There’s nothing more frightening in the world of consulting, especially IT consulting, than the Fixed Price Project (FPP). We avoid them if we can.
Customers, on the other hand, love them, or the idea of them. And they often set out on their software procurement path with the conviction that it’s their best option. But for both parties, supplier and customer, the result of a poorly scoped FPP can be disastrous, with the customer rueful that he didn’t describe his requirements precisely enough, and the supplier digging in his heels and delivering only what has been precisely contracted. Even if additions to scope are carefully managed using Change Request Procedures the final result will come at a cost to the customer that is far higher than anticipated.
The problem is that knowing precisely what is needed in advance is difficult for the customer, and understanding precisely what the customer requires is difficult for the supplier. If the project is a large one, and will bring radical change to an organisation, you really need to do a scoping project before the real project begins, but most customers are reluctant to approach FPPs that way.
LLP Group and systems@work regularly undertake FPPs but always cautiously. Generally we work with software that is configured rather than adapted at source code level, and this helps, since the configurable options are constrained. When a software package allows unlimited possibilities through source code change and extension, the dangers are huge.
We’ve tracked the difference between estimates and actuals for FPPs over several years using our time@work professional services management product, and the results are not entirely as I would wish them to be, though there’s a gradual improvement. In recent times we’ve end up doing about 25% more days’ consulting than initially estimated.
These are some notes I’ve written for our sales and project-management teams on risk avoidance:
Notes on Fixed Price Projects
Fixed Price Projects (hereafter FPPs) often end tragically, with actual consulting and development days greatly exceeding estimates. They can result in bitter argument with the customer, who may believe you have promised him everything for nothing.
The key to happy FPPs lies in intelligent selling, intelligent estimating, intelligent scoping and contracting, and good commercial project management. The key to the avoidance of bitterness is good management of client expectations.
If client expectations are not managed well, these are the possible outcomes:
- In a minority of cases, a profitable project delivered on time and on budget, and a happy customer (who doesn’t know how lucky he is)
- More often, a deeply unprofitable project and an adversarial client, or,
- Worse still, legal action
If client expectations are managed well, then a good outcome might be within your grasp:
- A profitable project (even with all necessary extensions) and a reasonable and satisfied client
Managing client expectations starts during the selling process, when you must help the client to understand how things look from our perspective:
- That FPPs are a risk for us, unless we know clearly what he expects, in advance
- That FPPs depend as much on his contribution to the project as on ours
- That, in return for the risk we take, we must impose reasonable constraints on what can be expected and what can be delivered
- That both we and the client benefit from an appropriately constrained project, in terms of delivering benefits on time
Often the client thinks it’s obvious what he wants and needs and he’ll say things such as:
- We just need what everyone needs. Nothing special. It’s obvious.
- You’ve done all this before. It’s what you do. You know what we need.
- I want what that other client has.
In the face of such confidence it’s difficult to demur and say, ‘Well, actually, I need to know more. I need to ask you some questions.’ The temptation is to say ‘Yes, I can do that.’
But never say ‘Yes, we can do that’ unless you know precisely what the client means by ‘that’ and you can make reasonable estimates as to how long it will take us to do it. You’ve got to make the client understand that our profession has its established ways of doing things, that this involves questions, discussions, presentations, analysis, imagination, design, and so on..
It’s even possible that by insisting on our processes, and through seeking a detailed understanding of what the client wants, by showing that you can describe it well, and appreciate the benefits it will confer, you are also establishing your own skills in his eyes. ‘Yes, we can do that’ tells the client nothing about your own skills and understanding. Don’t forget that saying ‘That can’t be done at reasonable cost’, or ‘We don’t think you should do that’ can impress the client even more, if done well!
The process of selling an FPP has to be even more disciplined than the process of selling a time and materials project. Time spent describing the client’s needs, outlining a solution, demonstrating your understanding and wisdom, even if this time is commercially non-recoverable, is time well spent, especially if it’s accompanied repeatedly by assertions and explanations that the client will get ‘that’ and only ‘that’, unless changes are requested and estimated separately during the course of the project.
And it’s important that until there is a clear description of the client’s requirements and a proposed solution, nothing should be said about price. And, even more painfully, nothing should be said about price until our consulting team (and that means at least one good consultant and a services manager) have given you some idea of how long the project will take. Regardless of how many days you’re going to sell, you must know accurately how long it’s going to take.
So, to summarise, an FPP price proposal must be preceded by:
- Your establishing the consulting process in the client’s mind
- A detailed description of the client’s requirements
- An outline of the solution you propose
- An estimate of consulting and development days signed off by a senior consultant and a services manager, with material assumptions clearly documented
- Confidence that the client understands the FPP game
In fact, client expectations are at the heart of the entire process from selling to delivery. There must be a continuous and seamless process, beginning with sales, that aims to establish optimal client expectations:
- That in return for taking on the risk of an FPP we expect that the client will meet reciprocal obligations:
- Accurate descriptions of requirements
- Timely and accurate delivery of data and clarifications
- Cooperative and positive behaviour
- That with the best will in the world, we, and they, will make mistakes
- That client staff must expect disruption and in some cases a heavy commitment of time to the project
- That software is fallible and that bugs may need to be corrected before go-live or worked around
- That software development is notoriously difficult and that perfection is expensive
- That our fee rates are reasonable, based on the utilisation we expect, our investment in training, the relatively high salaries that consultants command, realisation that is lower than 100%, management costs, and overheads
If all of these things are clear during the sales process, then there’s a chance that we and our customer will end up satisfied.
Next time, some notes on Estimation.
FPP – Estimating Fixed Price Projects – Adam Bager
FPPs – Mitigating Some of the Risks – Adam Bager
FPPs – More Pitfalls to Avoid – Adam Bager
FPPs – Yet More Thoughts on What Could Go Wrong – Adam Bager
FPPs – Getting Paid and Getting Out – Adam Bager
FPPs – You Need ‘Commercial’ Project Management – Adam Bager