The article “Are you underwater and yet your fixed-price project isn’t profitable?” shed light on the development of your corporate mission. It also offered perspectives on how to optimize your company’s profitability.
Today, our aim is to guide you in choosing the best practices for managing fixed-price projects, whatever the type of project.
To carry out such an assignment successfully, you need to take into account :
- the budget
- the perimeter,
- the schedule
- management software
It is possible to adjust one of these four points, but never to the detriment of the others. This law, well known to seasoned project managers and consultants, has a direct effect on the delivery of your project.
So far, so good.
However, behind this theory lies an everyday challenge: thedynamic assessment of budget, scope and schedule as the project progresses.
It’s usually at this stage that complications arise.
To succeed, you need to avoid getting bogged down inendless steering committee meetings, which in themselves can sometimes consume almost half the time allocated to certain projects.
Management contracts
Definition and characteristics of "régie" contracts
Time and materials contracts are a form of service delivery in which the customer pays according to the time spent and resources mobilized by the service provider. This approach offers great flexibility, as the customer can adjust the project as it progresses. The main features of time and materials contracts are :
- Flexibility: the customer can make changes to the project as it develops.
- Transparency: costs are based on the time and resources actually used.
- Adaptability: ideal for projects where needs change frequently.
Advantages and disadvantages of public-private partnerships
Public-private partnerships have both advantages and disadvantages:
Advantages :
- Total flexibility: the customer can make changes to the project as it develops.
- Cost transparency: customers know exactly what they're spending their money on.
- Responsiveness: adjustments can be made quickly, to meet changing project needs.
Disadvantages :
- Difficulty in predicting final cost: total cost can be difficult to estimate in advance.
- Risk of budgetary slippage: if the project is poorly managed, costs can rise.
- Constant follow-up: customers need to be actively involved in project follow-up.
How does a project-based service work?
An in-house service works as follows:
- Defining objectives: the customer and supplier define the project's objectives and the resources required.
- Time estimate: the service provider estimates the time required for each task.
- Implementation: the project starts, and the customer can make changes as it goes along.
- Tracking and invoicing: time actually spent and resources used are tracked and invoiced.
- Adjustments: the project can be adjusted to meet changing needs.
Time and materials contracts allow for flexible project management, ideal for situations where requirements change frequently.
Fixed-price contracts
Definition and characteristics of fixed-price contracts
Fixed-price contracts are a form of service provision in which the customer and service provider agree on a fixed price for a given project, irrespective of the time or resources required. The key characteristics of fixed-price contracts are as follows:
- Fixed price: the customer pays an amount agreed in advance, regardless of the time spent.
- Commitment to results: the service provider undertakes to deliver a specific result.
- Defined scope: the project is clearly defined, with precise objectives.
Advantages and disadvantages of fixed-price contracts
Fixed-price contracts have their own advantages and disadvantages:
Advantages :
- Budget predictability: the customer knows exactly how much the project will cost.
- Commitment to results: the service provider is encouraged to deliver quality work.
- Simplified management: less follow-up for the customer.
Disadvantages :
- Lack of flexibility: changes can be costly and complex.
- Risk of incorrect estimation: if requirements are incorrectly estimated, the project may go over budget.
- Pressure on deadlines: meeting deadlines can become a priority at the expense of quality.
How does a fixed-price service work?
A fixed-price service works as follows:
- Definition of requirements: customer and supplier clearly define project requirements.
- Pricing: both parties agree on a fixed price for the project.
- Implementation: the service provider works on the project within the agreed scope.
- Verification of results: the customer assesses whether results correspond to requirements.
- Finalization: once the objectives have been achieved, the project is closed.
Fixed-price contracts are well-suited to projects with stable, well-defined requirements, offering a high degree of budget predictability for the customer.
Blend contracts: a versatile alternative
Explanation of mixed contracts combining time and materials management and fixed-price contracts
Blended contracts are a versatile approach that combines elements of both time-and-material and fixed-price contracts. They offer increased flexibility by allowing for adjustments while guaranteeing a certain level of budgetary predictability. Features of mixed contracts include:
- Combining flexibility and predictability: these contracts allow for modifications while defining a fixed scope and price.
- Suitable for complex projects: for projects with changing requirements, but where a certain structure is necessary.
Mixed contracts for complex projects
Mixed contracts offer significant advantages for complex projects:
- Controlled flexibility: adjustments are possible, but within predefined limits.
- Budget predictability: customers can manage their budgets in a more stable way.
- Adaptability to change: suitable for projects where requirements change, but structure is needed.
Flexibility and budget control
Blended contracts combine flexibility and budget control. They are ideal for complex projects where agility is required while respecting budgetary constraints.
Advantages of working on a contract basis versus a fixed-price contract
Advantages of working in-house
There are many advantages to working under contract, including :
- Adaptability to changing needs: project management enables us to respond to frequent changes in project requirements.
- The difficulty of defining a measurable deliverable: in projects where the end result is difficult to predict, the régie offers a flexible solution.
Maximizing the benefits of management through prioritization and testing
To maximize the benefits of management, it is essential to :
- Define a budget and a deadline for a first version of the product: this allows you to set clear objectives.
- Test functionalities regularly and review priorities accordingly: this ensures efficient project progress.
- Define important deadlines: planning is essential for project follow-up.
Working on a contract basis is particularly well suited to projects where requirements change frequently and flexibility is crucial to success.
How do you choose between time and materials management and fixed-price contracts?
When deciding between a time and materials contract and a fixed-price contract, it’s essential to understand the differences and take into account the specific needs of your project. Here’s a comparison of fixed-price and time-and-material contracts to help you make the best choice.
Comparison of time-and-a-half and fixed-price contracts
To make an informed decision, it’s essential to understand the distinguishing features of time-and-material and fixed-price contracts. Here’s a comparison of the two approaches:
Time and materials contracts :
- Suitable for projects with frequently changing needs.
- Flexibility to adjust project scope.
- The customer pays according to the time and resources actually used.
- Ideal for projects where it's difficult to define a precise deliverable from the outset.
Fixed price contracts :
- Suitable for projects with stable requirements and a well-defined scope.
- The price is fixed, offering budget predictability.
- Less flexible for changes during the project.
- The customer pays a predefined amount, regardless of the time or resources used.
Comparing time-and-material and fixed-price contracts will help you determine which approach is best suited to your project. Once you have a clear understanding of the two methods, you can consider the essential questions to ask for a fixed-price project.
What are the best practices in fixed-price project management?
Here are our tips.
Fixed-price project management: the right questions to ask
First of all, can you answer a few questions about your most recent projects? (If you answer “yes” to all the questions, then you’re a MASTER PROJECT LEADER AMBASSADOR WARRIOR).
- Is the scope clear? Have you detailed everything that needs to be done, and can you put a time value on each item?
- Is this first perimeter vs. time document shared with the customer?
- Is it shared with the person who has to do it? 🙂
- Have you integrated all this into a schedule?
- Does it fit into the schedule of the person who will have to do it?
So far you’ve escaped the trade vs. production war #bravo
To steer the company’s strategy effectively, these elements must be rigorously monitored and integrated into a global vision of the project.
- Have you identified potential purchases for the project? Have you budgeted for them? In other words, do you have a written gross margin target for your project?
- Do you share progress reports with your customer on a weekly basis?
- Do you know in real time what remains to be done on the project?
- Does your customer know every week?
- Do you re-evaluate the schedule end date every week?
- Did you bill as much as you produced?
- Are you able to know in real time the time spent on the project vs. the time sold? Here are the best ways to track time spent on a fixed-price project
- Do you measure your customer's satisfaction during the project in a quantifiable and summable way?
- Do you know how much you've produced on the project? We recommend that you (re)read our article on the advantages of tracking your activity by progress rather than by invoicing.
- For all these controls and follow-ups, did you spend less than 20% of the time sold on the project?
Furious automates controls and monitoring... and saves you time!
With Furious, all these questions are answered automatically and without any extra work!
You can monitor the main criteria in real time:
- load (time spent vs. time sold)
- planning (what I told my client)
- progress (where I really am)
- billing (where I stand)
The challenge for you is to always be in line with these 4 criteria, and to share them with your customer every week. In this way, you anticipate any possible readjustments to the schedule, scope or budget. 😉
