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Best practices in fixed price project management

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:

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…

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:

A fixed price project operates as follows:

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:

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:


T&M Contracts

Fixed Price Contracts

Pricing structure

the client pays for the time spent by the provider's and the materials used in the project, usually at hourly rates for labor and actual costs for materials

the client pays a predetermined, fixed amount for the entire project, regardless of the actual time or resources expended by the provider


Cost risk


the client bears the risk of cost overruns in T&M contracts, as they are responsible for paying for any additional hours worked or materials used beyond the initial estimates

the provider typically bears the risk of cost overruns in fixed-price contracts, as they must complete the project within the agreed-upon budget

Scope flexibility

offer greater flexibility for changing project requirements during the course of the project, as the client can adjust the scope and resources as needed, albeit at potentially higher costs

generally have less flexibility in scope changes, as any modifications may require renegotiation of the contract terms and additional costs

Predictability

offer less predictability in terms of final project costs, as the total cost depends on the actual time and materials consumed, which can vary

provide greater predictability for project costs, as the total price is predetermined and does not change unless there are agreed-upon modifications to the scope of work

Incentives

may lack incentives for the provider to complete the project efficiently, as they are paid based on the amount of time and materials used

provide incentives for the provider to complete the project within budget and on time, as any cost savings can directly benefit the provider

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).

So far you have escaped the trade vs. production war #bravo

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:

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.

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