Are companies making the best use of their resources? In particular decisions around software projects and their potential ROI can be crucial. Many companies try and mitigate their risk by insisting on a fixed price up front. They believe this forces the service provider into a corner and makes them “nail their colours to the mast”. This is undoubtedly achieved but at what cost?
Potentially this can result in the following scenarios:
- The provider over-quotes by padding in so much contingency for unknowns that the client ends paying a lot more.
- The provider is unable to complete the work because of not understanding the requirements correctly and financially the project becomes untenable.
- The provider goes in at a low cost to get the work, and then once in forces the client to increase budget because they are in a catch 22 and can’t turn back.
- The project is completed within budget but because of lack of investigative work up front, does not accurately meat business needs i.e. no ROI and a waste of money.
....... and many variations on the themes above.
It is far better for companies to invest in proper up front elaboration and analysis .... choose a partner based on their track record and know-how and then work with them to craft the best possible solution. Once this stage has been completed, then providers will be in a position to give an accurate fixed price quote that:
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Is realistic and possible
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Meets the business requirements / objectives and
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Ultimately results in a win-win for all concerned
Cutting corners and squeezing suppliers into a corner may look good in short-term savings; but in the long run it only leads to disaster.