One of the most challenging types of projects to manage is the fixed price project. There are risks and rewards to taking on projects with a fixed price payment model – complete the work under budget and you widen your profit margin – if the project goes over, you’re likely doing some work for free. The latter is never a comfortable discussion with your boss so let’s focus on how we get you to the former. Here are three keys to managing a fixed price project successfully.
Lock Your Project Scope Down
Nothing will sink a fixed price project quicker and more effectively than scope creep. Having additional scope slide into your project without going through the proper change management processes is a sure-fire way to blow your budget and your schedule. At the start of every project (and not just fixed price), you as the project manager need to work with your project sponsor to get a clear and consensus understanding of what it is that you’ll be delivering as part of your scope. A lot of times the signed contract will contain ambiguity due to the unknowns at the time of signing. By using the contract as the perimeter for your scope discussions, make sure to build a clear understanding of your project deliverables with your project sponsor. Once agreement is reached on scope (and this should not be a very arduous process if the contract is well defined) you will also have an opportunity to re-evaluate your estimates to ensure that you’ve budgeted enough time to complete the work. If you see that the effort was underestimated, this is your chance to engage leadership to help mitigate the issue.
Determine Acceptance Criteria Early (Set Your Finish Lines)
This differs from setting scope in that you can agree on what it is that you’re delivering as part of your project, but what will constitute as the customer accepting what you’ve delivered. Defining acceptance criteria collaboratively with your customer is vital to ensuring that you understand not only what it is that you’re delivering but how your customer is going to accept what you’ve delivered. Perhaps it’s a defect-free solution that functions for 30 days in the customer’s environment. Maybe it’s a customer subject matter expert testing the solution and determining that it meets the stated requirements. Whatever the measure is, it needs to be clearly understood by both the project team and the customer. It gives the project team a clear understanding of what the definition of ‘done’ really is for the project but also puts some onus on the customer to accept the deliverables when the acceptance criteria has been met.
Focus on Milestones
Fixed price projects rarely go without some sort of milestone-based billing. If you don’t want to be out-of-pocket for your project expenses for the entire project (i.e. paying your staff) then it’s important to focus on the defined milestones for your project and the billing associated to each one. It’s easy to get caught up in the day-to-day details of the project (and that’s incredibly important) but it’s also vital to keep your eyes on the milestones and ensure that each day, your team is getting closer to achieving those milestones.
Fixed price projects can be difficult to manage, and do carry a lot of risk and potential exposure to them however when managed and delivered effectively, can also prove to be very lucrative. Not only can you increase your profit margin on a well-run fixed price project, but customers will be more inclined to sign deals knowing that they have cost certainty for the scope being promised. These three tips will set you on your way to delivering a great fixed-price project!
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