I just started studying for PMP certification.
All the processes mentioned in PMBOK are relevant to all the domains of project management.
But as a leader in I.T projects following are some issues we need to deal with regarding estimations and costs.
1. While estimating we do not know the resources.
2.No two person will have same domain/technical knowledge.
3.While estimating we generally estimate based on our exp., plus some buffer, but actually it depends on developer who will work on task.
4. It also happens that we identify the resource while submitting proposal to client but till the SOW is signed to go ahead, resource is already allocated to other project.
5. Cost of the resource varies hugely.And in I.T sector major chunk of cost is salaries which is not in P.M hand but market driven.
6. If less experienced guys are taken the traning on domain/technical skills is to be done (for this i am sure no client will pay OR will be ready to delay the milestones)
I would like to know what all the experienced P.M in I.T sector has to say on solutions these issues.
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The replies below are excellent. I would add a few extra fundamental points, though:
1. You never know what a project will actually cost until it is over
2. Any fixed-price cost MUST include a risk mark-up in the price (or the contractor must be prepared to suffer a loss on the contract)
3. When resources change, estimates must change
If you are doing your estimates before you know the team, I suggest doing ranged estimates. Give a range of possible work-hours, rates, and other variables. Build a worst-case and best-case scenario for the project costs.
Your business people can then decide how to price the fixed-price bid for the contract. Leave the profit and loss decisions up to them. Focus on coming up with the best estimates you can, and let them know what is uncertain. Develop a list of risks, including impact and probability, and include best-case and worst-case estimates.
Then, as the project progresses, you can adjust your estimates and budget. Once your lead architect, programmer, and tester are assigned, for instance, you will have a much more realistic estimate. Re-forecast the budget and schedule, and let your management know.
I bid fixed-price contracts in my own business. I know and my customers know that the contract typically costs a little more, even for relatively clear, certain projects. For uncertain projects, fixed-price contracts cost a lot extra. The customer needs to be prepared to pay extra if the contractor is going to carry the pricing risk.
If your customer is extremely inflexible in what they will pay, you may need to find a new customer. Price negotiations only work well if both parties are willing and able to walk away from the deal. The minute your employer decides that they cannot walk away, they have lost all pricing control, and they are certain to lose money -- if not today than someday in the future.
Unless you are running the company or in charge of sales, though, it is not your issue. As PM you need to focus on creating the best estimates you can, given the limited information you have today. Saving Changes...
Darren KosaPlanning & Controls ContractorHampshire, United Kingdom
Amogh,
Some of the more unscrupulous PMs amongst us could possibly view this situation as an opportunity.
Fixed price work affords the subcontractor a chance to increase their margin through changes in scope.
I know of a least two companies, not the one I currently work for I hasten to add, who deliberately bid the contract at a loss knowing they would make their profit from the change requests.
They ring-fenced the requirements, deliverables and scope, got the customer to sign them off and then hammered them when they wanted to make any changes.
Not that I’m recommending as a course of action you understand!! ;)
Regards,
Darren
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Robert PennSr. Project ManagerAlexandria, Va, United States
While I agree with the ethical issues in Darren's post, one aspect of fixed price work is the need to recognize every change request as a possible change in scope and therefore a change in cost or schedule. This means that you, as PM, need to get your team to let you know of every request for something different than originally planned. Then, you need to be sure your team does not just do the additional work because the client asked for it, but instead they need to wait until you have analyzed the impact, negotiated the change with your client, and then authorized your team to do the work. For small changes, this process shouldn't take long, but it keeps you in contractual coverage for all the work you do. Otherwise, you risk doing work that the client refuses to pay for even though they benefit from it.
There are a few risks to be aware of in doing this:
1) Your client may feel like you are constantly increasing the cost of the project, a little at a time when the purpose of fixed price is to lock in the cost of that part of the project. (In the US, we call this "nickel and diming" them).
2) You need to be flexible about what you can do without additional charges. If a change really is minor or could be considered in scope, then it may be better to do it without making a fuss.
3) If your relationship with your client becomes adversarial, you both lose. Both of you can lose reputation and you lose the likelihood of future work with this client (and possibly others if they have been a reference account for you). Your client loses the cooperation needed to keep the project moving smoothly as well as any ideas you might provide on improving the overall project.
Both you and your client need to remember that you want to provide a satisfactory product, but you also need to be fairly compensated for the work you perform. Saving Changes...
