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)
| Cost proposal — recommended articles |
| Project budget — Bottom up budgeting — Cost center — Sales analysis — Normal cost — Quality planning — Contract costing — Work package — Master budget |
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
