There are a few ways to determine the importance of a strong Go/No-Go decision process for your architecture, engineering or construction firm. Regardless of how you look at it though, the fact is it’s important. For this particular post, I’d like to focus on the financial reasons to tighten your firm’s process.
First, a few quick stats from 2009’s Industry Outlook (ZweigWhite).
- 77% of firms planned to expand marketing activities
- 65% of firms planned to team more often (not joint venture)
- 54% of firms planned to enter new markets
These statistics have at least one thing in common – more proposals. The question is, at what expense?
Cost per Proposal
I wanted to take a whack at the average cost per proposal. Since I’m writing in gross over-generalizations, I’ll try to stay as conservative as possible. That way I can end by saying “it’s AT LEAST this bad.” Here is a quick estimate of hours for a public RFP response.
- Marketing Staff – 30 hours
- VP or Exec Input – 10 hours
- Senior Billable Staff Input – 5 hours
Now, we can use direct labor rates to calculate costs, or we can use fully-burdened rates that would be used for pricing out jobs (since there are billable people involved in the process). Just to be conservative, I’ll use mid-range direct labor rates.
- Marketing Staff – $25/hour
- VP or Exec – $50/hour
- Senior Billable Staff – $40/hour
This brings the total labor cost of a proposal to roughly $1,450. Again, this is a conservative estimate, but depending upon the size of your firm and type of proposals you submit, it’s not a bad number to work from. (I know there are some firms out there that spend ten times this much effort on a large contract.) This also doesn’t account for any production expenses that may go into submitting numerous hard copies, etc.
Opportunity cost means the cost of NOT doing something else. (huh?) So, if we assume that each proposal costs us $1,450 in labor, opportunity costs means that we are also “losing” money by not having those people do something else more productive.
For the marketing staff, the time would likely still be an overhead cost. That does not, however, justify the “marketing doesn’t have anything better to do” mentality. It just means that in this example, I don’t want to make a bold assumption that the marketing team would be landing a big contract with that 30 hours.
We can assume though, that roughly 50% of the executive’s time could be billable and 90% of the senior staff’s time could be billable. Using those percentages and fully-burdened labor rates, we can say we are losing $1,290 more in billable time.
Our total cost per proposal is now roughly estimated to be $2,740.
During the last two years, many firms found themselves in a frenzy, chasing after any project that they were capable of completing. However, for every wasted effort, the firm may as well have written a check for $2,740. A tight Go/No-Go process could save any given firm in the tens of thousands of dollars per year in productivity. Even though the labor expenses would be the same on the bottom line, the effort wouldn’t have been wasted on opportunities that may have been dismissed with a thorough screening. It would have been redirected to something more fruitful.
Controlling costs doesn’t have to mean eliminating them. It means looking at where money is spent and making sure it’s used effectively. Following a Go/No-Go process is not only a wise marketing decision, it’s a wise financial decision for AEC firms.