This is a great post.
Paul
> Gents
>
> This is an unsolicited notice to any vendors or suppliers who may be
> group members.
>
> The topic is budget prices.
>
> When you are requested to provide a budget price, the purpose of the
> request is to obtain an indication of the likely final cost of
> whatever is is that you supply or do. It is not to provide a price
> which, if high, will eliminate you from a shortlist. The eliminations
> come at the quotation (RFQ) stage.
>
> Before a project is approved, it is necessary to provide the boss,
> board or whoever with a preliminary cost/benefit report for the
> proposed project. If there is no benefit from spending the money,
> then there is no point in doing the project.
> The budget price is used to prepare the cost element of the report.
> The boss submits the report to his boss or whoever, with a view to
> having the expenditure approved.
> If approval is obtained, the project is detail designed and a
> detailed cost estimate is prepared, based largely on quotations.
> If the detailed cost estimate equals or is less than the preliminary
> estimate then the project will proceed. If not then the project
> stands a good chance of dying regardless of the new cost/benefit. The
> reason is political: if our boss goes to his boss asking for more
> money it can be seen as a sign of weakness. If our boss goes to his
> boss and says he has cancelled the project due to likely cost
> overruns, it looks like strength.
>
> The estimate increase, when it happens, is often due to to large
> increases from budget to quoted price from Vendors. The normal vendor
> excuse is lack of a definitive specification. Equally likely is that
> on further discussion, it becomes apparent that the vendor had a very
> good idea what the higher final price would be, but was afraid to use
> the higher price, at budget stage, in case his competitors got the
> advantage.
> The solution is simple:
> Vendors, give two prices; one based on what was asked for and one
> based on your interpretation of the likely cost of the anticipated
> final spec. Your explanation of the difference is invaluable.
> The difference can be easily estimated by comparing previous
> preliminary estimates with final prices from your files.
>
> You may find that this approach gives you a useful advantage over
> your competitors, without extra cost or exposure.
Received on Mon Nov 04 18:42:00 2002
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