If the analysis does not definitively lead to a value measure of the program or item in question, then additional reviews may be required. In most scenarios, this analysis is a great tool for companies to standardize both cost analysis and price analysis expectations to ensure your employees and specific departments are adhering to strategic cost control methods set by supply chain leadership.
This unity of process ensures a consistent approach to project value and one that you want to follow consistently. The Basics Of Price Analysis Now, price analysis is usually the preferred method to analyze the price options for a product. The Basics Of Cost Analysis A cost analysis can be more of a challenge, this is because it usually involves more working pieces.
Stay in the loop with free reports! Use of a Seller's pricing to make an independent estimate is NOT independent. Often an item is very similar to a commercial one, but has added features that are required.
If the Seller can provide the price of the base item, by a catalog, and then state the costs of the additional features, the buyer can then find the price reasonable based on these two factors. Differences should be detailed and priced. The reasonableness of the extra cost can be a checked against other purchases that had the extras, or some of them, or, b based on an evaluation of the extra cost by technical personnel.
If the Seller has no catalog but has sold the same item to others in the recent past, the price can be determined to be fair and reasonable by verifying with those other purchasers what price they paid. This must be noted in the written documentation with name, telephone number, date of confirmation and price paid.
Under federally funded grant or cooperative agreement awards, if the award references a proposal that a specifically identified the manufacturer, model and the price only if a supplier quotation accompanied the proposal , or b identified a specific person with an hourly rate for fixed price for that person, then the contracting officer has accepted that price as being deemed reasonable by the proposer and nothing else needs be done as long as the final price does not exceed the budgeted line item.
If, however, the award is a federally funded contract or purchase order, then the proposer must formally provide rationale with the proposal using one of the above methodologies in a through i to determine price reasonableness at the time of the proposal before this method of price reasonableness is acceptable.
Under FAR regulations, it is the responsibility of the proposer to determine price reasonableness, either at the time of proposal or at the time an acquisition is made. It is not the responsibility of the contracting officer. Documentation copy of the award page related to the acquisition and any supporting documents, i. Overhead or indirect rates may be verified and found reasonable by verifying such rates with the awarding agency, in many cases.
The number of hours proposed, not the price, should be evaluated by the technical or scientific staff. The reasonableness of the percent of fee or profit is the responsibility of the buyer. It is negotiable in most cases. An asking price is not always a taking price. Cost analysis is a more complex strategy than price analyses because it involves applying direct traceable and indirect all other non-direct expenses costs into formulas for what is essentially a comprehensive breakdown of the product.
Additionally, when producing an item internally, this method may be applied. Professionals may recommend establishing an open line of communication with the manufacturer in the early stages of the contract process so that they are aware that a request for individualized prices on items will be an ongoing process. Patrick S. To understand the cost drivers behind a product or service, it is helpful to identify direct costs, which Hauht describes as elements—material or otherwise—and profit, which can be attributed to the final cost of the product.
In his article, Woods cites the example of sheet steel for an auto company as a direct cost. To identify indirect costs, which are generally less evident, Hauht cites to consider materials and non-materials that are not directly associated with the final product. Sometimes, she notes, indirect costs include overhead rates. Both indirect and direct costs are usually factored with profit, which is essentially the complexity of the work performed and the risk assumed during the work performed for the project.
Price analysis is usually the preferred approach to evaluate product options when possible. With this approach, the price of one provider's products or services is compared against competing alternatives or substitutes. If there are five competitors submitting bids or proposals for a particular project, for instance, a price analysis would include a detailed review of the benefits of each offering relative to the quoted prices. The price analysis is used whenever there are several suitable and relatively equivalent options in a purchase decision.
When companies submit bids for government contract jobs, for instance, a common price analysis used results in the lowest price winning the bid when the benefits are similar. Requirements for pricing analysis also usually include that the product or service is available on the open market and that alternatives are relatively similar in benefits.
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