The risk of pricing a project without Scope

In this podcast, Ricardo talks about the difference between cost and price of the project and gives some tips to put the price on the project. He explains that it is often important to divide the project into two - the first to define the scope and the second based on the scope, to detail the other design needs.

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Episode transcript

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Hello everybody welcome to the five Minutes BM podcast today. I like to discuss the risk off, put a price in a project before you do the scope of the project. This is a very common think that we face in our project environment. We need to put a price and, but we don't know yet what we need to do. And the client usually push us to make a very competitive price, but we don't know exactly what we need to do in the project.

First, I'd like to start this, the thing, the difference between cost and price cost it's directly and tight related to the resource that you need to use in the project, the scope of the project, the deadlines that you have. So this component will make you aware of the cost. So the cost of the project, we'll be directly related to all the supplies that I need to provide to the project. And the other hand, what this price I meant very basic idea is that okay, cost plus profit equals the price, but in today's market does is not good.

The 100% true. Why does is not 100% true. This is not 100% true because the price is a market. The decision you don't have control of the price, maybe the price is based on it in your competitors price. So look, it's not lasered on your supplier's, but how you're a competitor price thinks its based out in the market Valley, hold the market, see the value of your project.

So sometimes you spend $10 in cost and you can sell the product of the project by $10,000. So the cost here, it's pointless. If we compare a 10 to 10,000 and in your other hand, I need maybe two spend 9,999 in cost to sell it for 10,000 or maybe even with a loss. So it's very important to understand that price and cost are not always 100% related returning back to the question that I received in the past, the guest's suggestion regarding a risk of putting in the price.

What do I suggest you do before putting a price in something that you don't know and increase dramatically? The risk I would like to suggest to you two things. First, we improve your ability to deal with the Scope. So this one being a little more time, maybe he a little bit more money in the planning phase of your proposal before you put the price before you put the price. So usually let me give you my own experience.

When I put a proposal for our consulting service, I spent maybe 82 90 pages, nine zero pages only to detail the scope of the job that I will be doing and why I do this. I do this to avoid the risk. If I get that contract to increase my risk. So spend more time and more money on that. So do a fast track planning, but do the proper planning. In some times what I do, this is the second suggestion that I would like to give to you is to due to projects.

First project is to prepare the documents of the second project. So in the first project I prepared everything to be, use it in the second project. So let me give you a practical example. I charge the potential client 1000 units of money for doing all the planning. Okay? All the planning to prepare the WBS, to prepare the scaffolding, to prepare a risk list, to prepare the team, to develop the team and to make sure that I have everything ready for the project.

And this will bring me all the costs OK. And the client will pay for that for the service. And this will help me to deal with the second project. The second project is to execute the first one and this I will charge the client, the price of the project. So I'm doing software project. So I will charge the client to do all the planning, all the requisites, all the scheduling and everything.

And I will charge the client 1004 that and to develop the softer. So each to put an execute, all the WPS I've planted Dan, I will charge 20,000 and then I will deduct the 1000 and the client will pay me only in 19,000 or so. If the client continues with me in the execution of the project, I will not charge him to her, the price of the planning. But if he, the client decided that he will hire someone to do that, execute the project I've planted, then I would charge him 1000 or so.

If the client continue is with you in the both project, one of the planning and project to this occasion, this will not increase the price. If the client decide not to execute to you, then you be charging only all the service to prepare the plan. So this is a very nice idea. I did this many, many times a day there's will reduce dramatically the risk of the project. I hope you enjoyed this podcast. See you next week with another five minutes PM.

Podcast bye.

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The risk of pricing a project without Scope

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