Enginance is pioneering an Early Valuation Of Cost And Price (EVOCAP) methodology – a way in which to quantify and present, clearly and quickly, an ‘early version’ of the cost make-up, risks/contingencies and profit margins that drive an offered price – primarily for competitive tendering. Tailored to each client, the price-result is compared to, and improved-continually against, the assessed market price-to-win, based on in-house knowledge and competitor analysis (i.e.: your customer’s budget, competitors likely prices, extant market prices, etc.) to gauge if an opportunity is viable and how a winning-approach can be forged.

EVOCAP can be tailored to your organisation specifically and align with any cost and price presentation formats you may have for internal Governance purposes.

To explain EVOCAP we have prepared detailed answers to the following questions:

  • Why consider using EVOCAP?
  • How does EVOCAP work?
  • What exactly is an EVOCAP model?
  • What benefits does EVOCAP realise?
  • How long does EVOCAP take to implement?

If you would like to have an exploratory discussion about how EVOCAP can support your business please email Enginance’s Director: peter@enginance.com.

Why consider using EVOCAP?

EVOCAP addresses a number of common problems, symptoms and issues in competitive bid work – click on the link and check to see how many you and your organisation face. This is achieved by advocating, incentivising and delivering two key solutions to ameliorate all prevailing problems:

  1. Collaboration; and
  2. Visibility of quantitative data.

By requiring cross-functional working early-on, EVOCAP, through numerical analysis, identifies all pertinent issues, weaknesses and perceived impossibilities early and before senior management need to be made aware.  This enables a bid team to gel and work-together to solve the main weaknesses, and build on strengths, within the cost and price mix and unite to construct a solution, cost and price that works multi-laterally across functions – Sales, Operations, Engineering, Procurement, Finance, etc.

How does EVOCAP work?

EVOCAP works with your existing staff, IT infrastructure and bid processes.  It is an approach and methodology to invoke best practice at the earliest opportunity. Enginance will work with your organisation to embed an improved way-of-working to augment how best to get to an optimum, deliverable and competitive cost and price mix.

EVOCAP diagram

EVOCAP is based-upon two key facts:

  1. The client requirement, offered solution, cost-to-deliver, and price need to be considered as symbiotic; all parties are to benefit from their inter-reliance and dependence; and
  2. Iterative principles underpin an optimized “best” price.

The EVOCAP model reflects all components of an offered price as shown in the diagram above.  This is achieved by representing all bid-team knowledge in a single cost model. The model then goes on to compare the end result to the perceived or analysed market Win Price against a high and low hypothesis – to arrive at a competitive range.  The model is then iterated (improved through repeating) again and again until all content is optimized.

Enginance will work in partnership with your business to construct each component part of EVOCAP by harvesting existing datasets and past work, interviewing and working alongside your staff or by running innovative workshops to estimate costs from first principles and on an Activity-Based Costing (ABC) approach.

Once an EVOCAP model has been created it is constantly updated in real-time throughout the full bid cycle, becoming more and more accurate as time goes by.  In the early stages, EVOCAP can be used to set targets to those working on detail costings.  The model can also be used as an analytical tool to assess detailed costing and pricing content and any variances – enabling quick identification of excess cost for review and amelioration. Furthermore, EVOCAP is a simple and effective way to communicate and present complex data and to show ‘the big picture’ to inform senior management in order to make key pricing decisions.

Chronology of EVOCAP

Competitive tendering cycles follow a similar chronology whether it be a Shipley based approach or another industry standard.  In essence, a customer requirement is identified, qualified, designed, costed, priced and submitted…and then won or lost.  If won, the bid process extends to cover handover, delivery and continue through to project completion. This cycle will be governed by a number of decision points, gates, or whatever they may be referred to.

Although only illustrative in the diagram above, EVOCAP can evolve from a very rough beginning (version 1) to a very accurate conclusion (version 5).  It can also serve as a good source of compiled information for re-use or any form of analogous or parametric estimating for other pursuits.

Typically an EVOCAP model will be created before any Invitation To Tender (ITT) or Request For Proposal (RFP) has been received, and enables an organisation to formulate an approach and strategy ahead of time.  Alternatively, an EVOCAP model can be created as soon as any tender documentation has been received to then act as a blueprint throughout the bid cycle, or to give clarity that an opportunity may not be viable and thereby save nugatory efforts and the taking away of focus from other promising opportunities.

What exactly is an EVOCAP model?

An EVOCAP model is a holistic quantitative and analytical financial model created in Microsoft Excel. It majors on making whatever is complex simple and to enable the client organisation to understand and use it after Enginance’s involvement has concluded.

Excel has been adopted for the following reasons:

  • All organisations undertaking bid work adopt Microsoft Excel in one form or another therefore EVOCAP is:
    • Cost effective – no need to purchase new software;
    • Able to adopt immediately – no need to order and await new software;
  • Excel is an agile, innovative and world-renowned tool that is fit-for-purpose;
  • Work and EVOCAP models can be communicated and shared easily – either via networks or email attachments;
  • Staff in-house will be (or can be upskilled to be) familiar with Excel and therefore can embrace and re-use EVOCAP without Enginance’s direct involvement;
  • It is easily repeatable once completed the first time (simply copy & paste the workbook and amend);
  • It enables EVOCAP to be available-for-all and not needing expensive upkeep when part of an ERP system (such as SAP and Oracle) or a coded solution such as C#, Java, etc.

Enginance will collaborate with your personnel and build a simple-to-follow activity, work or product-based model that represents the nature of the work at hand and the costs associated.  The EVOCAP model will then be developed and adapted to emulate price as a function of cost, inflation, risk, overhead recoveries, cashflow, net margin, etc. and can be customised to any pricing structure that your company adopts.  It can also be used to establish a commercial/financial operating model for your business if you do not yet have one.

What benefits does EVOCAP realise?

The main advantage is forging a way for your staff to work together for a single common cause and to have a way to analyse and monitor continually what a post-approved price will look like. A further “top-ten” advantages are:

  1. A quick way to gauge if an opportunity is viable, and if time and effort should be invested;
  2. Encourages a bid team to work together across all disciplines (operations, procurement, engineering, sales, finance, legal, etc.), breaking down any ‘silo mentalities’ or mis-trust; providing a single repository of cost and price thereby uniting the bid team to get the price to its most competitive level, whilst still considering deliverability;
  3. Facilitates the setting of a macro bid strategy – EVOCAP provides a ‘litmus test’ to understand if your company has the requisite knowledge and insight so as to put forward a competitive tender or if external partners need to be found, or if your company should seek to sub-contract to others, rather than prime;
  4. Forges numerical clarity early on with quantitative evidence, thereby validating (or invalidating) any unilateral qualitative opinions;
  5. Easy way to collect all cost and price data together for analysis and key decision making; enabling content to be optimised. Operational delivery can be balanced against lean costs and mark-ups;
  6. Enables quick sensitivity analysis at a high level: to theorise ways in which to proceed. EVOCAP allows different courses of action to be considered before detail and time and effort is spent;
  7. Provides full and clear visibility of all the content that drive your client’s cost, aka your sell-price. This allows timely improvements to be made across your cost-base and, indeed, for key issues to be flagged with no ambiguity or uncertainty;
  8. Facilitates review and a full cognisance of what factors drive the price, enabling targeted reviews and improvement of the more significant content;
  9. Maximises bid efficiency by setting targets for detailed costing early on and, therefore, flagging major variances early so that time can be focussed on what truly matters; and
  10. Brings together the knowledge throughout an organisation and its people to full effect. This harbours cross-functional understanding and respect as differences can be identified and resolved in slow-time together, and not late in the cycle which normally leads to high-pressure win/lose scenarios.

EVOCAP brings the full bid team together to deliver quantitative data that can then be considering in partnership with more conventional qualitative judgements.

How long does EVOCAP take to implement?

EVOCAP can be something that is developed in real-time on active bids on a case-by-case basis.  It can run in parallel with, and augment, the bid effort.  Even if the bid timelines are only a couple of weeks (or less) EVOCAP can be adopted, albeit working re-actively to a situation rather than proactively to shape cost and price from inception.

Preferably, EVOCAP would be developed in slow-time in readiness for a large bid and support all bid qualification efforts prior to bid work commencing.

If EVOCAP were to be adopted at a broad/strategic level, a change programme should be considered to communicate and implement this new way of working so that it takes-hold and is fully effective.

About the Author Enginance

Director of Enginance Consulting Ltd.