Fig: Pricing review procedure:-

The ability to project, analyze, and control problem costs requires coordination of pricing information and cooperation between the functional units and upper-level management is called Pricing review procedure. A typical company policy for cost analysis and review is shown in the above figure.Corporate management may be required to initiate or authorize activities, if corporate/company resources are or may be strained by the project, if capital expenditures are required for new facilities or equipment, or simply if corporate approval is required for all projects in excess of a certain dollar amount.

As shown in the figure, Upper-level management, upon approval by the chief executive officer of the company, approves and authorizes the initiation of the project or program. The actual performance activities, however, do not begin until the director of project management selects a project manager and authorizes either the bid and proposal budget (if the project is competitive) or project planning funds.

After that newly appointed project manager then selects this project’s team. Team members, who are also members of the project office, may come from other projects, in which case the project manager may have to negotiate with other project managers and upper-level management to obtain these individuals. The members of the project office are normally support-type individuals. In order to obtain team members representing the functional departments, the project manager must negotiate directly with the functional managers. Functional team members may not be selected or assigned to the project until the actual work is contracted for. Many proposals, however, require that all functional team members be identified, in which case selection must be made during the proposal stage of a project.

The first responsibility of the project office is the development of the activity schedules and the work breakdown structure. The project office then provides work authorization for the functional units to price out the activities. The functional units then submit the labor hours, material costs, and justification, if required, to the pricing team member. The pricing team member is normally attached to the project office until the final costs are established, and becomes part of the negotiating team if the project is competitive.

Once the base case is formulated, the pricing team member, together with the other project office team members, performs perturbation analyses. These analyses are designed as systems approaches to problem-solving where alternatives are developed in order to respond to management’s questions during the final review.

The base case, with the perturbation analysis costs, is then reviewed with upper-level management in order to formulate a company position for the project and to take a hard look at the allocation of resources required for the project. The company position may be to cut costs, authorize work, or submit a bid. Corporate approval may be required if the company’s chief executive officer has a ceiling on the amount he can authorize.

If labor costs needs to be cut, then project manager must negotiate with the functional man agers as to the size and method for the cost reductions. Otherwise, this step would simply entail authorization for the functional managers to begin the activities.

The above figure represents the system approach to determining total program costs. This procedure normally creates a synergistic environment, provides open channels of communication between all levels of management, and ensures agreement among all individuals as to program costs.