Oliver 175 - 75th Question
The sales representative of your company recently contacted you. You made some estimates on direct costs for an offer on a firm fixed-price contract. According to company policies, indirect costs (overheads) are to be calculated as a percentage of the direct costs, the sum of both cost types caused him to calculate a far too high price. How should you not react?
A. You reduce your direct cost estimates by reducing the amount of work and the rates allocated to them. This allows a reduction of the overhead costs and a lower price.
B. Calculating overheads as a percentage of direct costs is just a model to simplify calculations. A more specific analysis of these costs may lead to a more realistic project price.
C. Cost estimates are quantitative assessments of the probable costs required to complete project work. These are made by the project team. It is the sales person’s job to make the price.
D. You make the sales person aware that a reduction of direct costs may reduce the numbers for overhead cost allocation, but will not influence the actual overheads.