When the agreed price is lower than the estimated cost

Unfortunately, without having the full context of the situation (i.e. the details about the points I'd raised), any suggestion I provide may be the right answer or the worst thing to do.

For example, if this relates to a firm fixed price contract and there is little opportunity to push a change request through based on a customer-driven scope change then the most obvious choices would be to:
a) Eat the additional costs and hopefully learn some lessons for future projects
b) Decide whether the costs of early termination of the contract (e.g. legal, financial, reputational) are less than doing "a" and proceed accordingly.

Kiron

Dear Kiron
We agree that without having a complete context of the situation, it is difficult to judge which decision is most appropriate.

However, you considered one of the possible scenarios: a firm fixed price contract and considered two possible answers.

Thanks for sharing

Could you create an algorithm that would help us consider the best decision regarding the projected scenarios? :-)

First things first, I would try to understand why the agreed price is lower than an estimated cost never mind the budgeted cost for a project. Secondly I would see if the agreed price has been included in any documents that have been signed by both parties in questions. Thirdly, if the answer is no then I would revise up my figures to the actual cost after having performed a thorough investigation into the proposed actual costs for the project. If the answer is yes, I would seek legal advice to see if any provisions have been made in signed documentation/contract as to amendments to projected costs. Fourthly I would add this experience to the lessons learned at the project closure stage of the project management to ensure that a repeat experience does not occur. Also if the reason is due to tendering process where you are trying to undercut the competition, remember that if you are looking to make a profit from add-ons and additions to original requirements, organisations are clamping down hard on project over runs cause by scope creep and dilution of requirements.

Sorry Luis -

if I constructed that algorithm, I'd put myself out of business :-)

Kiron

First things first, I would try to understand why the agreed price is lower than an estimated cost never mind the budgeted cost for a project. Secondly I would see if the agreed price has been included in any documents that have been signed by both parties in questions. Thirdly, if the answer is no then I would revise up my figures to the actual cost after having performed a thorough investigation into the proposed actual costs for the project. If the answer is yes, I would seek legal advice to see if any provisions have been made in signed documentation/contract as to amendments to projected costs. Fourthly I would add this experience to the lessons learned at the project closure stage of the project management to ensure that a repeat experience does not occur. Also if the reason is due to tendering process where you are trying to undercut the competition, remember that if you are looking to make a profit from add-ons and additions to original requirements, organisations are clamping down hard on project over runs cause by scope creep and dilution of requirements.

I would go about restructuring immediately the project team as it only takes one bad project to bring down an organisation and luckily this situation was caught early enough that the situation could be rectified to the benefit of the project management team. In other situations they may not be so lucky and would have to either honour the terms of the contract and delivering a project at a loss or face a breach of contract and the associated legal ramifications that this would evolved. Also by not honouring your commitments the issue of lack of trust could hinder your ability to land future projects.