An Exploration of Bidding from Opportunity to Winning Profitable Business

Prospector an exploration of bidding from opportunity to winning profitable business INTRODUCTION This brief covers the following: . INTRODUCTION . THE SIMULATION . THE BUSINESS SITUATION . THE DECISIONS . THE RESULTS This simulation is designed to allow you to explore the commercial aspects of winning profitable business. A computerised business model will simulate the impact of your actions and those of several virtual competitors. Your task is to identify project opportunities and advance them through the bidding process to become profitable projects. The simulation is designed to allow you to explore the issues associated with winning profitable business and does not attempt to replicate any particular business exactly. THE SIMULATION The simulation consists of the following: . PREPARATION . WINNING PROFITABLE PROJECTS . REVIEW PREPARATION Preparation involves becoming familiar with the basic situation, define individual responsibilities, consider objectives and strategies and decide how to measure and control your business. It is important to recognise that it will take sometime before you fully understand all the facets of the business that you are managing. Thus your understanding and the effectiveness of decision making will improve throughout the simulation. WINNING PROFITABLE PROJECTS Bidding for Business: Once the initial preparation is complete you will be searching for project opportunities and progressing some of these to winning bids. The bidding cycle consists of these stages . Search for Opportunities . Pre-qualify the Projects . Prepare and Refine the Tender . Negotiate the Contract . Win the Bid and Execute At each stage you refine your understanding of the project and the risks involved and decide whether to progress the project to the next stage. Also, at each stage the costs incurred in bidding for a project increases. And, if you do not win the business this expenditure and your time preparing the bid will be wasted. At the end of the simulation you must have won sufficient projects to ensure a profitable business. And to do this you must have mitigated risk and constrained cost. Reports: To help you with the bidding process several computer derived reports are provided showing current project information (technical, commercial & financial needs and risks) and provide financial forecasts of profit and loss and cash flow. Simulating Project Outcomes: At the end of the simulation, the project outcomes will be simulated so you can see and compare how profitable the projects that you won were and the extent to which you mitigated risk. REVIEW At the end of the simulation there will be a review of the results and you may be asked to make a short presentation.

© 2004 & 2012 Hall Marketing Prospector (UK) Page 2 THE BUSINESS SITUATION The business that you are to manage has just been setup as a subsidiary in an Eastern European country where there are likely to be a large number of projects. Your purpose is to build up a pipeline of projects to be delivered in the subsidiary's first year's trading. Taking into account national holidays etc., the trading year consists of 48 weeks. You now have a small team of bid support staff to handle the bidding process. You are setting-up a design office where the design work will be done for the projects won. This design office will be complete and manned in three months time and you have up to then to win sufficient bids to make it profitable and the business a success. There are several companies bidding against you. These range from small and medium locally based companies to a large international company. These competitors are virtual and the computer determines those who bid for a project and what they bid. Also, the company is setting up several similar companies in other countries (the other teams) and will, from time to time compare your progress against theirs. THE PROJECTS & PROJECT INFORMATION Each project differs in terms of size, technical complexity, and commercial risk. They involve different amounts of design work measured in man-weeks. It is unlikely that any project requires less than 100 design-weeks or more than 2000 design-weeks. As each designer can work 48 weeks a year, this means that the size of a project ranges from about 2 man-weeks to just over 40 man-weeks. Initially, project information is very restricted but, as you advance a project through the bidding process, the amount and quality of the information should increase. FINANCIAL INFORMATION To simplify the simulation all financial information is in Account Units (AUs). Each project involves expenditure during the bidding process and, if won, design staff costs and overheads. (To simplify matters expenses (contracted out work, materials, etc.) are ignored.) Your parent company is willing to invest up to 2500 AUs and authorises you to borrow from a bank up to half this amount. For the parent company's investment and bank borrowing you pay interest on a weekly basis. For the parent company investment, interest is a quarter percent (0.25%) per week. For bank borrowing, interest is half a percent (0.5%) per week. And, if you have a positive cash balances at the bank, you earn an eighth of a percent (0.125%) per week. RESOURCES Besides financial resources you must consider: Bid Support Team Design Staff A Bid Support Team is in place to support the bidding process but their number and time is limited. So, it is important to consider the mix of the work between searching for opportunities, pre-qualification, tendering and negotiating. Throughout the simulation you will be kept informed of the time remaining for these staff to work on winning profitable business. At the start of the simulation you have 100 units of bid support effort. At the end of the simulation you can employ up to fifty design staff (managers, engineers, architects, etc.) to work on the projects that you have won. This means that for next year you have a maximum of 2400 design weeks. This limit means that you are likely to be able work on one or possibly two large projects; alternatively three or four medium sized projects; or, perhaps, six or seven small projects or a mix of these. The average cost of each designer is 96 AUs a year (2 AUs a man-week).

© 2004 & 2012 Hall Marketing Prospector (UK) Page 3 THE BIDDING PROCESS Each project you bid for goes through some or all of these stages. At each stage you expend effort and cost to improve your knowledge of the project and reduce the risks associated with it. At regular decision points you must decide whether to advance a project to the next stage. Search for the This involves searching for project opportunities that match the opportunity criteria you set to ensure that they have promise and fit your company's technical and financial capabilities. When a project  matching your criteria is found you are provided with some information about it. Searching for opportunities involves bid support effort and the time taken depends on the tightness of your criteria and the availability of projects matching these. Decision Point At this decision point you decide whether the project should (Decision Point 1) proceed to the pre-qualification stage. (If, initially, you decide not  to move the project to the next stage, you can do this later.) Pre-qualification This involves obtaining additional information about projects and Analysis may involve some preliminary pre-contract design work. At this decision point, you decide whether to move the project to  the tender preparation stage. (If, initially, you decide not to move Decision Point the project to the next stage, you can do this later.) (Decision Point 2) This involves responding to the invitation to tender. This involves  considerable work and cost and may involve further pre-contract Tender design work. During this stage you must clarify scope, investigate Preparation risks and explore a range of tender prices. This work will impact  your likely profitability and chance of success. Decision Point At this decision point, the tender is submitted to the client who will (Decision Point 3) either accept it for negotiation or reject it. (If you decide not to  submit the tender, you can do this later.) Final At this stage, you must agree start and end times, and payment Negotiations terms with the client. These impact your work schedule, cash flow  and chance of success. Decision Point Here you finalise your bid and submit it to the client who will (Decision Point 4) accept it or reject it. (If you decide not to submit the final offer, you  can do this later.) Contract Award The contract is either won or lost. If won it becomes part of the  future workload for design and, hopefully, will be profitable. Project At the end of the simulation, you must decide how much the Execution parent company should invest and the number of design (Decision Point 5) engineers to employ. Following this, the projects that you have won will be progressed towards completion and the actual outcomes determined.

THE VIRTUAL COMPETITION Competing against you for your business are several competitors that differ in terms of size and technical and financial capabilities: Delaise Percival [D-P] Justine Tyme [J-T] NoJob2Odd [NJ2O]

© 2004 & 2012 Hall Marketing Prospector (UK) Page 4 Delaise Percival is a large multi-national company that like your company is not well established in this market. Design work is done centrally (there is no local design capability) It is financially strong and tends to have middling profit margins. But it is possible that the group management may see this market as peripheral. It is expected that Delaise Percival will bid for all sized projects. Justine Tyme is a medium sized local company. It has a good local reputation but recently, it has not been very profitable and is financially weak. This may mean that they are "hungry" for the right type of business. It is expected that Justine Tyme will just bid for small and medium sized projects. NoJob2Odd is a small local company with an excellent reputation. It is financially strong because of relatively high profit margins. After the recent retirement of it's founder, a management buyout may affect its aspirations and policies. It is expected that NoJob2Odd will bid for small and, perhaps, medium sized projects. Competitive Margin Analysis The table below is based on an analysis of bids made by the competing companies and shows the range of margins that they have bid based on project size. These margins are indicative and during bid analysis you must reassess them. Bid Margins Small Projects Medium Projects Large Projects 100-400 man-weeks 400-1200 man-weeks >1200 man-weeks Delaise Percival 13.7% – 16.2% 12.0% –15.5% 10.3% –13.5% Justine Tyme 13.1% – 15.3% 12.0% –14.7% NoJob2Odd 12.9% – 15.3% THE INDIVIDUAL STAGES This section details each individual stage in the bidding cycle. It describes the decisions made and the reports available to support your decisions. 1. Opportunity Search Stage Opportunity Search Criteria You specify the criteria to use to find project opportunities. When you have set these the simulation will search for an opportunity that matches these criteria. But, as there are a limited number of opportunities it can become progressively more difficult to find new opportunities and this means that it may take more time and cost more. And, this is especially true if you only have a narrow range of criteria. The criteria that you set are as follows: Project Size Prior Experience Project Urgency Client Type Project Size refers to the total value of the project and can be small, medium, large or any. Where small, medium or large will only cause project opportunities with a similar size to be chosen. Any means that size is not used to select the project opportunity. Based on past experience, it is expected that there will be many small projects but relatively few large ones. Prior Experience defines the extent to which you have worked on similar projects and your expertise and can be none, some, high and any. Where none means that you have no experience of projects of this type. High means that you have regularly delivered similar projects successful. And some means that you have some experience but not necessarily successful experience. Any means that this criterion is not taken into account when searching for a project. Project Urgency defines when the client requires the project to be completed and can be low, medium, high or any. Where low means that the project does not need to finish until the last quarter of the year. High means that the project is likely to need to

© 2004 & 2012 Hall Marketing Prospector (UK) Page 5 be finished in the first half of the year. And medium means that the project should be finished in the third quarter of the year. Any means that this criterion is not taken into account when searching for a project. Client Type can be set to public, private, other or any. Public Clients are national or local government, military, police, healthcare etc.. Private Clients are companies or other commercial entities. Other Clients are private individual or similar. Where public, private and other are set only cause project from such clients to be selected. If any is set they the client type is not taken into account when searching for a project. The cost and amount of bidding effort expended on searching for an opportunity depends on the tightness of the criteria. So, loosening the criteria will reduce the search cost but this may be at the expense of the quality of the opportunities found. Further, if the search criteria are too tight, no opportunities may be found! Besides your searching for project opportunities, some may arise as potential clients contact the company. If this occurs, the following window will open on the screen: New Opportunity Continue Help

When an opportunity is found (through your search or the client contacting you) details of the opportunity will be displayed (as described below). After reviewing the opportunity you can progress it to the pre-qualification stage by clicking Yes (below). (If you click No, you can always move to the pre-qualification stage later). Pre-qualify? Yes No Help

New Opportunity Information When a new opportunity is found the new opportunity review report (below) is shown. Later, you can obtain the same information (for all the projects at this stage) from the New Opportunity Summary. New Opportunity Review Project Number 1 Project Size Small Prior Experience Unknown Client Experience Unknown Project Urgency Low Prior Relationship None Current Relationship V.Poor Client Type Private Bidding Cost 0.02 Bidding Effort 0.01 Remaining Effort 100 Project Number is used to identify the project throughout bid processing. Project Size provides an indication of the project size in terms of possible design time. It divides the projects into small, medium and large. Where small projects are likely to require less than 400 man-weeks; medium sized projects between 400 and 1200 man- weeks and large projects larger than 1200 man-weeks. Prior Experience provides an indication of your experience with similar projects in terms of none, some or high. Projects with no experience are likely to be risky and those with high experience are not likely to be risky. However, until you build a relationship with the client, your prior experience may be unknown.

© 2004 & 2012 Hall Marketing Prospector (UK) Page 6 Client Experience provides an indication of the client's experience with similar projects in terms of none, some, high or unknown. Project Urgency gives an indication of how soon the project must be completed and can be low, medium or high. Low priority projects will not need to be completed until the last quarter of the year. Medium priority projects will need to be completed in the third quarter of the year. And high priority projects will need to be completed in the first half of the year (but probably not in the first quarter). Prior Relationship gives an indication of whether or not you have had a prior relationship with this client. Current Relationship provides an indication of how close you are to the client. For clients where there was a prior relationship a perception of the current relationship is shown. But, for new clients this is unknown. Client Type shows whether the client is public (national or local government, military, police, healthcare etc.). Private (company or other commercial entity) or Other (private individual). The Bidding Cost is the cost of searching for the opportunity. If a prospect advises you of the opportunity, then this cost is zero and you have not used any bid effort. Bidding Effort is the actual amount of bidding time spent on finding the opportunity. Remaining Effort is the total bidding effort remaining to progress this and other bids. 2. Pre-Qualification Stage Pre-qualification Decision Either directly after an opportunity has been found or later you can decide that a project is sufficiently interesting to move to the pre-qualification stage. When you select a project for pre-qualification you will be provided with additional information about the project but it will take a day and a half (0.3 weeks) of bid support effort to obtain this information. Pre-Qualification Information When a project is moved from the opportunity identification to the pre-qualification stage additional information becomes available and the current information is updated thus: Pre-Qualification Information Project Number 1 Expected Work (weeks) 937 Desired Finish Week 42 Technical Complexity V.Low Prior Experience Unknown Client Experience Unknown Current Relationship Unknown Client Type Private Client Aggression Unknown Contract Style Capped Bidding Cost 0.60 Bidding Effort 0.30 Remaining Effort 98 Project Number is the number assigned at the opportunity stage. Expected Work (weeks) is a preliminary forecast of the project size in terms of design weeks and provides more detail than the previous indication of small, medium or large. Desired Finish is the week when the client wishes the project complete and so is a more accurate indication of project urgency.

© 2004 & 2012 Hall Marketing Prospector (UK) Page 7 Technical Complexity defines the maximum technical complexity of the project and can be v. low, low, medium, high, v. high or unknown. Where unknown is shown until a sufficient relationship has been developed with the client. Prior Experience reprises your experience with similar projects. Client Experience reprises the client's experience with similar projects. Current Relationship reprises how close you are to the client. Client Aggression is an indication of how aggressive the client is and ranges from very low to very high. Most customers are expected to be average, some low or high and very few with very low or very high aggression. Client aggressiveness may affect negotiation. However, aggression may be unknown until a sufficient relationship has been developed with the client. Client Type reprises the client type information. Contract Style shows the manner of payment desired by the client. This can be Fixed - for fixed cost contracts; Cost + for contracts where the client pays an agreed margin on work (design work and overheads %). Or Capped for capped cost plus contracts - here the client pays an agreed margin while the total cost to them (including the margin) is less than the cap. Above this, the client only pays the cap amount. Bidding Cost is the accumulated cost of the bidding effort for this project. Bidding Effort is the actual amount of bidding effort spent on updating the project information and producing this report. Remaining Effort is the total bidding effort remaining to progress this and other bids. As the project progresses through the bidding process these estimates may improve and this is especially true if pre-contract design work is performed or the bid staff meet with the client. 3. Tender Preparation Stage At this stage you obtain new and updated information about the project, suggest prices to the customer and receive forecasts of the likelihood of success, of costs and the impact of the project on your design workload. Moving to the tender preparation stage involves 2 days (0.4 weeks) of bidding effort. Project Information When a project is moved from the pre-qualification stage to the tendering stage additional information becomes available and the current information is updated thus: Tender Information Project Number 1 Expected Work (weeks) 937 Shortest Work (weeks) 638 Longest Work (weeks) 1833 Desired Finish Week 42 Technical Complexity Low Prior Experience None Client Experience Some Current Relationship Poor Client Type Private Client Aggression Medium Client Competency Unknown Contract Style Capped Preliminary Cost Forecast 4218 Bidding Cost 1.42 Bidding Effort 0.40 Remaining Effort 100

© 2004 & 2012 Hall Marketing Prospector (UK) Page 8 Project Number is the number assigned at the opportunity stage. Expected Work (weeks) is an updated forecast of the project size (taking into account better information from the client and any pre-contract design work) in weeks. Shortest Work (weeks) is a forecast of the shortest probable design time. Longest Work (weeks) is a forecast of the longest probable design time. The spread between the shortest and longest design weeks is likely to be dependent on technical complexity, prior experience, customer relationship and capability. Desired Finish (week) is an updated forecast of when the client wishes the project to be completed. Technical Complexity reprises the perceived complexity. Prior Experience reprises your experience with similar projects. Client Experience reprises the client's experience with similar projects. Current Relationship reprises how close you are to the client. Client Type reprises the client type from the New Opportunity Information report. Client Aggression reprises this. Client Competency is new information available from this stage onwards. Contract Style shows the manner of payment desired by the client. Preliminary Cost Forecast is a forecast of the total project cost based on the expected work and the standard overheads % (125%). Bidding Cost is the accumulated cost of the bidding effort for this project. Bidding Effort is the actual amount of bidding effort spent on the current activity. Remaining Effort is the total bidding effort remaining to progress this and other bids. In the example, during the pre-evaluation stage, there was a meeting with the client and this meant that it was now possible to assess prior and client experience, the relationship and the perceived aggression and competency. Tender Price Investigation This involves you discussing a price with the client and forecasting the impact. When you do this you must provide the following information: Tender Price Budget Work (weeks) Overheads % Perceived Risk Tender Price submission depends on the contract style. So, for fixed price contracts you enter a total price. For, cost plus contracts you enter a percentage margin. For capped, cost plus contracts you enter a percentage margin and a cap. When entering the margin it is applied to both your design cost and the overheads. Budget Design Weeks is the number of design weeks that you wish to use to calculate the remaining design costs. That is to say this is the design weeks required after you have won the project and after taking into account all the pre-contract design work. In setting this you need to take into account the expected, shortest and longest amounts of work and possible overruns. Overhead Recovery Rate % is the percentage to be applied to staff and pre-contract design cost to calculate the overheads. Although you decide this rate, across all projects your average recovery rate must be at least 125%.

© 2004 & 2012 Hall Marketing Prospector (UK) Page 9 Perceived Risk allows you to report to Head Office your perception of the risk associated with the project. It ranges from 0 (very, very low risk) to 9 (very high risk). Each tender price investigation involves half a day of bidding effort. Tender Forecast After investigating a tender price a report is produced showing your decisions and forecasting the probability of success and financial results.

Tender Forecast Project Number 1 Contract Style Capped Fixed Price Agreed Margin 13.4 Contract Cap 5000 Delaise Percival Yes Justin Tyme Yes NoJob2Odd Yes Probability of Success 14 Budget Work (weeks) 937 Overheads % 125 Perceived Risk 5 Bidding Cost 1.62 Pre-contract Design Cost 0.00 Budget Revenue 4782 Budget Cost 4218 Budget Margin 563 Budget Margin/Revenue 11.8 Bidding Cost 10 Bidding Effort 0.2 Remaining Effort 100 Project Number is the number assigned at the opportunity stage. Contract Style shows the manner of payment desired by the client. Fixed Price, Agreed Margin and Contract Cap are displayed as appropriate depending on the contract style. (Note: in the example all lines of the report are shown. But where the contract is Fixed Price only that line is displayed. Where it is Cost + only the Agreed Margin line is displayed. And, as above, if it is Capped both the Agreed Margin and the Contract Cap lines are displayed. For each of your competitors you will be advised whether or not they may be bidding. (In the example all the competitors are bidding) Probability of Success shows your percentage chance of winning the bid based on your proposal and the probable number of competitors and their probable prices. (In the example, you have a 70% chance of winning.) Budget Work (weeks) is the design work (in weeks) still to be performed (after taking into account any pre-contract design work). Overheads % is the percentage to apply to the design costs to cover overheads. Perceived Risk is your forecast of the current project risk. Bidding Cost and Pre-contract Design Cost is the accumulated cost for these. Budget Revenue is the income that you expect to receive from the client. It is calculated depending on the contract style. For fixed price contracts, it is the fixed price entered. For cost plus contracts, it is the total of design cost (pre-contract cost plus the cost of budget work) plus overheads with the agreed margin applied. For

© 2004 & 2012 Hall Marketing Prospector (UK) Page 10 capped, cost plus contracts, the revenue is calculated as for the cost plus contract but this is capped at the contract cap. Budget Cost is the total of bidding, pre-contract, budget and overheads. Budget Margin is the budget revenue less the budget cost. Budget Margin/Revenue is the budget margin expressed as a percentage of the budget revenue. As you may wish continue discussions to improve the chance of success and margin, you are next asked if you wish to: Change Tender? Yes No Help

Click Yes if you wish to explore changes. Otherwise click No (you can always return to explore the tender further. When you click No you are asked: Submit Tender? Yes No Help

If you click Yes the tender is submitted to the client and you see if you won it or not. If you do not wish to submit the tender at this time click No (you can return later to investigate it further and submit). The outcome of your tender is shown thus:

Tender Outcome Project Number 1 Winning Company Company Bid Margin % 12.8 Delaise Percival Margin % 13.8 Justin Tyme Margin % 13.3 NoJob2Odd Margin % 13.4 The winning company can be your company or D-P for Delaise Percival, J-T for Justin Tyme and NJ2O for NoJob2Odd. For cost plus and capped cost plus contract types the margin is the margin that you agreed. For fixed cost projects it is calculated based on total costs (including bidding and pre-contract design costs and your budgeted work and overheads %). The competitor margins are forecasts and suggest how close you are to the competitors. If you are very close, negotiation may be difficult but you have maximised your margin. If a project tender is won it moves to the negotiation stage. 4. Negotiation Stage This involves you negotiating to improve the work schedule, cash flow and profitability. So, the prime purpose is to improve the fit of the project to the business. Negotiate Terms You can negotiate with the client the following: Proposed Start Proposed Finish % Payment at Start % Payment at Finish Number of Stage Payments % Stage Payment Retention (weeks) Payment Terms

© 2004 & 2012 Hall Marketing Prospector (UK) Page 11 Proposed Start is the week the project starts and when initial billing is done (provided the project starts at or before this week). Proposed Finish is the week the project should be competed and when billing at the finish is done (provided the project finishes at or before this week). It is unlikely that clients will accept a proposed finish later than their desired finish. % Payment at Start is the proportion of the total payment made at the start of the project. Except for fixed price contracts, it is very unlikely that clients will be willing to make a payment at the start. % Payment at Finish is the proportion of the total payment made at project finish. Number of Stage Payments is a possibility for some projects. But, in this case clients are likely to limit the number of these. In this example there are two stage payments. % Stage Payment is the percent of the total tender price to be made at each stage. Retention (weeks) is the number of weeks after completion that the client will make the final payment. The percentage paid is the percentage remaining after start, finish and stage payments have been made. Payment Weeks is the agreed delay between billing and when the client actually pays. The relationship between the proposed start and finish and payment schedule and cumulative billing is shown below

Project Work Budgeted Retention Period

100 % % retention 

 % finish

 % stage

 % at start Cumulative Billing

^ ^ ^ ^ ^ Agreed Start Stage Payment Stage Payment Agreed Finish Retention Payment Schedule and Billing Current Proposal This report shows the current proposed dates and payment terms. Initially, when the client has just accepted your tender, the values shown are the client's initial position. Current Proposal Project Number Proposed Start Proposed Finish % Payment at Start % Payment at Finish Number of Stage Payments % Stage Payment Retention Period Payment Weeks

© 2004 & 2012 Hall Marketing Prospector (UK) Page 12 After making the changes that you wish to propose to the client and click the Confirm button, the client's feedback to your proposal will be shown thus: Proposal Feedback Project Number 1 Finish Week ▐▐▐ Start Week ▐▐▐ % Payment at Start ▐▐▐ % Payment at Finish ▐▐ Stage Payments ▐▐▐ Retention ▐▐▐ Payment Weeks ▐ Overall ▐▐▐ For each of your areas of negotiation and overall, you will be shown up to three bars thus: ▐▐▐ Three red bars - totally unacceptable ▐▐ Two red bars - rather unacceptable ▐ One red bar - unacceptable but may be balanced by green bars ▐▐▐ Three amber bars - not important to the client ▐ One green bar - just acceptable to client ▐▐ Two green bars - acceptable ▐▐▐ Three green bars - very, very acceptable You have probably got the best deal when the overall is a single green bar. If you submit the project for final agreement while overall two or more red bars are shown the client is likely to go with the most attractive competitor. If, overall, three amber bars or a single red bar are shown then you may win the contract, but on the other hand, it may be awarded to a competitor. After providing the current proposal report you are asked if you wish to review the work pipeline: Review Work Pipeline? Yes No Help

If you click Yes then a chart showing the cumulative work pipeline is shown for negotiated and confirmed projects together with the current design staff capacity. Next you are asked if you wish to review cash flow: Review Cash Flow? Yes No Help

If you click Yes then a graph of the cumulative cash flow associated with staffing needs, confirmed work, negotiated projects and the current project for the next year is displayed. The confirmed work line shows the cash flow pattern forecast for projects that you have won and includes design staff costs. The negotiation line is the total of the confirmed work and the projects at the negotiation stage (but excluding the current project). The current project line is the total of the confirmed work and the projects at the negotiation stage (but including the current project). (On the screen, the actual lines are displayed in different colours to clarify the different data.) But, as the preparation of this report will take 1 day (0.2 weeks) of bidding effort you may not wish to do it too often.

If you click Yes then you can go back and change the proposal. If you click No you will be asked if you wish to: Submit Final Offer? Yes No Help

If you click Yes then the current proposal will be displayed for you to review and confirm. Otherwise click to negotiate other contracts or do other tasks (you can return to negotiate this contract later). Final Offer Project Number 1 Contract Style Capped Fixed Price Agreed Margin 13.4 Contract Cap 5000 Budget Work (weeks) 937 Overheads % 125 Perceived Risk 5 Proposed Start Proposed Finish % Payment at Start % Payment at Finish Number of Stage Payments % Stage Payment Retention Period Payment Weeks And after you have the opportunity to review and print the final proposal before confirming that it should be submitted it to the client who will either accept it or reject it. Confirm Final Offer? Yes No Help

If you click Yes to confirm the final offer the client will decide and you will either win the business or loose it. So, if you are unsure, click No and discuss further. 5. Project Execution Stage At the end of the simulation the projects that you have won are executed and delivered. Depending on the remaining risk, scheduled start and finish times and staff workload, individual projects may be completed late (or early). If design staff are idle, they may begin to work on projects that still need work. But, for any projects, the client cannot be billed until the agreed start week. Likewise, if a project is completed before the agreed finish week, no finish payment can be billed until the agreed finish week. Implementation Decisions Before the outcomes of the projects that you won are simulated you must decide how much money that the parent company should invest and how many design staff to employ.

© 2004 & 2012 Hall Marketing Prospector (UK) Page 14 Implementation Decisions Parent Company Investment Design Staff Numbers 50 Parent Company Investment is limited to a maximum of 2500 AUs. Designer Staff Numbers is limited to a maximum of 50. Project implementation is automatically scheduled to keep these designers fully occupied. When deciding the number of designers, you must balance the risk of project over-runs against the cost of idle time. Outcome Reports At the end of the simulation the contracts that you have won are worked on and delivered and you informed of the outcomes as follows: Profit & Loss Account Outcome Summary Cash Flow Graph Project Outcomes Incomplete Projects Profit and Loss Account This summarises the financial outcomes as follows: Profit & Loss Account Revenue Bidding Cost Pre-Contract Design Cost Design Cost Overheads Margin Financial Expenses Net Profit Total Revenue is the total revenue earned on completed projects plus the earned value for incomplete projects. Total Bidding Cost is the total cost of bidding for projects. Total Design Cost is the total of the pre-contract design (less overheads) plus the post-contract design cost. Total Overheads is 125% of the total design cost. Total Margin is the total of bidding cost, design cost and total on cost. Financial Expenses is the total of the payment for the parent investment and bank interest less any interest earned on cash balances. Net Profit is total margin less financial expenses. Outcome Summary This compares the accumulated actuals, budgets, variances and variance % as shown in the table below. The report summarises how successful you were at winning profitable business. If a project is incomplete at year-end, the earned value is accumulated into the actual revenue and the actual expenditures to-date accumulated into the costs. The budget revenue is the total tender value of the contracts won. Variance is the actual less the budget and the variance % is the variance expressed as a percentage of the budget. Total Staff Cost is the total of bidding cost and the cost of the staff working on the projects.

© 2004 & 2012 Hall Marketing Prospector (UK) Page 15 Outcome Summary Actual Budget Variance V% Pre-contract Cost Design Cost Overheads Total Cost Revenue Margin Cash Flow Graph This shows a graph of the actual and budgeted cash needed for the trading year, together with the amount of investment provided by the parent company and the total authorised borrowing limit (parent investment plus authorised bank borrowing). Project Outcomes Two reports are produced showing the project outcomes. These are Schedule Outcomes Project Number 1 3 13 23 Actual Start Budget Start Actual Finish Agreed Finish Actual Weeks Budget Weeks Work Variance

Financial Outcomes Project Number 1 3 23 Total Actual Revenue Budget Revenue Revenue Variance Actual Cost Budget Cost Cost Variance Actual Margin Budget Margin Margin Variance Other Activities Besides the activities that apply to individual bidding stages, there are other activities and reports that can be produced: Adjust Implementation Decisions Meet with the Client Pre-contract Design Profit and Loss Forecast Pipeline Forecast Cash Flow Forecast Implementation Decisions Before obtaining the forecasts you can adjust your proposed implementation decisions thus: Implementation Decisions Parent Company Investment Design Staff Numbers 50 And these will be used when forecasting cash and design staff needs and limits.

© 2004 & 2012 Hall Marketing Prospector (UK) Page 16 Meet with the Client This involves you spending time with the client to improve your relationship and knowledge of the project. Reflecting the fact that meeting scope increases as you progress through the bidding process, the bidding effort for a meeting is as follows: Bidding Stage Effort Opportunity Identification 0.1 man-weeks Pre-qualification 0.2 man-weeks Tendering 0.4 man-weeks Negotiation 0.6 man-weeks When you select a project, you will be provided with updated information appropriate to the project's bidding stage. Pre-contract Design This allows you to spend time on design during the bid process and before you know that you have won the project. This may improve your chances of winning and reduce risk and, perhaps, may reduce the amount of design work remaining. After selecting a project, you must enter the number of design weeks (to one decimal place) to be undertaken. After doing this you will be provided with an update of the information appropriate to the stage that the project has reached. Pre-contract Design Project Number Pre-contract Design Cum. Pre-contract Design Pre-contract Design Cost Cum. Pre-contract Design Cost Possible Design Saving Expected Work (weeks) 700 Shortest Work (weeks) Longest Work (weeks) Profit and Loss Forecast This report shows the following for each active project won and in total. Profit and Loss Forecast Project Number 1 2 3 Total Bidding Cost Pre-contract Design Design Cost Overheads Budget Cost Budget Revenue Budget Margin Bidding Cost is the amount spent on preparing the bid. Pre-contract Design is the total cost of pre-contract design spent during bidding. Staff Cost is forecast design staff cost for the project and (for the total) accumulated across all projects of staff costs (salary, bonuses etc.). Overheads are at a notional overhead recovery rate (i.e. a pre-defined percentage). (The normal overheads percentage is 125% of Staff Cost plus Pre-contract Design and may vary on a project by project basis provided the total averages to 125%) Budget Cost is the sum of Bidding Cost, Pre-contract Design Cost, Staff Cost and Overheads.

© 2004 & 2012 Hall Marketing Prospector (UK) Page 17 Budget Revenue is the total amount to be billed to the customer and so is the total value of the contract bid. Budget Margin is budget revenue less budget cost. Pipeline Forecast This report is the same as the one produced when negotiating a project's contract. Cash Flow Forecast This report is the same as the one produced when negotiating a project's contract. THE COMPUTER Initially, you are asked to "ENTER TEAM NAME?" and you must choose a name (of up to six letters) to be used to identify your group's work. The first time you use the computer you are asked if you are starting. Next, a list of options is displayed. But the options that are currently appropriate are shown. So, for instance, if you have no bids at the tender stage the Prepare and Refine Tender and the Submit Tender items are not shown. HELP The program has an online help system that can be accessed by clicking one of the buttons at the bottom left of the screen. And, when you do this, a window opens providing help, advice or an explanation. When you click Help, information on using the software is displayed (i.e. what key to press, etc.) When you click Advise, information about the current business task or report is displayed. If the Explain button is lit, clicking on it provides information about the current menu item or data entry is displayed. But for reports and comments, to get an explanation you should clicking on the appropriate line in the report or on the comment where you require an explanation. APPROACHING THE TASK It is up to you to decide how you approach this task but this may help you with this. 1. The simulation is designed as a learning experience and because of this and to ensure that you are not overloaded with work, the it is a simplified and, perhaps, stylised replica of the real world. It will not exactly replicate your own business. Rather, it will embrace similar business, management and commercial issues. 2. When deciding your work you need to balance building a base of opportunities and understanding how you process these through to winning the bid and how you budget your time between driving projects through the bidding stages. 3. You will need to discuss, decide and refine how you search for opportunities and the criteria you use at each decision point. (And, it is likely that your ways of doing these will change during the simulation). 4. As, at the end of the simulation, you will be asked to discuss and compare your results, strategies, objectives and approaches. So, please make sure that you document your progress and, from time to time, step back from the task to discuss learning and progress. 5. The simulation is designed as a team activity where you share knowledge, experience and ideas, learn from each other and success will come from making the best use of your team resources and thinking through the problems. Remember: The trainer is there to answer your questions about using the software, your plan and terminology. But, he or she will not tell you what to do! This simulation is one of a comprehensive range of business simulations from Hall Marketing, Studio 11, Colman's Wharf, 45 Morris Road, London E14 6PA. Phone & Fax +44 (0)20 7537 2982 E-mail [email protected]