What are the pros and cons of doing fixed price contract for your project?
That’s the question I answer in this video, from the point of view of a contractor providing projects for their clients.
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It’s all about risk.
Things will be fine if you can do three things:
If you do all three, you will retain your contingency and make your planned profit. All will be good.
Then you will have to bear all of the costs of financial and schedule over-runs, and putting right the products.
Financial certainty, which makes planning easier and is good for governance. Some organizations rightly choose to minimize risk and so prefer to pay a premium to do so. This is particularly those in the public and not-for-profit sectors.
But beware the naive client who wants their cake and eat it. That is, they want a fixed price and a low price too. Don’t ever succumb… That way leads to too much risk.
Cost. A project manager would (and should) cost in a premium for the risks above. This can be either as a greater contingency, or a bigger profit margin.
You should not double up though, and increase both. That seems to me to be rude. It’s often a case of double counting or profiteering. But you’d only get away with it if your pricing lacks transparency, and that’s poor practice.
And from these, I’d single out stress. Fixed price contract projects tend to be more stressful. This is because, as a project manager, you are bearing more risk.
Now, stress can induce errors. So this can easily become a downward spiral. The reality of fixed price projects is unrelenting pressure on schedules, budgets, and delivery.
Anyone who has followed my videos and writing will recall this. I often say that the triple constraint won’t solve any of your problems, but it will make your choices clear. Fixed price projects force the choice. You have an immovable constraint.
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Dr Mike Clayton is one of the most successful and in-demand project management trainers in the UK. He is author of 14 best-selling books, including four about project management. He is also a prolific blogger and contributor to ProjectManager.com and Project, the journal of the Association for Project Management. Between 1990 and 2002, Mike was a successful project manager, leading large project teams and delivering complex projects. In 2016, Mike launched OnlinePMCourses.
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