How project managers can deal with fixed price contracts
Dealing with fixed price contracts can often be a difficult task
Being an independent consultant I have come to like the fixed price contract. For most of my work I fly solo. Occasionally I will hire a trusted friend to assist me if I need a specific skill or talent which I do not possess. In this scenario it is easy for me to manage the work since I am the only person on the job. For project managers it is not always a simple task to manage a fixed price contract. I find that most companies shy away from fixed price contracts.
It seems to me that most companies equate working hours to productivity. The more you work, the more that gets done. While there is a certain logic to that, there are also some schools of thought that indicate that there is a point where increased working hours will decrease overall productivity. Regardless of how much more gets done by working more hours it is certainly true that each person has their own level of productivity. Someone who works eight hours might get as much accomplished as another person working ten or more hours at the same task. But there always seems to be an underlying belief that the person who leaves the office at 5:00 is not as productive or dedicated as the person that stays until 7:00.
Most companies do not have good measurements of productivity and therefore use the number of hours worked as there measurement. They ask people to work 40 hour a week or now 37.5. This they ask even of their salaried employees! It is not until performance review time that people find out their manager’s “perception” is of their productivity. Often this is different from the employee’s perception. This inability to measure true productivity is what makes a fixed price contract so difficult. Most companies don’t have a good idea of costs at a deliverable level.
I wrote in an earlier blog how to use hours worked to equate to value. This is the method which is most often used. But even with that methodology estimating is poor until the organization matures its measurement techniques. Even if the organization is able to estimate work to a desirable level there is another problem to overcome for fixed price contracts. That problem is to create a description of the work to be performed or better stated, the specific product or service to be delivered.
When dealing with internal resources this problem is easier to deal with as you can continuously direct and redirect the person’s efforts. But with a fixed price contract there are legal obligations if the contract is to be modified in any way. Therefore it is necessary to be very specific when defining the delivery requirements in a fixed price contract. This requires a very good understanding of the desired outcome as well as a lot of effort to create the detailed requirements. Can you think of any companies that you work with where you experience this problem?
For the project manager these types of contracts create conflict and stress for the project. Often the project manager is not even aware of the details of the contract as that information is dealt with only at the executive level. For the project manager, getting involved in the contract requirements would be the ideal situation. In most cases the project manager is not offered this opportunity. Therefore it is the duty of the project manager to gain access to as much information as possible related to the delivery requirements for a fixed price contract. Points of conflict
Print
It seems to me that most companies equate working hours to productivity. The more you work, the more that gets done. While there is a certain logic to that, there are also some schools of thought that indicate that there is a point where increased working hours will decrease overall productivity. Regardless of how much more gets done by working more hours it is certainly true that each person has their own level of productivity. Someone who works eight hours might get as much accomplished as another person working ten or more hours at the same task. But there always seems to be an underlying belief that the person who leaves the office at 5:00 is not as productive or dedicated as the person that stays until 7:00.
Most companies do not have good measurements of productivity and therefore use the number of hours worked as there measurement. They ask people to work 40 hour a week or now 37.5. This they ask even of their salaried employees! It is not until performance review time that people find out their manager’s “perception” is of their productivity. Often this is different from the employee’s perception. This inability to measure true productivity is what makes a fixed price contract so difficult. Most companies don’t have a good idea of costs at a deliverable level.
I wrote in an earlier blog how to use hours worked to equate to value. This is the method which is most often used. But even with that methodology estimating is poor until the organization matures its measurement techniques. Even if the organization is able to estimate work to a desirable level there is another problem to overcome for fixed price contracts. That problem is to create a description of the work to be performed or better stated, the specific product or service to be delivered.
When dealing with internal resources this problem is easier to deal with as you can continuously direct and redirect the person’s efforts. But with a fixed price contract there are legal obligations if the contract is to be modified in any way. Therefore it is necessary to be very specific when defining the delivery requirements in a fixed price contract. This requires a very good understanding of the desired outcome as well as a lot of effort to create the detailed requirements. Can you think of any companies that you work with where you experience this problem?
For the project manager these types of contracts create conflict and stress for the project. Often the project manager is not even aware of the details of the contract as that information is dealt with only at the executive level. For the project manager, getting involved in the contract requirements would be the ideal situation. In most cases the project manager is not offered this opportunity. Therefore it is the duty of the project manager to gain access to as much information as possible related to the delivery requirements for a fixed price contract. Points of conflict
Previous Post: Project Managers Need to Understand Queuing TheoryNext Post: Decision Making is Essential to Good Project Management
What is Tech Briefcase?
TechBriefcase is a new, free service where IT Professionals can Search, Store and Share IT white papers and content like this. Learn more
Bookmark content
Speed up your research efforts with content across the web.
Search and Store
Find the white papers you need. Create folders for any topic.
View Anywhere
Open your briefcase on your iPhone, tablet or desktop. Share with colleagues.
Most Discussed Posts
Cloud computing has emerged as one of the most significant game changers to hit the technology landscape in the past 20 years. With this massive expansion of the cloud, the perception of the IT organization is shifting from a utility player to a change agent. This eBook breaks down five ways progressive organizations are using cloud-based IT Management solutions to help drive innovation and become more strategic, including: adding visibility and analytics, speeding up time-to-value, lowering costs, improving prioritization, and providing a blueprint for future cloud deployments.
Read the white paper to see how IBM helped Citigroup deliver new services and enhancements to their 200 million customers faster.
There are 3 ways to modernize legacy applications: rewrite completely, acquire packaged solutions or migrate existing code. This paper explains why it's best to migrate and how IBM® Rational® software can help.
Accommodating specific lines of business can result in a hybrid ecosystem of applications and servers. The resulting complexity of this architecture makes for an environment that is costly to maintain and difficult to change when addressing new challenges.
This whitepaper will help you to define a mobile device passcode policy. Security managers must attempt to reconcile two opposing goals. They must: 1) create a passcode policy that is strong enough to protect the device if it is lost or stolen, while: 2) not annoying users with needless length or complexity.
This whitepaper, authored by The Radicati Group, looks at the key reasons organizations should consider moving to a cloud-based archiving solution. Email archiving solutions enable organizations to store, monitor, and collect electronic data exchanged by their users to comply with internal policies and regulations.
ATERNITY will showcase a 30-minute demo on how Fortune 500 companies are leveraging its award-winning FPI Platform to deliver a user-centric approach to Proactive IT Management.
For businesses to move forward and tap into the ever-expanding universe of Internet users and network-enabled devices, it's critical to learn how to make the transition to IPv6. Learn the critical steps your organization must take to make a seamless transition-and keep your business world connected.
Learn how IT teams can protect against spear phishing tactics. Harry Sverdlove, chief technology officer of Bit9 offers a frank discussion about spear phishing - the most common technique used in today's advanced attacks.
Learn how to build a solid business case for your migration to Red Hat Enterprise Linux so you can run leaner, innovate faster, be more flexible and own the New Now.
Social media isn't about you; it's about everything around you. As you consider how your customers want to communicate with you, social media is something that can't be ignored. But what should your strategy be? Is social media "just another channel?" What kind of a plan makes sense for your contact center and for your customers? Join our experts as they share their insight and research results.
Hardware tokens were a popular method of strong authentication in past years but the cumbersome provisioning and distribution tasks, high support requirements and replacement costs have limited their growth. The additional log-in steps that hardware tokens require and the resulting user frustrations have limited adoption and make them impractical for larger scale partner and customer applications.
Sponsored Links
