Unreliable spec coupled with a fixed priced project is the ultimate Project Manager's nightmare. But even though we know this, there is still often a deficit between the needs of the project and the budget assigned 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.
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.
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.
This is referred to as "Minding the Gap" and knowledge of this has grown from the realisation that on large and ongoing projects it is rare there is only one gap, and so the need to manage the gap is heightened, and can be helped by employing project management software.
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.
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.
This is referred to as "Minding the Gap" and knowledge of this has grown from the realisation that on large and ongoing projects it is rare there is only one gap, and so the need to manage the gap is heightened, and can be helped by employing project management software.
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