Is your project like sending a rocket ship to the moon, requiring even the tiniest detail to be specified exactly up front? Or is it more like a flight from Los Angeles to New York, with a general and mostly accurate flight plan but with a human pilot capable of course correction during flight?
Previously we asked if it’s better to set up a project with a fixed price or to pay hourly. We concluded that overall, the hourly arrangement is superior to a fixed price. Seth Gottleib, founder of Content Here, writes of the difficulty programmers have in making estimates (this applies to any creative enterprise). To quote Seth:
“… accurately predicting steps and effort required to build undesigned software is impossible…. The problem is that every software development project is a unique collection of thousands of tiny details that each have the potential to suck up enormous amounts of time…. The more tasks you add, the more guesses you make and the greater the overall variance. Even if you guessed every task right, there were probably just as many tasks that you forgot to add. And there are also lots of steps that you find you didn’t need to do too.”
But how can you plan your project if you can’t rely on an estimate?
The Iron Triangle of Project Management
The trick is to keep in mind the iron triangle of project management. Your potential project constraints are time, budget, and scope. Basically, pick two and leave the third flexible.
One useful approach is to set the budget and timing, but reduce the required scope to the “least acceptable outcome” or “LAO”. Now, the LAO is not what you really want as an end result at all. By definition, it’s the worst possible outcome where you can still reasonably tell your boss the project was not a failure.
The LAO is the “airplane pilot” approach. It only defines the general flight plan (the minimum requirements). Beyond that, everything is considered a “nice to have”. You can expect that you’ll end up with some, but not all, of the “nice to haves”.
The best part is that the project decision makers, much like the airline pilot, have the flexibility to make course corrections as new information becomes available.
Fixed Price Projects Are Expensive
Seth contrasts this sort of approach to the PMI-style, plan-everything-up-front approach:
“PMI-style planning is like shooting a rocket: doing all the calculation at the beginning and then hoping that you accounted for everything before ignition. Setting a deadline turns the rocket into an airplane by adding a pilot that can steer. Realizing you can make adjustments after take-off transforms the pre-flight calculations from a fixed flight path to a map that you can use to make in-flight decisions.”
Fixed priced projects are like rocket ships to the moon. In order to fix a price you need to know with great precision what every project task will be. Without this level of precision, any estimate is more like an educated guesstimate. However, this “astronaut” approach is extraordinarily expensive both in time and money to plan a project so finely up front and it eliminates any opportunity for course correction during flight.
The airline pilot approach works well when there is a close partnership between the agency and the client and both review the project frequently enough to make course corrections, knowing the budget at all times. Then, the client can approve “nice-to-have” work as the project progresses, knowing there is budget and time left for it. And the agency knows it will get paid for all of the work performed.
Still, we know from experience that some clients are nervous to not get a fixed price for their projects. How is it that there are some agencies that are perfectly willing to commit to a price for a pre-set scope of work? How are these agencies able to do that? Are they astronauts? The simple answer is that they pad the hell out of their estimates. If they think something is going to really take $50,000, they’ll bid it at $100,000 or more. But, in return you do get a known, fixed price (until you try to change the scope of work in any way at all).
Is there any other model that can work that retains the flexibility of the hourly model with the budget predictability of the fixed price model? This will be the topic of our next post.