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What does it cost for your services?
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How do your rates compare with your competitors?
No matter how you look at it, it is challenging to compare rates between organisations. It is much easier to attributean hourly rate to an individual and this is more typical for “labour hire” arrangements. Some organisations discount their rates but add more hours to the job because they mainly operate using a labour contracting model, and for extended services the lower rates suites them because they are not taking responsibility for commercial outcomes. This is more typical for arrangements where milestones are not in place. For milestone or outcomes-based work packages, higher rates may be used, using more targeted capability but generally less hours are assigned or costed. The general perception is that the same costs are assigned to the work package, however for any change to the contract, the customer pays a premium. In the case where the supplier/contractor is providing key personnel who are taking responsibility and managing risk, this hourly rate is clearly justified. Bundled in with the core service, they are likely providing better impact assessment and advice along the way.
What drives the price up?
The primary factor that drives up the price for Industrial Automation and Digital Transformation Services and Solutions is poorly defined requirements. Poorly defined requirements are likely to drive the price up if the agreement attached to the scope of works is rigid and inflexible. If the engagement or request documentation has a flavour of “adversarial” management, then this may encourage contingency to be added to the price and is likely to drive estimators to add many exclusions and qualify what is going to be provided. On the flip side, having too many requirements without specifying outcomes means the supplier may easily argue that anything that is not explicitly written down is not included. Unfortunately for end users, it can be challenging to assess good value for money when there are so many factors at play. Perhaps the best guide for value for money is to cross check with other customers. This should be tested for the primary contract with particular focus on what would occur in the event of contract changes or additions. This will provide a good indication about pricing transparency and the companies approach to change management.
What helps keep the overall cost down?
Knowing your requirements and being clear about outcomes and how the outcomes are to be measured is a sure way to get the “right” value for money. The “right” value for money is not usually the lowest price, it’s about getting what you have paid for. This is really important to understand. The second most important strategy is to have a project manager who is active and dedicated on your team. They may not need to be full time; however, they must understand requirements management and apply fair and good governance. This will help contractors feel like they are being helped and supported and it will eliminate waste for both parties.
When a system is about to be deployed, it should be tested before going to site. Testing before commissioning creates a baseline (reference point) so that development issues don’t creep into commission activities. This is particularly important when the customer is paying for all commissioning activities on a rates arrangement. Finally, transition planning is key to managing small and large technology projects. It is perhaps one of the most important risk reduction strategies to avoid blow outs and excuse making. Transition planning may include workshops, strategy development, consideration for data migration, operational integrity management, configuration management and of course testing.
Is Labour Hire better than Project Services?
Labour hiring engineers into a client’s team has its value. For Parasyn this approach is something we support from time to time to help our clients overcome a shortfall in resourcing or a particular skill. This is never a long-term engagement and is rare. There are a number of reasons we take a short-term approach to labour hiring. Firstly, the collaboration of a team of connected engineers who talk and share ideas every day is a very powerful way to multiply knowledge growth. Isolating an engineer at any one client for an extended period time diminishes not only the engineer’s ability to grow, it diminishes the whole team. Systems integrators and technology developers are generally on the cutting edge of new technologies. They work on many projects, implementing the latest versions of software, leveraging and using the latest hardware products. End users rely on their suppliers to have up to date knowledge and “bleeding-edge” experience. Being inside an organisation too long on labour hire means engineers lose the advantages of working on multiple projects, sharing ideas with their colleagues and the learning and development that comes inside a strong engineering team. Even working for a customer on rates on activities that are hard for the customer to define is different to seconding a person onto the client site on a semi-permanent basis. This may be a fantastic financial model for the contractor, but perhaps not a good strategy for staff retention and personal development. The above principle primarily applies to technology workers developing and implementing software systems.
What do you think about lowest price tendering?
Even though this was indirectly covered previously, the summary is, you get what you ask for. The price is technically determined by the client’s requirements or lack of requirements. If the right money is not on the table to do the job, the client is ill prepared to manage the contractor who likely does that many times over and knows how to exploit the customer. Even though it sounds terrible to quote “buyer beware” from legislation, a lowest price strategy is a dangerous approach that simply puts the contractor on notice to qualify their offering and subsequently have their own strategy to get paid for the work they do, even though the tender price offered may be insufficient to do the job correctly. It is what is not delivered because it is not written down which is of greatest concern.
How do you approach tenders which heavily weighted towards lowest price?
Generally, we will not offer proposals that create this conflict for our pricing methodology. We want our customers to be happy years after the initial project and that is not possible if we outsmarted them to win. To us this is not a competition. To us it needs to be a fair exchange.
Do you sell vendor products?
Yes, all the time. Often the price is more competitive than the RRP because we sell more product.
Why is pricing usually cheaper via a partner?
The cost of selling is high for any organisation. When a partner sells products as an agent for a vendor, they bear the cost of selling. The vendor offers the reseller a discount for that effort. When existing partners are already working with a client doing work, sometimes the cost of selling is less, therefore they may be willing to sacrifice some margin as good will. This may not be possible if the customer asks for design work and a lot of investigation before a sale is made. This preparatory work has to be funded by someone. Its either the client paying for it through doing their own engineering, they are paying someone else to do the preparatory design or they are paying higher margins on the product. Expecting vendors to provide advice doesn’t create an equitable outcome and only encourages margin recovery at some later stage.
Can you expect to continue to see discounts after a major project supply?
No, don’t plan for this. The overhead costs are amortised across a large project with dedicated resources committed for a period of time. A partner can offer discounts which are attractive on a per event basis but in the greater scheme of things is quite small. It’s all about economies of scale. If you are buying bits and pieces from industry, you set yourself up as an unwanted customer if the customer penny pinches too much. Sometimes suppliers discuss end users and who to be aware of! Don’t be one of them.
What does the perfect customer look like?
Is the customer with an open cheque book ideal? No, because something bad is likely to happen to one or both parties. Also, a customer knowing exactly what they want is not necessarily the ideal customer either. If the customer knows exactly what they want, one has to question why don’t they just do it themselves? The beauty of customers who ask questions and work with suppliers is they demonstrate a willingness to discover and share their thinking about what is important to their organisation. It is this understanding (the business drivers) that should be linked to the work package metric that is used to measure the outcomes. An understanding, fair, enquiring but firm customer is ideal as this helps both parties deliver against their promises. This is a win-win outcome.