is less than perfect.  We do not realize that our emails are the brand ambassadors which carry our image internally within and across the organization. I am not going to get into email etiquette ……..but would definitely like to leave the reader thinking about how perfect do we really bother to compose our emails.

I recently received an email from a colleague ………..who is quite a perfectionist.  This is the email I received:

Hi All,

                Please find below the activity sequence and coverage for the Cairo visit.

Let me know if there are any activities missing – which we may add.  Please note that although the initial part of the activity sequence covers Smart Cards – the later part of the activities is to cover both the Portal and Smart Card discussions.

Regards

…

 Now I would leave it to the readers to interpret this mail.  Do you feel this was overkill – that the author was resorting to pictorial representation of something which could have otherwise been represented as a drab bulletised list or a table of some sort. 

Yours truly thinks that picture was appropriate and well represented ……………and even complimented the author of the email.  It did create a minor split amongst the recepients of the email.  Some applauded ……and some thought it was grossly unnecessary.  But what do readers think?

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:

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.

That’s where creativity pitches in and the knowledge of tools and the works ……..comes into play.

• Knowledge of Visio and the usage of good stencils in Visio to create an impressive looking picture to represent an idea …………there’s nothing like it.

or this

While visio has some fantastic options ………porting a completed work from there to word/ppt ……..is not a straightforward task.  There is a trick to it …………….and if you need to know it ……..ping me.

• Moving on……………. Office 2007 has something called SmartArt ………..which with its Fluent interface allows you to create some fantastic outcomes.  While I don’t have any images to show you right now …………the top image of this blog was created using Smart Art and Clip Art.

• ClipArt is another treasure trove of images which cannot be done away with.  Suitably using it in your slides and reports …………….makes the outcome all the more presentable.

• Usage of colours and the appropriate combinations ……..also makes a lot of difference.  While straight colours are boring ………..colours which are dark to one side and gradually lighten to the other side can add a wonderful effect to the outcome.

• Creating a presentation in flash is another very high end way of putting across your ideas or presentation ……………than in the staid ppt mode.  However that requires a lot of effort, audio recordings and a lot of creativity (some companies hire professional designers to create corporate flash presentations).

The list can be endless.  The point still remains the same.  Do not under-estimate a document/presentation/report.  It can at times make or break the business and the image of a company ……….as you don’t just represent yourself ………..you more importantly represent the corporation!!! There is nothing like a good first impression.  This can hold good even while creating a resume.  There could be hundreds of resumes which recruiters sift through.  A very well done resume ………..will certainly catch the eye.  When the resume is complemented with a well presented individual ………..who is good at his/her stuff ………………whoa!!! as simple as it sounds ……….is quite a rarity.

Readers who are interested ………..are welcome to contribute your ideas.

• Who is doing the estimation ……..is he a techie or is he a BA.
• What is his mandate …….has he been told to be conservative …….or to go overkill!!
• His skill level on the methodology
• What rules he wants to bend
• How was his initiation in the methodology – was he formally trained …or was it trial and error.

My experience on doing FP estimation has been so varied ………..that to date I have not seen a real pure implementation of FP.  Every time I get down to do it …….my co-workers would bring in one form of corruption or the other. 

Now for the uninitiated ………FP or Function Points is a methodology of sizing either a new development or an existing application.  Once the sizing is done …….the result gives you the Function Point Count for the application.  This is translated using a ‘productivity factor’ into Man-hours of effort.  Talking more of the productivity factor ….it simply reflects the technology used to translate the application into the underlying software. 

But to arrive at the initial Function Point count ………you do not take technology into consideration.  FP estimation is purely done keeping the end user into account ………and it strictly defines a boundary around the application …………inside which ……no matter what happens ….we should not take it into account.  So its more like the user interacts with a black box.  Whatever functions come out of the black box to the user are only what are counted ………and not what intrinsic functions happen within.  This is one rule which usually takes a beating …….when the FP estimation is done by a technical person ……….who wants to emphasize the many technical functions which happen within the black box. 

The next aspect is when we talk of functions ……………each function should be seen independently.  Which means that if the black box does ten things to the user – then the no. 10 is arrived at based on the fact that each of those ten things are independent and can function without being dependent on the other 9.  This is another rule which gets bent so often.  People count part functions as distinct functions. 

Thus at the end of the day there is more confusion to the methodology than meets the eye.  FP is an estimation methodology which has a certifying authority called the IFPUG ……….which conducts the CFPS exams (Certified Function Point Specialist).  Clearing this exam is a challenge with the pass mark being 90%.