Our article “You are underwater and yet your fixed-price project is not cost-effective?” gave you some tips on how to optimise your profitability.
Today we are going to help you adopt the best practices of fixed price project management.
To run a fixed price project, you must manage:
- the budget
- the scope
- the planning
One of the three points can be adjusted but never to the detriment of the other parameters. This implicit law is well known to experienced project managers.
So far so good, but behind the theory a hard practice lies: the assessment of budget, scope and planning in a dynamic way as the project progresses.
In general, this is where it starts to get stuck.
You will need to avoid getting bogged down in endless management committee meetings, which as such can account for almost half of the sold time of some projects…
What are the best practices
in fixed price project management?
We’ll share our tips with you, but first…
The features of fixed price project management
Fixed price projects are a mode of service delivery where the client and the provider agree on a fixed price for a specific project, regardless of the time or resources required. The main characteristics of fixed price contracts are as follows:
- Fixed price: the client pays an agreed amount in advance, regardless of the time spent.
- Results commitment: the provider commits to delivering a specific outcome.
- Defined scope: the project is clearly defined with precise goals.
A fixed price project operates as follows:
- Requirements definition: the client and the provider clearly define the project requirements.
- Price stipulation: both parties agree on a fixed price for the project.
- Implementation: the provider works on the project within the agreed scope.
- Results verification: the client evaluates if the results meet the requirements.
- Finalization: once the goals are achieved, the project is closed.
Fixed price projects are suitable for projects with stable and well-defined requirements in advance, offering significant budget predictability for the client.
The 4 types of fixed pricing
There are generally four types of fixed price contracts:
- Firm Fixed Price (FFP): In this type of contract, the price is fixed and does not change unless both parties agree to modifications. The seller bears the risk of any cost overruns.
- Fixed Price Incentive Fee (FPIF): This contract type includes a provision for the buyer to adjust the contract price if the seller meets certain performance targets. It provides an incentive for the seller to control costs and perform efficiently.
- Fixed Price with Economic Price Adjustment (FP-EPA): This contract type allows for adjustments to the contract price based on predetermined economic indices, such as inflation rates or changes in material costs. It helps mitigate the risk associated with economic fluctuations.
- Fixed Price with Award Fee (FP-AF): In this type of contract, the buyer pays a fixed price, but an additional award fee may be given based on the seller's performance. It incentivizes the seller to excel beyond the minimum requirements of the contract.
These contract types offer different levels of risk and reward for both the buyer and the seller, providing flexibility to accommodate various project needs and circumstances.
The difference between T&M and fixed-price
Time and Materials (T&M) contracts and fixed-price contracts are two common types of contractual arrangements used in project management. Here are the key differences between them:
Overall, the choice between a Time and Materials contract and a fixed price contract depends on factors such as the project’s scope, complexity, level of uncertainty, and the client’s preference for cost control and flexibility.
Fixed price project management: the right questions to ask
First of all, are you able to answer these few questions about the last projects you have carried out (if you answer “yes” to all the questions then you are 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 frame to each item?
- Is this first scope vs time to spend document shared with the client?
- Is it shared with the one who is going to have to do it?
- Have you integrated everything into a planning?
- Does it fit into the planning of the person who will be doing it?
So far you have escaped the trade vs. production war #bravo
- Have you identified potential purchases for the project? Have you made provision for them? In other words: do you have a written gross margin target for your project?
- Do you share weekly progress reports with your client?
- Do you know in real time what you still have to do on the project?
- Does your client know this every week?
- Do you review the end date of the schedule weekly?
- Did you charge the equivalent of what you produced?
- Are you able to know in real time the time spent on the project vs. the time sold? Besides, here you go the best ways to track the time spent on a fixed price project.
- Do you survey your client's satisfaction during the project in a quantifiable and measurable way?
- Do you know how much you have produced on the project? We recommend you to (re)read our article on the advantages of tracking your activity by progress rather than by invoicing
- For all these monitorings and follow-ups, did you spend less than 20% of the sold time of the project?
Furious automates monitoring and follow-up... and saves your time!
With Furious, all these questions are answered automatically and without any extra effort!
You monitor the main criteria in real time:
- load (time spent vs. sold)
- planning (what I told to my client)
- progress (where I have reached actually)
- billing (where am I at)
The challenge for you is to always be aligned with these 4 criteria and to share them with your client weekly. This enables you to anticipate any possible readjustment of the schedule / scope or budget. 😉
So shall we give you a demo? Discover Furious for free.
