[consulting] Estimation-Blowout case-studies wanted

[Andrew R. Kelly]

One strategy a friend has pursued with some success is to put a client
friendly hour cap on fixed rate work. Most clients are willing to be fair
(tho often not generous) about compensation, so if you spend a little time
explaining the issues involved in estimating hours (new requirements coming
up, guessing how much time will be wasted by communications snafus, weird
bugs in 3rd party code, etc.), they're often cool with putting a max hourly
cap on work. Particularly if you mention you usually charge $x an hour for
hourly work and skew max hours in their favor, it feels like they're getting
a discount.

I used to work at IBM Global Services and we called this type of contract
"Fixed Price - Best Estimate".  Lots of people raise their eyebrows when I
say we successfully convinced clients to go with this structure, but Gwen
hit on the strategy points that lead to winning that battle.

A bit of wording that may help - during negotiation focus your conversations
on project risk mitigation.  You feel the brunt of the risk but in reality,
your client has risk as well, if you fail they may have other things relying
on this project that will fail.  If you think in this manner you're working
as a team to mitigate risk.  The model above allows your effort estimates
and rates to reflect your risk-free "best estimate", but allows for sharing
of risk should things not go as planned.  If they want zero risk on their
end, then you can offer a firm fixed price contract with a hefty risk
premium.  The reality of business is that with risk a client can accept it
(via pure T&M model), mitigate it (via the above contract model) or deflect
it (via a firm fixed price model).  Tweaking your explicity/implicit hourly
rate to map to these models will help both sides arrive at the right model.


Andrew  

 

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