Flexible fixed price contracts…the Agile Way

Written November 26th, 2008 by
Categories: CEO's Blog
Comments Off on Flexible fixed price contracts…the Agile Way
VN:F [1.9.22_1171]
Rating: 4.0/5 (1 vote cast)

Flexible fixed price contracts.  Is that an oxymoron like “jumbo shrimp” and “bitter sweet”?

I think not, at least not in the Agile Company.

But first, a quick story…
My wife and I have an illuminated covered breezeway that connects our garage to our main residence.  The original builder was clever enough to anticipate that we would occasionally come home after dark and would want to turn the light on from within the garage.  I guess what he didn’t anticipate was that once we got into the house we would want to turn the light off without having to go back to the garage.

After several years of complaining about the situation, my wife and I finally decided to attack the problem. At the outset, we agreed that while this design oversight truly annoyed us, it would be hard to justify spending more than a couple of hundred bucks to deal with it.  After all, at that sum, you could get a reasonably good case of wine which would provide untold hours of pleasure…and how much time did we really waste shuttling back and forth from the house to the garage and back?

The next day, I invited a Craig’s List advertising electrician out to give us an estimate. 

After a half hour inspection of the problem, he came up with a fixed price solution of 4 hours of his time + materials…although he suggested that he might be able to dispatch the problem faster than that. Since that was well within our budget, he got the green light…and you can probably guess where the rest of this story is going :-).

After 10 hours, spanning two expletives filled days, (not including two trips to the hardware store) he finally declared victory.  It seems as if he had to traverse several drill bit eating cross beams in order to prevent the final product from looking like something that belonged in a college flop house. A man of honor, he only invoiced me for the fixed price amount and wrote off the noncollectable amount as an investment in improving his “estimating skills”.  The postscript is that I gave him a bonus to acknowledge his craftsmanship, tenacity and professionalism.

So how was this project a “flexible fixed price project”?  Frankly, I don’t think it was.  It was a fixed price, fixed scope project and the variable was time…the electrician’s time…which didn’t work out so well for him.  He took on all of the risk.

We manage things a little differently in b2b2dot0’s world of collaboratively building B2B sell-side eCommerce websites for SAP based manufacturers. First of all, we really do like the concept of fixed price.  Everyone hates surprises, especially financial ones.  But we are in business to make money and want to make sure that we not only deliver real customer value, but do so in a profitable way.The trick is in managing the expectations for the scope of the project, which we all know can’t be done through writing more detailed specifications.

How do we manage our fixed price contracts and how are they flexible?

To begin with, we treat all of our projects as if they are the same…within reason.  None of them should take more than 60 days from initiation to GoLive.  To be sure each project is a little different, and that’s where the “flexibility” comes in.  While we fix the time and effort that we’ll spend on the initial implementation, how we spend that time is totally up to our customers.

The very next “first thing” that we do is to experimentally determine how this specific project is different from all of the other projects we’ve ever done.  We’ll hook up our website to your SAP system and get you to tell us why we can’t put it into production tomorrow.  We want to make sure that either our initial assumption of “all projects are created equal” is still true, or learn why it’s not.  If not, we’ll put together a revised statement of work to reflect the new reality. That statement of work will also be a flexible fixed price contract but expanded to accommodate our new learnings. It’s that simple.Here are our secrets to making these flexible fixed price contracts work:

  1. Our experience – we’ve seen a lot of different SAP integrated B2B eCommerce requirements in the past 10 years.  It’s going to be pretty hard to surprise us with “drill bit eating cross beams”.
  2. Lists – we have lists upon lists upon lists that we go through before, during and after our implementations.Our lists make a commercial pilot’s checklists seem like a grocery list by comparison.
  3. Flexible product – we’ve designed our product to anticipate many of the “scope busting” customizations that we’ve seen in the past.  What might have taken days or weeks in the past can now take minutes and hours.I guess you can say that we expect surprises.
  4. Architecture – every B2B ecommerce website has at least 3 major components.  The corporate website (which we would prefer not to deal with), the product catalog (which we would prefer to integrate with but are prepared to provide a “turnkey” solution for), and an SAP integrated shopping cart (that’s our forte!).  The closer we stay towards our core competency, the slimmer the chances that the scope will creep out of control.
  5. Customer segmentation – not all of your customers are created equal.  The trick is to find the “biggest bang for the buck” segment to roll out to first.  They are usually the ones that will routinely use the core website capabilities to drive the most revenue and produce the greatest gains in efficiencies for you.  Worry about the fringes in later phases.  Follow the 80/20 rule.  You probably will be able to realize 80% of your benefits with spending 20% of your effort.  There will be plenty of time to chase the remaining 20% of the benefits if you care to spend the remaining 80% of your effort.
  6. Prototypes – as soon as practical, we’ll hook up our eCommerce website to your SAP
    system.  It won’t take long, but from a diagnostic perspective it’s the difference between trying to describe a pain that you’re having to your doctor versus getting a full body CAT scan.  We often find that what people think their SAP system looks like and what it’s actually configured to do are two different things.
  7. Focus Groups– getting all stakeholders involved as early as possible is critical to scope management.Bringing new perspectives onto the project late in the game wreaks havoc with project timelines.  We also use these focus groups to flush out everyone’s commitment and skill-sets which is a leading indicator of ultimate project success.
  8. “Threaten” to put it into production – this is how we keep it real.  There are all sorts of great things that you can eventually do with your website.However, if you approach it from the perspective that it “has” to go into production tomorrow, your mind quickly focuses on the minimum capabilities required to run the business.You can always evolve from there, but the key is to start realizing real value from your B2B eCommerce website as quickly as possible.  Let the accrued benefits start to pay for future investments.
  9. Time-box – this is really our scope management secret weapon.  There really isn’t any reason why the first GoLive can’t happen within 2 months of elapsed time and 1 person
    month of our effort.  So those are the parameters we’ll set for the initial implementation.  We’ll squeeze in as much functionality as we can for the first GoLive…as long as it doesn’t go beyond 1 person month of effort or two calendar months.  If we see that it’s going to go beyond that for whatever reason, we’ll know early on and have that discussion.
  10. Transparency – it’s hard to be surprised when everything is transparent.  Plans, progress, artifacts, conversations, tasks etc. are all available 24/7 to all project team members in our online project portal.  No surprises and no excuses!

Flexible fixed price contracts…the Agile Way, 4.0 out of 5 based on 1 rating