Designing and Pricing to Win Designing and Pricing to Win with SEERwith SEER ToolsTools

William VitalianoHarris Corporation

Evin StumpGalorath Incorporated

Presented at ISPA / SCEA Joint Conference

June 2001

Tyson’s Corner, Virginia

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IntroductionIntroduction

Elements of design / price to win strategy Elements of design / price to win strategy

ExamplesExamples

SummarySummary

OverviewOverview

3

If you always do what you always do

then you will always get what you always get

4

The beginning is the most important part of the work.

-Plato

5

Today’s Defense Markets Have Forced Us toToday’s Defense Markets Have Forced Us toChange the Way We Do ProposalsChange 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 “musthaves” (Better known as a clean sheet of paper!)

Extensive use of Parametrics

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IDENTIFICATION QUALIFICATION PURSUITPROPOSALDEVELOPMENT

POSTPROPOSAL

•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

•DEVELOP SYSTEM ARCHITECTURE

•DEVELOP WINNING PRICE

•APPLY DTC PRINCIPLES

•COST MODELING

•DEVELOP PLAN TO WIN

•DEVELOP PROPOSAL

•SHIP PROPOSAL

•NEGOTIATIONS

•BAFO

•AWARD

•LESSONS LEARNED

•PROGRAM START-UP

SEER Models

Pursuit ProcessPursuit Process

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Why Proposals FailWhy Proposals Fail

Most proposals fail because they do not convincethe customer’s evaluation team (contracts,technical, users, etc.) that the company is capableof solving the government / buyer’s problemstatement at an acceptable risk and within thecost budget.

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What Can We Do?What Can We Do?

Follow a well structured process that addresses the customer’skey attributes, delivers an acceptable product/system/servicewithin the cost budget

Many companies use a technique called Price To Win(PTW)which has many of the Design To Cost (DTC) principles andsupports the key tenets of Cost As an IndependentVariable(CAIV)

This presentation will discuss the key features of PTW used indeveloping winning proposals and the use of the SEER Models

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ProposalTechnicalRequirements

FastCost Estimates

OutputOK?

ContinueYes

NOIteratedesign cost(trade studies)

Customer RequirementsEquipment ParametersType (DOD,NASA, Commercial)ScheduleSize, Weight, No. of CardsNo. of IC’sQuantityTechnology

•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

We Need an Easy to Use, Highly InteractiveWe Need an Easy to Use, Highly InteractiveCAIV Tool for ProposalsCAIV Tool for Proposals

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Elements of Design / Price to Win Strategy*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

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Functional Focus Example: Ladies PurseFunctional 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

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Des

ign

Fea

ture

s

$ Cost

Paperbag ($0.05)

Plasticbag($0.10)

Bag with color ($0.15)

Bag with strap ($0.25)

$85 - Gucci

$75 with cost reduction

Minimum set of customer needsMinimum set of customer needs

Value Engineering Approach:Value Engineering Approach: Paper Bag Design Paper Bag Design

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Know What the Customer WantsKnow What the Customer Wants

Understand customer wants in depthUnderstand 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

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Know What the Customer Wants (Cont’d.)Know What the Customer Wants (Cont’d.)

Help derive the lower level requirementsHelp 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)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 beidentified

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Know What the Customer Wants (cont’d.)Know What the Customer Wants (cont’d.)

Get to know the customerGet to know the customer•Describe the business environment, history, market differentiators

•Driving requirements, stakeholders, current need and how theproposed system will meet those needs

ConstraintsConstraints•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, Requiressoftware and hardware, reuse of legacy code, etc.

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CUSTOMER DESIGNER

Example: I need a house by August 30thExample: I need a house by August 30th

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• 10 Bedrooms

• 4 Stories

• Castle style

• Gas heat

• $2 Million

Ready to move in!

Finished: July 30thFinished: July 30th

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On Time, but…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?!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

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Historically, in the defense industry, trade studies have tended tofocus more on relative benefit, such as performance, and less onrelative cost

CAVE - CAVE - CCost ost AAlways lways VVaries aries EExponentiallyxponentially•BID LOW AND WORK THE ECP’S DESIGN = f(SPEC)

CAIV - CAIV - CCost ost AAs an s an IIndependent ndependent VVariableariable•DESIGN = f(PRICE)

Changing

Things Are ChangingThings Are Changing

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Recent customer initiatives, most notably CAIV,have pushed designs in the direction of meetingpredetermined cost constraints

The CAIV initiative has at times allowed someliberties to be taken with performancerequirements

☯

Pe

rfo

rma

nce

Cos

t

K P P

T h r e s h o l d

KPPObjective

Consider This“Threshold” If Meets

True Need

Region for Best“Bang for Buck”

Region for MarginalPerformance Improvement

☯

☯☯

The CAIV InitiativeThe CAIV Initiative

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Know What the CustomerKnow What the CustomerCan Afford to SpendCan Afford to Spend

Business intelligenceBusiness intelligence

• Business development / marketing needs to determinecustomer budget

Balance customer wants and costsBalance customer wants and costs

• Often, there is a lack of balance between the customer’sperceived value of (i.e., importance of, desire for) designfeatures 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 ?

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What Is Important to the Customer…What Is Important to the Customer…CarCar

Example…We Must Balance Cost With Requirements/FeaturesExample…We Must Balance Cost With Requirements/Features

Number of Doors

TypePrice

FuelEconomy

Safety

ComfortFeatures Insurance Cost

Warranty

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Requirements And Features

Analysis

Preliminary DesignProcess

•Human Factors•Security•Reliability•Availability•Survivability

•Supportability•Testability•Producibility•Reuse•Transportability

Other Factors

Alternative 1Alternative 2Alternative 3Alternative 4

Cost Assessment

•Performance•Schedule•Risk Assessment•Life Cycle Cost

SEER

1

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4 5

SelectionProcess

OK?Optimized?

Yes

CostPerformance ScheduleRisk

Continue

NoIterate

Pricing to Win Thought Process:Pricing to Win Thought Process:Trade Study FlowTrade Study Flow

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Customer wants a laptop

Question to ask: what system features are most important , how important are they and how much should each cost?

Features Relative Value % GoalWeight 20 5.9 poundsProcessor speed 9 800 mhzStorage 9 300 mbRAMDisplay 5 25”Battery life 5 6 hoursPrice 20 <$1,500Warranty 5 3 yearsOptions for growth 13 Option#1,#2Availability 14 2001Q3

Pricing to Win Thought Process:Pricing to Win Thought Process:ExampleExample

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What WorksWhat Works

The author has used, or has been exposed to, every methodology andThe author has used, or has been exposed to, every methodology andhas found that the following fundamentals always apply: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

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DegreeofsupportforPTW/DTW

Time

Contact

Awareness

Understanding

Trial Use(Pilots)

Adoption

Institutionalization

Ready...…Realize the benefitsWilling.....Accept itAble.........Have skills and training

Stages of Design to Win / Price to WinStages of Design to Win / Price to WinInstitutionalizationInstitutionalization

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Establish a Senseof Urgency (Concern)

Form a PowerfulGuiding Coalition(Commitment &Sponsorship)

Create a Vision

Communicate the Vision

Empower Others toAct on the Vision

Plan for and CreateShort-Term Wins

Rewards (Motivationand Consequence)

Training

Key Steps Plan

Team Support,Continued focus on Winningwith Low Cost Solutions

VP BD,VP Eng.Team

Improve Hit Ratio

What, Why, How, Who, When, Progress, Plans

Proposal Teams

Proposal Team

Develop Training

Continues to Be Urgent

Continue

Work Pilots

Working Pilots

Status Action

Continue

Present Results to Team withVP Eng. and Leaders

Continue

Continue, Track Success,Improve Methodology

Team Input

Institutionalization Planning StepsInstitutionalization Planning Steps

1

2

3

4

5

6

7

8

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How Can Parametric Models Help?How Can Parametric Models Help?

Helping shape the requirementsHelping shape the requirements - Parametric models can be used totrack the current cost baseline of the approach to the customer’sproblem. The results of the model (SEER) can be used for comparisonto the range of funding the customer has available.

Conducting trade studiesConducting trade studies

Balancing customer wants and costsBalancing customer wants and costs

Educating your customer away from mistakesEducating your customer away from mistakes

Making the team aware of affordabilityMaking the team aware of affordability

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How Can Parametric Models Help? (cont’d.)How Can Parametric Models Help? (cont’d.)

Following the principles of affordable designFollowing the principles of affordable design

Creating efficient designs (SEER-DFMCreating efficient designs (SEER-DFM ))

Testing costs as your customer willTesting costs as your customer will

War gaming for improved competitivenessWar gaming for improved competitiveness

Honestly appraising risksHonestly appraising risks

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Using SEER™ Tools to Model a Competitor’s Plausible Effort

Using SEER to Model a Competitor’sUsing SEER to Model a Competitor’sPlausible EffortPlausible Effort

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SEER Risk ChartSEER Risk Chart

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How Can We Be Successful in ApplyingHow Can We Be Successful in ApplyingDesign to Win / Price to Win?Design to Win / Price to Win?

TimingTiming• Early enough to work with the customer (6 months before RFP)• Lead-time to consider and implement alternative approaches

Management SupportManagement Support• Sponsorship and direction• Monitoring of the implementation

TrainingTraining• Overview training for the entire proposal team• Hands-on coaching during the entire implementation

TenacityTenacity• Time and resources built into the proposal schedule• Willingness to work through numerous iterations without

discouragement

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SummarySummary

Price to win methodology, as discussed in this paper,supports many of the key CAIV tenets.

Early involvement, training, and facilitation are critical tosuccess.

The methodology works and has been successfully appliedto both commercial and government proposals.

Parametric models can be invaluable to the proposal team.