The Good and Not so Good of Fixed Price Projects

Ivan Živić, Project Manager

Business

22.04.2020.

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If you decided to do your project on a Fixed price, there are advantages and disadvantages you should be aware of. They may vary based on the perspective you take. For instance, what your Client finds as an advantage might be a disadvantage to you and vice versa. 

The well-known Project management triangle for Fixed price projects points that cost, scope and time are immutable. At the very beginning you agree on the project scope and define price and time in which job needs to be done. From that moment on, it is up to your project management skills to balance between those three factors and assure project quality.

Project Management Triangle

Project Scope

Project scope is defined at the very beginning of the project. It is usually documented in the form of technical specifications; however, its complexity and level of details may vary. High-quality specifications have been done by business analysts and if you are lucky to get your hands on one of those, you’ll have plenty of details and information you need to make a realistic estimation.

On the other hand, if the project specification is vague, you need to get as much additional information as possible. The best way to get a better understanding of what needs to be done is to communicate your questions and uncertainties with a Client. Arrange meetings, collect questions, discuss and analyze them with other colleagues that might help you with their insight on the topic. Try to include an expert in that communication because technical knowledge and experience can be of crucial importance in asking the right questions.

It is in your best interest to get a clear picture about what needs to be done because not understanding the project scope at the beginning can put you in a lot of trouble later.

Choosing the team

Being able to select your work team is one of the benefits of Fixed price projects. You get to choose people who you have good group dynamics with as well as the size of your team. More importantly, the size and composition of the team may vary during the project life cycle. This will allow you to have more experienced people working at the start of the project when things can get turbulent and chaotic, and replacing them with people who need to gain experience and knowledge, once the situation is settled and under control. This gives your company an ability to obtain experienced employees for the next projects.

While choosing your team members you should be driven by the following:

  • Make sure that you have an experienced team lead with both technical and team management skills. Avoid new or unfamiliar employees for this role as it is very important for project success.
  • Match required skills and knowledge with those that have been estimated as required for the project by your software architect.
  • Consult with your human resource and other employees about the character and personality of each candidate to avoid possible conflicts and disagreements in the future.

Cost

Just as their name suggests, Fixed price projects have fixed cost. One of their benefits is that you can make an offer to a Client and deprive him of financial worry. The price you both agreed on at the beginning of the project cannot change by the time project ends. This means that any additional costs that may occur won’t have an impact on a Client, which is a huge plus for them and can make them more likely to start cooperation with you.

On the other hand, if additional costs do happen, you are the one who will have to deal with it. It is in your best interest to make sure that this does not happen by determining the project scope right, predict problems that may occur, identify risks and choose the right people for the job.

Although you can have a huge impact on project trajectory by proper project management, it is really hard to get the job done if you got the estimation wrong or chose the wrong team of people at the beginning of the project. This is why you should spend as much time as possible on those two steps if you want to maximize your probability for profitable a project.

Fixed Price Project Pros and Cons

Time Management 

Time management of a Fixed price project is directly related to their cost. Just like scope and cost, the time component of a Fixed price project is immutable. This means that project duration and schedule are defined at the beginning of the project and should not change by its end. In order to make sure this happens you need to balance between work that needs to be done and the effort provided by your team.

If there is a probability of not meeting the deadline, you need to increase the amount of time your team is working on a project or add additional team members to your team. Both will increase your cost and therefore would be better to avoid that scenario.

This is why risk management is crucial in project implementation.

Problem and Risk Management 

There are many things that can go wrong during the implementation of a project. Your team member might get sick, which can cause delay in relevant information or job delivery, a Client can change his mind or say you got it all wrong, team members can have disputes, technical issues can occur, etc. No matter how much time, effort and knowledge you have invested to avoid these situations it is highly likely you will encounter at least one of them. It is very important to detect and address them on time in order to prevent their negative impact on a project.

This can only be done with monitoring and supervising on regular bases, identifying changes that may have an impact on a project schedule and/or cost, have open and healthy communication with your team members as well as with a Client and making sure noting passes under your radar. It is highly recommended that you keep track of your task statuses, team member availability, change requests and problems that occurred and preferably in a project management tool, and if you do not have one, good old Excel tables will do the job.

If you let a project unsupervised for a certain amount of time things may go into an unwanted direction and you will have to either increase your costs to reach the deadline or reschedule deadlines themselves. Whichever you choose, you will end up with one unsatisfied party.

Project management methodology, like SCRUM, can give you guidelines in everyday operations and help you keep your project on track.

Conclusion

Fixed price projects offer you great flexibility in terms of project management and team organization. No one will give you guidelines and interfere in your work as long as you keep your side of the deal. If you are an experienced Project manager you will find this freedom quite attractive but if you are new in this field you might find it rather challenging.

Clients will find this kind of deal appealing because of simplicity and a lack of effort they need to provide during the implementation of a project. You can build team spirit, get to know your colleagues and form experienced teams that can handle more complex projects in the future.

If you get the correct scope estimation and do not allow to be surprised by upcoming obstacles you should not be worried about managing the project successfully.

If you would like to talk more about your specific business needs and software development needs right now, contact us. But keep in mind that you can use our checklist of what you need to look for when you are searching for a partner:

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