Fixed Price Project Friend or Foe

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Fixed Price Project Friend or Foe
Frank Mooney, PMPPresidentMooney Consulting
Group, Inc.Office [phone]
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Fixed Price projects are like jumping from a
plane without a parachute both have little
chance of success .
Comment made at a roundtable discussion
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Introduction

• Project Management For Over 23 Years
• Director For An IT Consulting Firm For 12 Years
• Enterprise Technology Partners Director,
  Management Consulting
• Work With Hundreds Of Companies
• Good, Bad and the Ugly
• Very Mature Best Practice Repository

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Agenda

• Quick Facts
• Pricing The Reality
• Fixed Price Strategy
• Summary
• Questions And Answers

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Quick Facts Projects Overall

• 9 Out Of 10 Projects Fail To Deliver Expected
  Results
• 4 Out Of 10 Fail To Deliver ANY Results
• Cost Of Business In Terms Of Time, Wasted
  Resources And Money Enormous!!!
• Most Projects Optimistically Report Being On Time
  And On Budget Until Reality Set In
• REALITY Magnified For Fixed Price Projects!!!

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Time and Materials vs. Fixed Price

• Time and Materials (TM)
• Buyer agrees to pay a rate for time spent by the
  vendor to complete and deliver a set of products
• More likely well-defined More successful
• Buyer has incentive to control scope costs
• Fixed Price
• Vendor and buyer agree on a price the buyer will
  pay for a set of products that the vendor will
  produce and deliver
• Shift risk management to vendor comes with a
  price!!!
• Little incentive to buyer to finish project
• Emphasis on cost not functionality

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Top Reasons and Reality

• Unsure of Requirements
• How can you fix price what you do not know?????
• Fix Price requirements first step
• Unload Responsibility
• Comes with a price
• Predict Costs
• What about Quality???
• Vendor worse case scenario

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Typical Fixed Price Project Pricing Model

• Consists of Three Parts
• Estimate
• Hours per resource per deliverable plus margin
• Fixed Price Premium
• Cost of taking responsibility Dont Know What I
  Dont Know!!!!
• Average 25
• NOT A CHANGE BUDGET when to stop
• Assumptions/Risks
• Costs of potential risk to the project
• Priced individually
• Average (15)

SUMMARY WORSE CASE SCENARIO!!!
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Potential Project Risks
1. Overall New Technology Functional
Complexity New vs. Replacement Leverage on
Company Intensity of Business Need
Interface Existing Applications Number of User
Departments 2. People Staff Availability
Commitment of Team Team Morale Applications
Knowledge Client IS Knowledge Technical
Skills Availability Staff Conflicts Senior
Management Commitment Project Manager
Experience 3. Estimate Time Costs Quality
of Information Available Dependability on
other projects Conversion Difficulty
End-date Dictate Conflict Resolution
Mechanism Continued Budget Availability
Project Standards Used
4. Break the Job Down Large/Small Project
Size of Team Geographic Dispersion
Reliability of Personnel Availability of
Support Organization Availability of
Champion Project Manager Availability 5.
Change Procedure Vulnerability to Change
Stability of Business Area Organizational
Impact Tight Time Frame Turnover of Key
People Change Budget Accepted Change
Process Accepted Charge Back System
Accountability for Change 6. Acceptance
Criteria Level of Client Commitment Client
Attitude toward IS Readiness for Takeover
Client Design Participation Client
Participation in Acceptance Client Proximity
to IS Acceptance Process
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Typical Fixed Price Project Pricing Model -
Example
GOAL Reduce Fixed Price and Risk Premiums
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Fixed Price Strategy Flow
Phases
Definition
Discovery
Start-up
Execution
Closure
Supporting Processes/Templates
RFP Template RFP Checklist Fixed Price
Checklist Vendor Evaluation Checklist
Discovery Report Template
Management for Schedule Communication Issues Ris
ks Change Acceptance Quality
Metrics Template Project Status Summary
Template Monthly Project Review
Agenda Mini-Audit Checklist Full-Audit Checklist
Post Project Review Report Template
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Fixed Price Strategy Flow
Phases
Definition
Discovery
Start-up
Execution
Closure
Supporting Processes/Templates
RFP Template RFP Checklist Fixed Price
Checklist Vendor Evaluation Checklist
Discovery Report Template
Management for Schedule Communication Issues Ris
ks Change Acceptance Quality
Metrics Template Project Status Summary
Template Monthly Project Review
Agenda Mini-Audit Checklist Full-Audit Checklist
Post Project Review Report Template
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Definition
Define Fixed Price Project
Definitive Enough (FP Checklist)
Yes
No
Create and Approve RFP
Identify and Distribute RFP to Vendors
Develop Evaluation Criteria
Vendor Questions And Answers
Receive And Evaluate Responses
Select Vendor(s)
More Definition Available
Yes
No
Plan for Fixed Price Discovery Phase AND
Request Fixed Price Bid for Overall Project
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Fixed Price Strategy Flow
Phases
Definition
Discovery
Start-up
Execution
Closure
Supporting Processes/Templates
RFP Template RFP Checklist Fixed Price
Checklist Vendor Evaluation Checklist
Discovery Report Template
Management for Schedule Communication Issues Ris
ks Change Acceptance Quality
Metrics Template Project Status Summary
Template Monthly Project Review
Agenda Mini-Audit Checklist Full-Audit Checklist
Post Project Review Report Template
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Discovery

• PEEL BACK THE ONION Give the vendor an
  opportunity to address Risks/Assumptions/Concerns
  
• Three Sessions
• Management Sessions
• Identify and confirm the Organization, Management
  Approach, Scope of Effort, Critical Success
  Factors
• Operational Sessions
• Designed to help the Vendor understand how all
  the pieces fit together big picture
• Understand the technical characteristics of the
  environment
• User Sessions
• Confirm the information provided by IS and
  highlight any discrepancies for clarification and
  discussion
• Define business expectations and requirements
• Understand the interfaces between the business
  and IS groups

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Discovery (continued)

• Wrap-up Sessions And Deliverables
• Revised Fixed Price Proposal
• Fully defined in/out of Scope
• Defined Critical Success Factors
• Technical Approach
• Revised Schedule
• Benefit Evaluating Your Comfort Level
• Decision Time
• Move forward or re-bid

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Fixed Price Strategy Flow
Phases
Definition
Discovery
Start-up
Execution
Closure
Supporting Processes/Templates
RFP Template RFP Checklist Fixed Price
Checklist Vendor Evaluation Checklist
Discovery Report Template
Management for Schedule Communication Issues Ris
ks Change Acceptance Quality
Metrics Template Project Status Summary
Template Monthly Project Review
Agenda Mini-Audit Checklist Full-Audit Checklist
Post Project Review Report Template
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The Traditional Project Triangle
Cost
Scope
Schedule
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Start-up Defining The Box
WHO
Roles and Responsibility
Scope and Critical Success Factors
Technical And Management Approach
Statement of Work
HOW
WHAT
Schedule
WHEN
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Start-up Schedule Management

• Best Practice 90 Day Projects
• Project Plans Often Do Not Reflect Deliverables
• Fixed Price Projects are tied to deliverables
• Everything should roll-up to a deliverable
• Create Deliverable Based Project Plans
• Percent Complete
• 90/10 rule First 90 of project on track last
  10 takes forever
• Dont use as driver of status
• Estimate to Complete
• Estimate remainder of each task each week
• Information can raise potential problems with
  Basis of Estimate (BOE)
• Always have an accurate snapshot

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Start-up Communications Management

• Details ALL Regularly Scheduled Reports And
  Meetings
• Should Include The Following
• Document/Report name
• Recipient
• Purpose/Description
• Process
• Person responsible
• Frequency
• Story

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Start-up Issue vs. Risk

• The Difference
• Issue already impacting the cost, time or
  quality
• Risk POTENTIAL negative impact to project
• Reality Very little Time Spent On Risk!!!

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Start-up Issue Management

• Anyone Can Raise An Issue
• Issue log Should Include
• Description
• Impact
• Initiator
• Date Originated
• OWNER
• Updates
• Final Resolution
• Review Log Weekly
• Closed Only After Initiator is Comfortable With
  Resolution

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Start-up Risk Management

• Best Practice Communicate Known Risks Early
• Four Steps
• Identify Risk
• Prioritize Risk
• Probability of risk happening
• Impact of risk
• Focus most likely to happen with biggest impact
• Define proactive mitigation strategies/actions
• Monitor progress of the mitigation actions weekly
• Result Active Management of Shared Risks by ALL
  Parties

25
Start-up Change Management

• Three Kinds of Change Request
• Compliance
• Change to something approved the Box
• Example Additional requirements
• Non-Compliance
• Something did not happen as planned
• Example SMEs not available as planned
• Informational
• Reset or change no impact to schedules/cost
• Example Organizational change

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Start-up Change Management (continued)

• Reality Change Will Happen
• Recommend Change Budget (20)
• Common Mistakes
• Can not have change without a foundation scope
  creep
• No CONSISTENT process on how to handle
• Process Should
• Identify who can initiate anyone!!!
• Define approval authorization
• Define timely decision-making
• Define escalation
• Make clear that NO WORK UNTIL APPROVED!!!!

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Start-up Acceptance Management

• Defined Deliverables Building Blocks That Move
  Project Forward
• Key Components
• Define acceptance criteria pictures are worth
  1,000 words
• Define approval authority
• Written approval only no verbal
• Define acceptance process
• Review, walkthrough, etc
• Define rejection process
• Define timely decision-making
• Define escalation
• EARNED VALUE Goal of 80 (no more then 20 at
  risk)

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The Box is Defined
WHO
Roles and Responsibility
Scope and Critical Success Factors
Technical And Management Approach
Statement of Work
HOW
WHAT
Schedule
WHEN
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Once I know where I am to finish, I then know
where to start.
Author Unknown
Once all the facts are known decision making is
easy.
Walt Disney
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Fixed Price Strategy Flow
Phases
Definition
Discovery
Start-up
Execution
Closure
Supporting Processes/Templates
RFP Template RFP Checklist Fixed Price
Checklist Vendor Evaluation Checklist
Discovery Report Template
Management for Schedule Communication Issues Ris
ks Change Acceptance Quality
Metrics Template Project Status Summary
Template Monthly Project Review
Agenda Mini-Audit Checklist Full-Audit Checklist
Post Project Review Report Template
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Execution Project Control and Risk Planning

• Cant Get Better Until You Accurately Know Where
  You Are!!!
• Metrics
• Keep very simple and start small
• Rule of thumb If a collection method must be
  created dont use THE Metric
• Evaluate Trends
• Gather The Facts And Look For Potential Issues
  Continuously
• Weekly reporting
• Audits
• Identify Projects That
• Exhibit poor project performance data
• Exhibit conditions that may lead to
  dissatisfaction
• Have significant risk

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Execution Quality Management

• Three Types
• Initial-Audit
• Within first 30 days
• Review project planning
• Ensures things are done correctly from the
  beginning
• Mini-Audit
• Ensure project is operating according to
  standards
• Quarterly throughout project

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Execution Quality Management (continued)

• Three Types (continued)
• Full-Audit
• Provide extensive review of project to determine
• What is being done well
• Identify real or potential problems
• Suggest specific corrective actions
• Once a year

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Fixed Price Strategy Flow
Phases
Definition
Discovery
Start-up
Execution
Closure
Supporting Processes/Templates
RFP Template RFP Checklist Fixed Price
Checklist Vendor Evaluation Checklist
Discovery Report Template
Management for Schedule Communication Issues Ris
ks Change Acceptance Quality
Metrics Template Project Status Summary
Template Monthly Project Review
Agenda Mini-Audit Checklist Full-Audit Checklist
Post Project Review Report Template
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Closure

• Achieve Final Sign-off
• Post Project Audit
• Identify what went well and areas of improvement
• Verify all deliverables and Change Control
  documents officially accepted
• Should be final activity within Project Plan

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Summary

• Fixed Price Strategy Can Work IF
• The Box is fully defined everyone on the same
  page
• Disciplined, Proactive Approach is Practiced
• Willingness to hear and react to both good and
  bad news
• Communication, Communication, Communication!!!
• Dont Need A Title To Be A Leader
• Management Power OVER people
• Leadership Power WITH people

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QUESTIONS Frank.Mooney_at_MooneyConsultingGroup.Com
Office [phone]