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 issue here is the question of risk and who is willing to take it. In cases of fixed price projects the risk is with the supplier, whereas with T&M it is the customer who bears the risk. Overrunning is the most common risk, and the cost of any extra time, work or resource has to be absorbed by wither the customer or the supplier.
Theoretically the supplier should shoulder the risk in a fixed price project, as it is they who have set the price and timescales, and they who get the profit if the project comes in under budget. If it comes under they make more profit, if it goes over they are covered by the contingency that they probably added, so unless the project comes in really late everyone’s happy , and even if it does come in really late then surely it’s the suppliers fault so they should take the hit. Or is it their fault?
Wrong. In nearly all cases it is likely that the suppliers initial estimate was negotiated down in terms of cost, or up in terms of spec. They know what they can do for waht price, but most customers will negotiate and if the supplier doesn’t agree then plenty others will so they are forced to come to an arrangement-often a fixed price project planned with very little margin for error, which is most certainly a risk.
Even in cases where an overrun is completely the fault of the supplier, they still need to make a profit, and running at a loss is not a way to do this. So when this occurs a supplier may scale back the project, underdeliver or ‘cut corners’. Then the dread ‘change request’ excuse rears its ugly head, and we’re in territory no one wants to be in!
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.
Project Managers can minimize the size of the gap by ensuring that the customer can see what they are going to get as soon as possible, which may mean showing small portions of work at a time. By doing this the want vs get battle is reached and resolved sooner and the project can continue efficiently.
We call this procedure “Minding the Gap” and it can save hours of time and stress in the long run. It can be further enhanced by implementing project management software, as this can alert a project manager sooner rather than later to any issues or bugs which may affect the project.
Looking to find the best deal on project management software, then visit www.countersoft.com to find the best advice on issue tracking for you.
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