When faced with a new project enquiry it is almost always a requirement to provide an estimate of cost and time-to-completion up-front, long before any contract is awarded.
Increasing the market reach of a company leads to an increase in the number of “left field” enquiries and dealing with them all with the same amount of rigour can become very time-consuming. It is therefore important to not spend any more time than is absolutely necessary filtering-out the enquires that don’t have potential from those that do.
Rough Order Magnitude cost
Over the years I have learnt that the best method is to quickly throw-out a “ball park” number (also known as a ROM – Rough Order Magnitude – cost) based on “gut” feel. If our ROM cost broadly aligns with the client’s available budget / expectation then it is a case of engaging more deeply and investing the time necessary to scope the work fully before generating a more refined bottom-up quote.
When generating a ROM cost it is usually accepted that the quote is pitched towards the upper-end to reduce the chances of the final cost exceeding the available budget. At other times we are asked to provide quotes that represent the maximum cost, known as “not to exceed” quote.
You don’t know what you don’t know
The internet is like an infinite universe when it comes to marketing out-reach. Enquiries can (and do!) come from anyone, from anywhere and in relation to any type of product or technology. As professional mechanical engineers we like to think we can apply our core skills to overcome most technical issues, but the challenge is achieving that within a satisfactory time & budget. The real issue is that of the “unknowns”.
To explain, when you produce a quote to undertake a design activity there are always likely to be unknowns. Many of those unknowns can be identified and characterised with some effort, so contingencies can be put into place to deal with them. These can be thought of as the “known” unknowns. However, there may be some unknowns that cannot be foreseen – the “unknown” unknowns. The question is: how much contingency do we apply to deal with the things that we don’t even know about?
So, there is it – you’re walking a tight rope. Don’t put enough contingency in and there is a risk that you under-estimate the job. This will not end well for at least one of the two parties, depending on who bears the brunt of the additional cost. Put too much in and there is a chance that you will overprice the job unnecessarily and effectively price yourself out. If only you could know what it is that you don’t know!
Good strategies for minimizing the likelihood of encountering unknowns are to stay within your area of expertise, work with technologies in which you are knowledgeable and with clients who’s products you understand. However, as professionals we need to be pushing the envelope of capability to develop and grow.
Dealing with the “Unknowns”
When pushing into new territory with a new product, technology, application, process or perhaps supply chain the ideal scenario would be to be paid to undertake a discovery phase in which the magnitude of the challenges and project risks can be explored. If done thoroughly this should result in the remainder of the project being scoped and costed with a high degree of confidence, so without the need for making unnecessary contingencies or the designer risking “losing his/her shirt”.
This activity would be chargeable to the client but would be a good investment, as the project team will gain valuable knowledge about the risks. The result will be a project that is more likely to be costed correctly and run to time & to budget, so have a higher chance of success in the long run.