Pricing Project Deliverables

Posted by Brad Egeland

pricing 300x289 Pricing Project DeliverablesMy experience as a project manager working in a corporation as far as deliverables are concerned is this – the price has usually been negotiated already with the customer before the project ever reaches my hands.  A functional design document, for example, may already be priced at $15,000 to the customer based on some estimated tech lead time to create and team time to review and finalize.  Likewise, a communication plan may be priced at $8,000 based on project manager time to create and team time to review and deliver.  Requirements finalization may carry it’s own deliverable price based on negotiations with the customer as the deal was being struck and the project manager and team will be responsible for managing that effort and invoicing that deliverable as well.

Ideally, the project manager and team would have some say into the price of most or all deliverables on the project.  After all, they are being judged against what management and the account manager consider to be the target profit margin for the project.  And the time for those efforts are already built into the project schedule and shared with the customer and team using a collaborative tool like Seavus’ Project Viewer.  When changes occur on the project – meaning new requirements or a different understanding of existing requirements are necessitating a change order and a budget change overall for the project – then the project manager and team have a chance to price new or changing deliverables on the project, but those existing deliverables, unless affected by the change orders, are not re-priced…they are set in stone.

So, how do you handle this?  How do you work with, say, a requirements definition phase that was priced on the assumption that the customer had the requirements 90% complete and very little time was needed to finalize the project scope and requirements and begin design work?  What if the customer really only has 40% of the requirements documented in enough clarity and detail to move forward?  Unless you do something, you as the project manager – and your team – are now going to be expending 60% effort (not sure how to quantify that for this article, but you get the picture) rather than 10% as expected.  What that translates into is a huge increase in expense to the project budget.  What can you do figuratively ‘plug the hole in the dam’?

Stop!

Yes, since you didn’t get a chance to price these deliverables originally, you have to yell STOP!  You must halt forward progress and begin a negotiation process with the project customer.  Regroup with your team, come to a consensus on what you believe it is REALLY going to take to complete the deliverable – in this example that would be the requirement definition process with the customer – and put the information into a formal change order for the customer to review.  You may receive push back because these activities are often going to be something that the customer assumed you were going to work with them on no matter what effort was going to be required.  However, if the agreement that was signed by the customer estimated 120 hours of project team effort to document and finalize requirements and that is now looking like 220 hours, you must create a change order to present to your customer for those additional 100 hours that are going to be required.  Depending on the average price of your team resource hours, that could be as much as an additional $15,000 – $20,000 hitting the project budget.  If you don’t document this and create a change order that your customer is responsible for paying for, then you will ultimately be responsible for the project budget going over by that much…even though it happened through no fault of yours.

The bottom line is, you may not get much input into the pricing of individual project deliverables.  If that is the case, you must carefully review how those efforts were originally priced – without your input – and do one of two things…

  • Expend only the amount of time estimated for those efforts

Or

  • Recognize that enough time was not put into the budget and quickly create a change order for your customer

In the end, if the project budget is blown, it will be on the project manager’s head.  Don’t just take estimates that are handed to you at the beginning of the project and move forward.  Analyze them first and  make sure they are credible.  If you don’t speak up then, they become solely your responsibility to deliver on.

Share this post:
  • LinkedIn
  • TwitThis
  • Facebook
  • del.icio.us
  • Digg
  • StumbleUpon
  • Sphinn
  • Mixx
  • Propeller
  • Technorati
  • Print this article!

Related posts:

  1. Estimating the Project: Avoiding Potential Pitfalls
  2. Requirements are the Lifeblood of the Project
  3. Project Readiness: Ten Things You Must Do Before You Start
  4. The Project Change Order Request – Version 1
  5. Making Projects More Profitable – Part 3

Tags: , , , , , , ,

Post comment

Spam protection by WP Captcha-Free