Whilst tender writing on the whole is a complicated, lengthy and costly process, nothing boggles the collective minds of suppliers more than building an appropriate cost model. In essence, the body of the tender is straight-forward, even if it demands a lengthy process of creative thinking and organisation.
Cost modelling, however, is less straight-forward. Not only must your figures appeal to your buyer in the form of value for money, they must also afford you a decent profit over, in some cases, a considerable amount of time. Contingency and the unexpected must all be a part of your modelling exercises. In effect, you must learn to identify and quantify the intangible.
Some organisations, particularly larger, blue chip organisations, tend to have specialised staff trained in cost modelling for their tender submissions. Whilst this is all well and good, if you are part of an SME, especially a smaller one, hiring a professional cost modeller is completely out of the question. That means the expertise has to be learned or found within the existing team or yourself.
The consequences of getting this stage wrong can have long-lasting consequences for your organisation. Even larger companies fail to expect the unexpected and find themselves running lifetime contracts at a drastically reduced margin, or worse, at a loss. For smaller businesses, the reserves are simply not there to run at a loss for multiple years, hence the importance of robust pricing and avoidance of overselling/under-pricing when you are tender writing.
Learning to price a tender which balances profitability with competitiveness is an on-going process. Considering all eventualities, whilst prudent for your model, is not going to give you that competitiveness that you will require in order to write winning tenders. Over-costing, therefore, is as damaging as under-pricing. The following pointers should be considered, however, when pricing your tender:
1. Don’t just price the direct costs of the tender such as materials, labour etc. Look at the wider costs involved, the overheads, such as recruitment costs, agency staff if staff go sick, increased commodity prices and energy prices etc.
2. Consider extenuating circumstances that may delay delivery and result in increased costs such as weather and ground conditions, the recent riots, strikes etc.
3. Look at areas where future efficiencies can be made which will increase your profit margin. This may give room for manoeuvre in your offer price.
4. Cash flow, reserves and loan interest payments should all be taken into account when considering payment schedules.
Overall, these points are common sense and should be taken into account in any estimations and cost models. They are the basics and not specific to any particular industry or business. In order to model your costs effectively and offer the best price for both your buyer and your business, a substantial amount of the energy that goes into your tender writing should be spent on brainstorming costs specific to your organisation, and developing a model that not only appeals to your buyer but ensures sustained business success throughout the life of the contract. It will also be used as a model for future tenders and can be improved upon over time.