Vague or unachievable spec as part of a fixed price project is a nightmare for any project manager, yet despite us all fearing it, we still allow it to happen, with a deficit between what is required of a project and the resource available to it.

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.

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?

When practically applied this thinking falls down, as it is rare that the estimate that the supplier gives is the quote that gets approved. Usually there is some negotiation, and suppliers nearly always have to reduce their price as if they don’t there is always a competitor who will. This leads to them taking on fixed price projects and having to under scope them to fit within the budget.

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.

A possible resolution is to go back to the initial requirements of the project, rather than the cost and how they will be achieved. From here the gap can be ascertained and the client can see earlier the difference between what they want and what they will get.
A good Project Manager can reduce the stress in the project by revealing the gap to a customer as early on in the process as possible, so the battle can be reached and resolved sooner allowing the project to continue more efficiently. This can be achieved by allowing the customer to see small sections of the work as they are completed.

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

Want to find out more about project management software, then visit Countersoft’s site to see howagile project management can help you in your projects.