The Peril of Not Stating Your Budget Upfront

By on December 31, 2013

I’ve talked before about the joys of writing RFPs.  Specifically, I’ve mentioned that you should just come out and state your budget target upfront.  I promise you that there’s little to no downside here.

Here’s a story to illustrate –

We were evaluating an RFP.  It was gloriously written – full of lots of detail about exactly what the prospect wanted.

And they wanted a lot.

Their list of requirements included significant development tasks like integration with other systems, creation of unspecified application functionality (they wanted us to propose this, which is another problem entirely – planning this stuff is what we get paid to do), and many “soft” factors, like multiple meetings with the stakeholders, creation of “5-6 substantially unique alternative designs and themes” (and “standard, cookie-cutter website templates will be unfavorably evaluated”), plus formal load-testing, huge documentation requirements, creation and management of 3000 user accounts, etc.

In short, they were asking for everything.

It still seemed like a great project.  The RFP was so well-written that I was really excited about it.  This would have been a magnum opus project.  An Everest, if you will.

But, one thing was missing: any mention of budget.

I looked and looked…nothing.

Then, on their website, I found this item:

We have experience with website development projects, and we have a realistic spending plan.  We know approximate price ranges for the components described in the RFP, as well as the tradeoffs between price and quality.  We left the range open because we want to give bidders freedom to propose the best approach that they can devise.

I hate this.

I have no idea if their “realistic spending plan” is really realistic.  After all, what’s “realistic” to one person might not be to another.

I’m looking at their RFP and thinking it’s $500,000, easily.  Maybe $600,000, given that they seemed awfully demanding about the project process.

But they might think it’s $100,000. To them, this may seem like a big number and so it’s clearly “realistic.”

Who’s to say who is right and who is wrong?

My answer is that I do this for a living.  I price web projects all day long, and I compete against other firms so I have a good idea how they price projects.  I live in the web project pricing world pretty much all the time.

Not to mention that I have to live with the results of my pricing.  I have to send the invoices, and compare actual hours billed against what we got paid.  I do the analysis on what tasks took what time, and where we went over budget.  Blend lives and dies on how much time and effort this stuff takes.  We sink or swim daily on the consequences of that equation.

So, at the risk of complete, total arrogance, I have a much better idea of what’s “realistic” than they do.

Responding to this RFP would have been a huge undertaking.  We could have easily sunk $10,000 of labor into this. Probably two or three times that.

It was a gamble.  If we were totally out of line with their expectations, then it was all for nothing.  I cannot recover that time.

In the end, we did the only reasonable thing we could do: we declined to respond.

The organization that issued this RFP might someday read this post and think, “Haha!  Joke’s on you – we had $1 million dollars, so you should have responded you arrogant fool!”

If so, the joke’s really on them.  If they had just said that, then I would have responded, and they would have had another proposal to evaluate. I can also guarantee that all the responses they got would have been more focused, more precise, more detailed, and more realistic. They would have gotten educated, quality responses, not stabs in the dark.

What’s the downside of stating your budget target?  The only one I can theorize is that they fear some vendor is going to say, “I was going to bid at X, but they have 2X, so I’m going to bid that instead and soak them!  MWAHAHAHAHA!”

This risk is low.  I promise you that you likely don’t have enough to do everything you want (for this RFP especially – as I said, they wanted everything).

Read this next sentence carefully –

I’ve been in this business for over a decade and I can count on one hand the number of times a prospect had significantly more to spend than they needed.

Perhaps the RFP writer is worried that if they state their budget, some firms won’t respond?  Good.  If your budget is too low for a firm to respond, what are the odds that you would ever select them as a vendor?  You just waste time evaluating a proposal that will never work out, and the vendor wastes time (and money) writing it. It’s inefficient to you, and not fair to them.

I’m not saying we’ll never respond to RFP’s with no stated budget, but it’s a risk analysis on our part.  How great do we think the potential is for a mismatch between our expectations and theirs?  How much time investment are we willing gamble against that risk?

In this case, the risk was huge because of the type of organization and what I know about their typical budgets. The requirements I was reading just didn’t fit with the budgets I normally see in this space.

On the other hand, we were in a similar situation just recently, yet we decided to respond.  Why?  Because that RFP was brokered by the Real Story Group and they told me the client had a reasonable budget.  I know that RSG’s expectations of “reasonable” and mine tend to line up, therefore, the risk of mismatch nosedives and I’m willing to roll the dice.  That RFP piggy-backed on the credibility of someone I trust.

If I have no history with you, then I have no idea what your perspective is.  So using words like “realistic,” “reasonable,” and “sufficient” mean nothing to me.

In these cases, the risk of mismatch goes way up, and the amount of time vendors are willing to gamble on a response goes way down.

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