Designing and Pricing to Win

with SEER Tools
Presented at ISPA / SCEA Joint Conference
June 2001
Tyson’s Corner, Virginia
William Vitaliano
Harris Corporation
Evin Stump
Galorath Incorporated
Overview
Introduction
Elements of design / price to win strategy
Examples
Summary
2
If you always do
what you always do
then
you will always get
what you always get
3
The beginning is the most
important part of the work.
-Plato
4
Today’s Defense Markets Have Forced Us to
Change the Way We Do Proposals
Focus on what the customer wants and has funds for
Maximize early trade studies
Cost on equal ground with performance and schedule
(Well...almost)
Start with minimal product design approach and work up to “must
haves” (Better known as a clean sheet of paper!)
Extensive use of Parametrics
5
Pursuit Process
IDENTIFICATION
QUALIFICATION
•CAN WE DO IT?
•WILL WE MAKE A PROFIT?
•DOES THE CUSTOMER
HAVE A BUDGET?
•DEVELOP SYSTEM
DEFINITION &
CONCEPT
•REVIEW WITH
CUSTOMER
•BID / NO BID
MEETING
•HIGH LEVEL
COST ROM
PURSUIT
•DEVELOP SYSTEM
ARCHITECTURE
•DEVELOP WINNING
PRICE
•APPLY DTC
PRINCIPLES
PROPOSAL
DEVELOPMENT
POST
PROPOSAL
•DEVELOP PROPOSAL
•NEGOTIATIONS
•SHIP PROPOSAL
•BAFO
•AWARD
•LESSONS LEARNED
•PROGRAM START-UP
•COST MODELING
•DEVELOP PLAN
TO WIN
SEER Models
6
Why Proposals Fail
Most proposals fail because they do not convince
the customer’s evaluation team (contracts,
technical, users, etc.) that the company is capable
of solving the government / buyer’s problem
statement at an acceptable risk and within the
cost budget.
7
What Can We Do?
Follow a well structured process that addresses the customer’s
key attributes, delivers an acceptable product/system/service
within the cost budget
Many companies use a technique called Price To Win(PTW)
which has many of the Design To Cost (DTC) principles and
supports the key tenets of Cost As an Independent
Variable(CAIV)
This presentation will discuss the key features of PTW used in
developing winning proposals and the use of the SEER Models
8
We Need an Easy to Use, Highly Interactive
CAIV Tool for Proposals
Proposal
Technical
Requirements
Fast
Cost
Estimates
Customer Requirements
Equipment Parameters
Type (DOD,NASA, Commercial)
Schedule
Size, Weight, No. of Cards
No. of IC’s
Quantity
Technology
Output
OK?
Yes
Continue
NO
Iterate
design cost
(trade studies)
•Use of SEER Tools enables fast cost estimates, which can typically
take a proposal team days or even weeks
•SEER Tools can guide teams when doing trade studies
9
Elements of Design / Price to Win Strategy*
Know what the customer wants
Know what the customer can afford to pay
Bulletproof your proposal
*Note: In this approach, price is rationally connected
to design, and the “challenge” is to find the design that
minimally satisfies the customer’s wants
10
Functional Focus Example: Ladies Purse
Function …………………………………………..Hold junk
Cost………………………………………………...$85 at Nordstrom
What else will perform the function?…………Paper bag -cost = $0.05
Go to plastic bag for more durability…………Cost = $0.10
Add color…………………………………………..Cost = $0.15
Add strap.………………………………………….Cost = $0.25
11
Value Engineering Approach:
Paper Bag Design
$85 - Gucci
Design Features
$75 with cost
reduction
Plastic
bag
($0.10)
Minimum set of customer needs
Paper
bag ($0.05)
Bag with strap ($0.25)
Bag with color ($0.15)
$ Cost
12
Know What the Customer Wants
Understand customer wants in depth
Hierarchy of customer needs
Numerical weighting (utility function)
Team members need to apply customer importance factors
to design trades:
• Ease of use
• Cost
• Performance
• Reliability
• Maintainability
• Scalability
• Manageability
13
Know What the Customer Wants (Cont’d.)
Help derive the lower level requirements
•
•
•
•
•
Contractors have knowledge and experience
…. Use it to your advantage
Clarify requirements
Early involvement (6 months to 1 year)
Use of parametric models
Stay close to the key decision-makers (WIN-WIN)
• Create a matrix of all stakeholders and their needs
• Conflicting needs can be a source of project risk, and should be
identified
14
Know What the Customer Wants (cont’d.)
Get to know the customer
•Describe the business environment, history, market differentiators
•Driving requirements, stakeholders, current need and how the
proposed system will meet those needs
Constraints
•Where can you go and where can you not go?
•Business constraints (e.g., time to market, customer demands,
standards, cost, etc.)
•Technical constraints - COTS, interfaces with other systems, Requires
software and hardware, reuse of legacy code, etc.
15
Example: I need a house by August 30th
CUSTOMER
DESIGNER
16
Finished: July 30th
• 10 Bedrooms
• 4 Stories
• Castle style
• Gas heat
• $2 Million
Ready to move in!
17
On Time, but…
10 bedrooms……………………You only needed 4 bedrooms
4 story……………………………Your father is in a wheelchair
Castle style…...…………………You prefer traditional style
Wood burning stoves.………....You prefer gas heat
for heat
$3 million…………………………You have a $1 million budget
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What Happened?!
Too many bedrooms
Poor assessment of user group
No Wheelchair access
No allowance for special requirements
Wrong architecture
Proprietary vs open system
No wood available
No model of “boundary system”
No cost estimate
Historically poor cost estimates
No plans
Lack of engineering models & specs
No need to build new
COTS
19
Things Are Changing
Historically, in the defense industry, trade studies have tended to
focus more on relative benefit, such as performance, and less on
relative cost
CAVE - Cost Always Varies Exponentially
•BID LOW AND WORK THE ECP’S DESIGN = f(SPEC)
Changing
CAIV - Cost As an Independent Variable
•DESIGN = f(PRICE)
20
The CAIV Initiative
Recent customer initiatives, most notably CAIV,
have pushed designs in the direction of meeting
predetermined cost constraints
The CAIV initiative has at times allowed some
liberties to be taken with performance
requirements
KPP
Objective
☯
☯
☯
☯
K
Region for Best
“Bang for Buck”
ConsiderThis
“Threshold” If Meets
True Need
Cost
Performance
Region for Marginal
Performance Improvement
21
T
h
r
P
e
P
s
h
o
l
d
Know What the Customer
Can Afford to Spend
Business intelligence
• Business development / marketing needs to determine
customer budget
Balance customer wants and costs
• Often, there is a lack of balance between the customer’s
perceived value of (i.e., importance of, desire for) design
features and the cost of these features
• Remember the paper bag vs the Gucci purse?
• We cannot have a Gucci purse for the cost of a paper bag!
• Early use of parametric models
• Where Do We Start ?
22
What Is Important to the Customer…Car
Example…We Must Balance Cost With Requirements/Features
Number of Doors
Price
Type
Fuel
Economy
Comfort
Features
Safety
Warranty
Insurance Cost
23
Pricing to Win Thought Process:
Trade Study Flow
SEER
Requirements And Features
Analysis
Preliminary
Design
Process
Alternative 1
Alternative 2
Alternative 3
Alternative 4
Cost
Assessment
•Performance
•Schedule
•Risk Assessment
•Life Cycle Cost
Other Factors
•Human Factors
•Security
•Reliability
•Availability
•Survivability
Selection
Process
4
3
2
•Supportability
•Testability
•Producibility
•Reuse
•Transportability
Iterate
5
1
No
OK?
Optimized?
Yes
Cost
Performance
Schedule
Risk
Continue
24
Pricing to Win Thought Process:
Example
Customer wants a laptop
Question to ask: what system features are most important ,
how important are they and how much should each cost?
Features
Weight
Processor speed
Storage
Display
Battery life
Price
Warranty
Options for growth
Availability
Relative Value %
20
9
9
5
5
20
5
13
14
25
Goal
5.9 pounds
800 mhz
300 mbRAM
25”
6 hours
<$1,500
3 years
Option#1,#2
2001Q3
What Works
The author has used, or has been exposed to, every methodology and
has found that the following fundamentals always apply:
•
Need an event to get everyone thinking properly
•
Must have someone from outside
•
Must have prior successes for people to buy-in
•
Needs to be simple and fast or else folks will not want to use it!
•
Focus on customer key attributes
•
Functional look
•
Good facilitator is a requirement
26
Stages of Design to Win / Price to Win
Institutionalization
Institutionalization
Adoption
Degree
of
support
for
PTW/DTW
Ready...…Realize the benefits
Willing.....Accept it
Able.........Have skills and training
Trial Use
(Pilots)
Understanding
Awareness
Contact
Time
27
Institutionalization Planning Steps
Key Steps
Plan
Status
Action
1
Establish a Sense
of Urgency (Concern)
Team Support,
Continued focus on Winning
with Low Cost Solutions
Continues to Be Urgent
2
Form a Powerful
Guiding Coalition
(Commitment &
Sponsorship)
VP BD,VP Eng.
Team
Continue
Present Results to Team with
VP Eng. and Leaders
3
Create a Vision
Improve Hit Ratio
4
Communicate the
Vision
What, Why, How, Who,
When, Progress, Plans
5
Empower Others to
Act on the Vision
Proposal Teams
Work Pilots
Continue
6
Plan for and Create
Short-Term Wins
Proposal Team
Working Pilots
Continue, Track Success,
Improve Methodology
7
Rewards (Motivation
and Consequence)
8
Training
Develop Training
Continue
Team Input
28
How Can Parametric Models Help?
Helping shape the requirements - Parametric models can be used to
track the current cost baseline of the approach to the customer’s
problem. The results of the model (SEER) can be used for comparison
to the range of funding the customer has available.
Conducting trade studies
Balancing customer wants and costs
Educating your customer away from mistakes
Making the team aware of affordability
29
How Can Parametric Models Help? (cont’d.)
Following the principles of affordable design
Creating efficient designs (SEER-DFM)
Testing costs as your customer will
War gaming for improved competitiveness
Honestly appraising risks
30
Using SEER to Model a Competitor’s
Plausible Effort
Using SEER™ Tools to Model a Competitor’s Plausible Effort
31
SEER Risk Chart
32
How Can We Be Successful in Applying
Design to Win / Price to Win?
Timing
• Early enough to work with the customer (6 months before RFP)
• Lead-time to consider and implement alternative approaches
Management Support
• Sponsorship and direction
• Monitoring of the implementation
Training
• Overview training for the entire proposal team
• Hands-on coaching during the entire implementation
Tenacity
• Time and resources built into the proposal schedule
• Willingness to work through numerous iterations without
discouragement
33
Summary
Price to win methodology, as discussed in this paper,
supports many of the key CAIV tenets.
Early involvement, training, and facilitation are critical to
success.
The methodology works and has been successfully applied
to both commercial and government proposals.
Parametric models can be invaluable to the proposal team.
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