Cost proposal

Cost proposal is probabilistic cost evaluation prepared in accordance with given requirements ^[1]. Cost proposal is part of conceptual design phase. Besides cost proposal, specific conceptual design and management plan are prepared ^[2]. Cost proposal s often based on financial statements, executive budgets, accounting reports and historic data. Final document might include below^[3]^[4]:

labour hours,
material units,
work sheets,
other factors and data,
direct cost and indirect costs,
charts,
cost allocation plan,
production costs,
evaluation criteria,
fair profit,
forecast cost data,
government reviews,
similar products,
organisational structure,
summary,
persons who prepared and approved,
period that it refers to.

How to prepare cost proposal

Preparation of cost proposal engages many teams and departments within the company such as: engineering, manufacturing, marketing, quality control, supply chain and finance. Cost proposal should be ^[5]^[6]:

realistic,
based on careful estimations,
as lowest as possible,
tested if possible,
backed-up.

Procedure for cost proposal

Crucial element of cost proposal is proper cost estimation. It is advised to prepare special procedure to support company in keeping clear pattern^[7]:

methodology of price rates for direct and indirect costs should be described,
based on accounting records current, accurate and completed data should be developed,
guidelines how to change and estimate work force,
define methods of rates (for example special averages),
define methods of cost escalation,
review periodically rates and budget,
developing needed support patterns,
setting basic selection criteria,
setting quantity discounts for purchase of materials.

Author: Ewelina Gał

Footnotes

↑ Dorey M. S. P., USAF, Oehmen J., Valerdi R., (2012)
↑ Taylor R. L., Zuber M. T., Lehman D. H., Hoffman T. L., (2011), p. 5
↑ Office of The Federal Register, Enhanced by IntraWEB, LLC, (2014), p. 176
↑ AIHA guideline, (2005) p. 18
↑ Dorey M. S. P., USAF, Oehmen J., Valerdi R., (2012)
↑ Samelli A. G., Rabelo C. M., Pereira M. B., Portela M. N., Sanches S. G. G., Neves-Lobo I. F., (2012)
↑ Oyer D. J., (2011)

References

AIHA guideline, (2005), Health and Safety Requirements in Construction Contract Documents, AIHA
Dorey M. S. P., USAF, Oehmen J., Valerdi R., (2012), Enhancing Cost Realism through Risk-Driven Contracting: Designing Incentive Fees Based on Probabilistic Cost Estimates] in "Defense ARJ, April 2012, Vol. 19 No. 2 : 133–158", A Publication of the Defense Acquisition University
Office of The Federal Register, Enhanced by IntraWEB, LLC, (2014), Title 2 Grants and Agreements (Revised as of January 1, 2014): 02-CFR-Vol-1, IntraWEB, LLC and Claitor's Law Publishing
Oyer D. J., (2011), Pricing and Cost Accounting: A Handbook for Government Contractors, Berrett-Koehler Publishers
Samelli A. G., Rabelo C. M., Pereira M. B., Portela M. N., Sanches S. G. G., Neves-Lobo I. F., (2012), Comparison of screening methods for conductive hearing loss identification in children: low-cost proposal in "J Med Screen 2012;19:1–7 DOI: 10.1258/jms.2012.011051"
Sawhill I., Karpilow Q., (2014), A No-Cost Proposal to Reduce Poverty & Inequality, Center on Children and Families at Brookings
Taylor R. L., Zuber M. T., Lehman D. H., Hoffman T. L., (2011), Managing GRAIL: Getting to Launch on Cost, on Schedule, and on Spec in "2012 IEEE Aerospace Conference", IEEE, USA