Managing Presales Sessions 8 and 9

MANAGING PRESALES
JAYANT KULKARNI
SESSION 8 AND 9
WHAT DID WE COVER IN THE PREVIOUS SESSION?
 View from Seller’s side of things

 Qualifying a bid and the strategic bidding decision
 Strategic bidding decision tools
 Bid management process and RACI
AGENDA FOR SESSIONS 8 AND 9
 Commercials – concepts
 Commercials – Hands on exercise

INDUSTRY INPUT
Large IT SI engagement – Cost and Price considerations

IT PRESALES – SERVICE INTEGRATION – COMMERCIAL CASE STUDY
Cost, Price and Value
Buyer’s margin
Seller’s margin
Value
Price
Price
Cost
Seller’s side Buyer’s side

Commercial proposals and negotiations take innovative shapes and forms………
• Volumetric band models

• e Auction
• Reverse e Auction
Example of an innovative commercial model
Volumetric based commercial model

Rate in GBP/TP
TP band Year of the engagement What observations
Y1 Y2 Y3 can you make?
100001-150000 49.06 45.14 40.62
150001-200000 48.76 44.91 40.45
200001-250000 48.13 44.31 39.88
250001-300000 47.26 43.56 39.28
300001-350000 46.15 42.58 38.36
350001-400000 44.81 41.34 37.29
400001-450000 43.45 40.06 36.17
450001-500000 41.91 38.69 34.91
COMMERCIALS – RELEVANCE TO A PRESALES CONSULTANT/DELIVERY MANAGER
Presales consultant/DM needs to have a good working

knowledge of the commercial aspects of a project or engagement
✓ Commercial response to a RFP

✓ Working out ‘Price’ for a suggested solution/change
✓ Customer induced cost optimization directives
✓ Internal management induced cost savings
✓ Understanding cost calculations by your IT team
✓ Reviewing cost calculations by your IT team
✓ Demanding price adjustments from your IT team, be able to
ask right questions
Being commercial savvy is like adding a new and effective
weapon to your artillery!!
LARGE IT SI ENGAGEMENT – COST CONSIDERATIONS
✓Typical IT project P & L

✓Productivity – HC reduction
✓HTR – Head to Tail ratio and others
✓Onsite/Offshore ratio
✓Non-billability
Large IT SI engagement – Cost considerations
P&L Structure - Description
Sr No Heading Meaning / Description
1 Revenue Revenue includes billed & unbilled revenue. Unbilled revenue includes revenue
accrued for the work done during the month but not invoiced
2 Direct Cost Every employee is tagged to a project and their cost (such as Salary, Travel,
subcontractor etc.) are charged to respective projects
3 Salary & Salary & Allowances cost of all resources mapped to the projects. It also includes PF,
Allowances Gratuity, Leave Encashment, Project allowance & overseas travel allowance of Project
Travel.
4 Travel Cost (Inland Travel cost includes Visa Fees, Work permit, Airfare, Travel Insurance, Lodging &
/ Overseas) Boarding, Conveyance & Relocation expenses for the employees tagged to the
projects
5 Subcontractor Cost Cost of Subcontractor allocated to the project
6 Project Specific Cost of project specific / pass thru – software, hardware & link costs. It also includes
Cost employee transportation cost of BPO projects
7 Allocation of Direct Direct overhead include cost of core/non billable CSU resources, ESG Trainees &
Overheads Corporate Bench, which is allocated to all business units based on headcount ratio
8 Buffer Cost IBU/IBG/Cluster leadership costs and the cost of buffer/internal projects and
management
9 Total Direct Costs Sum of 3 to 8
P&L Structure - Description

Sr No Heading Meaning / Description
10 Contribution (1- Also known as Gross Margin, is difference between revenue & direct cost.
9)
11 Contribution % Contribution/Revenue*100
12 Selling Cost This includes salary, allowances cost & travel cost of sales person attached to the
sales department. Also includes all cost of direct sales/marketing offices. Sales
overhead costs are allocated to IBU’s based on revenue ratio
13 G&A Cost General Administration (G&A) costs includes cost of support department &
apportioned to all BU’s based on their HC ratio. It includes salary of support staff,
rent-rates & taxes, communication costs, utilities, office establishment cost
14 Total SGA Costs SGA = Selling cost + G&A Cost
15 EBIDTA (10-14) Earnings before interest, depreciation, taxes and amortization (EBITDA) or
Operating Profit
16 EBIDTA % EBIDTA/Revenue*100
Indirect Costs Very little

(SG&A) are control over
typically in the SG & A
Direct Costs are range of 15-
typically in the 22% of Revenue
range of 55-
70% of Revenue
❑While you want to control all costs, to
achieve significant cost
optimizations, it is imperative that
Salary costs are Direct costs are controlled
about 80-85%
of the total
direct costs ❑From the basket of Direct costs,
salary+allowance costs assume a
much larger significance!!
Direct costs
Grade Offshore (DC in $ per day) Onsite (DC in $ per day)
Software Engineer 25 170
Sr Software Engineer 30 190
Team Lead 48 200
Project Manager 70 250
Program Manager 105 300

Controlling Direct costs
✓ Optimize Headcount (HC)

• Automation
• Use of tools and techniques
• Process Optimization – Reduce rework
• Find faults early
• Invest in Quality
• Combining roles/activities
• Think longer term engagements
• Training
• Learn new things, reskill
• Learn how to do things better and faster
• Unlearn
✓ Optimize Resource mix – Lean and mean

Different ways of measuring this parameter
• Head to Tail Ratio (HTR)
• Ratio of resources having less than 3 years of

overall experience
• Average age of the team
Quick practice calculation – The current offshore team has a headcount

of 100. The current HTR is 1 : 3 : 7 The management has given a target to
improve the HTR to 1 : 2 : 10 in a quarters time. Calculate the % resource
cost savings when the team achieves the new target HTR.
https://economictimes.indiatimes.com/tech/ites/digital-performance-take-top-floor-
in-tcs-new-pyramid/articleshow/71589980.cms
✓ Optimize Resource mix – Lean and mean

How do we achieve?
• Skill separation
Example – Test Factory
• Succession planning
• Provide clear role path to resources
• Detailed processes and standardization
• Reduce person dependency
• Empower, assist, help grow
• Train, train and train……

✓ Optimize Onsite-Offshore split

➢ Margins are much better at offshore as
compared with onsite for
➢T & M
➢ Fixed Price
➢ Managed Services
➢ Get better control over the engagement
✓ Other ways of controlling costs

➢ Reduce redundancy in work
➢ Example – Test optimization
➢ Replace high cost contractors with own
resources
➢ Control travel costs – Seemingly insignificant

costs but do go a long way…
➢ Reduce/optimize non-billability
Hard fact of IT outsourcing – Large deals
Commercials - You have to bite the bullet!!

Long drawn commercial calculations and negotiations – At times, it feels like there is no
end!
No of factors – permutations, combinations
Innovative models
Please go through the case study given to you.
It has to be worked upon individually.

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MANAGING PRESALES

 View from Seller’s side of things

 Commercials – Hands on exercise

Large IT SI engagement – Cost and Price considerations

Cost, Price and Value

Seller’s side Buyer’s side

Commercial proposals and negotiations take innovative shapes and forms………

• Volumetric band models

Example of an innovative commercial model

Volumetric based commercial model

Presales consultant/DM needs to have a good working

✓ Commercial response to a RFP

✓Typical IT project P & L

P&L Structure - Description

Indirect Costs Very little

Software Engineer 25 170

Sr Software Engineer 30 190

Team Lead 48 200

Project Manager 70 250

Program Manager 105 300

✓ Optimize Headcount (HC)

Controlling Direct costs

✓ Optimize Resource mix – Lean and mean

• Head to Tail Ratio (HTR)

• Ratio of resources having less than 3 years of

• Average age of the team

Quick practice calculation – The current offshore team has a headcount

✓ Optimize Resource mix – Lean and mean

• Train, train and train……

Controlling Direct costs

✓ Optimize Onsite-Offshore split

Controlling Direct costs

✓ Other ways of controlling costs

➢ Control travel costs – Seemingly insignificant

Hard fact of IT outsourcing – Large deals

Commercials - You have to bite the bullet!!

Please go through the case study given to you.

It has to be worked upon individually.

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