A dodgy specification combined with a fixed price is every project managers worst nightmare, yet despite us all being in agreement on this there is still often a huge gapm between a projects needs and the assigned budget/resource.
The main block to solving these sorts of problems is the issue of risk and who dares to take it, and in a fixed price project the risk usually lies with the supplier, whereas with T&M the customer tends to take the risk. The risk in most projects is overrunning, with the cost of any work or resources after the scheduled completion date falling with one of the parties.
When a project is fixed price, theoretically it should be the supplier who is willing to shoulder the risk (and any related cost), as it is they who have set the deadline and all associated milestones. If a fixed price project comes in late then the cost is covered by the contingency that they added into their pricing, and if it comes in early then it means they get more profit. So everyone is satisfied, unless the project is completed so late that it takes the profit and contingency along with it, but then that’s the suppliers fault- right?
In most cases it is unlikely that the supplier has had compete say over the cost and timescales as it is a very naive customer who doesn’t negotiate the estimates they are given. And of course suppliers are aware of this, and know that if they don’t come to an agreement with the client there are plenty of competitors willing to. This leads to them accepting fixed price projects scoped with very little margin for movement, which is definitely a risk.
Even when the deficit is entirely the fault of the supplier, they still need to stay in business and running unprofitable projects is not the way to do it! So to overcome this supplier’s will often scale back the project and under deliver, then hit back with the dreaded “change request”- and once you’re into this territory, then no one wins!
Even in cases where the over run is entirely down to the supplier, they obviously still need to turn a profit in order to stay in business. So to overcome this problem need to stay in business and running unprofitable projects is not the way to do it! So to overcome this suppliers may decide to scale back the project and change the requirements, often leading to the much feared “change request” conversation- an area no one wants to get in to.
This gap can be reduced or at least handled early on in a project if a Project Manager makes sure the customer can see what they will actually get as soon as possible. By showing a customer small sections of work as they are completed, the deficit between what they want and what they will get is addresses more quickly and therefore overcome in a more timely fashion.
We call this “Minding the Gap” and it takes a skilled project manager to employ this alone. By implementing strong project management software they can give themselves a helping hand, as bugs, issues and milestones are flagged automatically allowing them to be responsive and efficient
Learn more about bug tracking. Stop by Countersoft’s site where you can find out all about project management software and what it can do for you.
Tags: Business, over running, project management, project managers, Software
