Managing business transactions can be a challenging effort for Organizations. Making the right decision to provide the best value to your Customers, your own Stakeholders and protecting your Suppliers is part of the due diligence that sets excellent organizations apart.
Lowering the risk associated with these decisions can be significantly aided by applying the principals of robust “Should Cost Analysis”. Understanding what you are offering your Customers and what you expect from your Suppliers helps insure that the needs of your internal Stakeholders are met. Ideally, Should cost analysis becomes a tool to communicate to all involved and identify risks (and opportunities). Perhaps the worst case scenario for a contract is “Termination for Cause” that opens your organization to pay whatever it costs to fulfill. There are cases that have destroyed fairly large companies for this failure.
Organizations face growing pressure to control costs and enable effective financial management of their resources to deliver value. Business leaders need visibility into the cost of the products and services they provide to know if their business is profitable at a granular level. To get these insights, many implement a cost allocation methodology to make business units more accountable for the activities they perform and assigns the costs associated with these activities to the business units or cost centers based on their appropriate share of the cost.
For engineer-to-order businesses that manufacture products designed by their customers, the traditional CPQ process does not work. By its very nature, the CPQ process collects a set of pre-defined product options or features (Configure), then sums up the prices for each item selected (Price), and then presents the final pricing to the customer (Quote).
The Cost Estimator’s job is to cover all the company’s expenses, potentially including inefficiencies. His job is assisting the organization to get the best sales price he can and still win the business. Conversely, the Should Cost Engineer’s responsibility is the help his organization procure products at the best price possible, ensuring they get the product they requested, usually utilizing benchmark data.
The Value of Cost Engineers: Three Steps to More Profit and Growth of Companies
Every single business decision is subject to constant cost pressure not to jeopardize the company’s future profit margins. The conditions are often difficult: Suppliers are expected to produce close to their customers’ locations and with just-in-time production processes. Additional cost pressure from customers is ever present due to extended payment terms, risk liability, ‘quick savings’ or ‘pay to play’ schemes. These conditions influence the success of growth and profitability. Many companies no longer want to continue to make their decisions while flying blind. They all ask the same question: How can we adapt processes and IT structures to improve speed and accuracy in costing and quoting?
Today we are fortunate enough to have a guest blog from Dr. Christian Smart. He has given us permission to post the first chapter of new book ” SOLVING FOR
PROJECT RISK MANAGEMENT UNDERSTANDING THE CRITICAL ROLE OF UNCERTAINTY IN PROJECT MANAGEMENT”