Consultants often get the blame for high proposal costs because their fees are an obvious big-ticket item. Many business developers tell me, however, that when they tally up the proposal costs at the end of the proposal effort, it is not the consultants that blow the budget. Surprisingly, it’s the in-house employee costs that take them way over the plan. Either way, there are three solutions that business developers can adopt to keep proposal costs under control – solutions I am going to discuss below.
But first, I wanted to discuss several factors that contribute to higher-than-budgeted proposal costs, independent of whether you hire proposal consultants or use in-house staff.
- No one teaches business developers how to develop a realistic proposal budget. They often don’t know the industry-accepted metrics that set the standard for how much a pursuit should cost in relation to the size of the deliverable. They fail to collect their company’s own financial numbers, and they, therefore, fail to understand what costs will be required to win proposals of a certain size. They don’t know how to build a bottom-up estimate based on a level of effort. Furthermore, they don’t take into consideration individual proposal team members’ capabilities when developing a budget. As a result, their estimates have little to do with reality and don’t make a good tool for managing proposal staff.
- Many business developers miscalculate the cost of their employees. They often only calculate their employees’ hourly salary numbers, forgetting to take into account overhead, fringe benefits, and incentives. This fully loaded rate is usually one and a half to twice as high as the base amount.
- Companies that don’t have good financial controls for business development charges get hit with unnecessary charges to the code. Without proper oversight, the misuse of proposal charge codes is inevitable. For example, in larger multi-department companies, some program managers game the system by offloading some of their employees’ hours from the program to a BD charge number in order to artificially deflate their labor costs. Although it is illegal and improper, if there are no real controls in place, they can get away with it.
How do you prevent these cost inflations and realistically predict your investment in a proposal effort? These three solutions reduce proposal costs and apply well to both proposal consultants and employees:
- Understand what the job entails from the outset and be realistic in your budgeting projections so that your estimate becomes a handy management tool.
- Negotiate budgets with each member of the proposal team and maintain constant communication to know where you are at any given time.
- Establish controls for proper accountability, productivity, and prevention of improper charging.
In my next post in the series, I am going to discuss in detail my approach to budgeting properly in order to cut down proposal costs. Sign up for the blog to make sure you don’t miss it.
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