Fixed Price: A Naive Approach

It would seem that most of the larger financial institutions are adopting one of the following models for outsourcing IT project work:

• Pure Staff Supplementation - get a body as cheap as you can to work under the client PM as part of the team
• Fixed Price (Cost) Project Work - (theoretically) fixed cost, set scope, set time.
• Offshore - the staff supplementation approach on steroids with some multi-location overhead thrown in for good measure (yes, I am a cynic)

Some are still permitting T&M project work as well. From a banks' perspective, I understand that minimizing / locking in / capping costs is important. However, how many of these company's business,IT or vendor management understand the constraints and risks imposed on the vendor by some of their preferred approaches ?

The three axis of classic systems development management are of course scope, time, budget, with the assumption that if you lock 2 of these, you set the 3rd. Often the time is set by business needs and their wants/needs without due consideration for the poor IT guys actually doing the work. Budgets are set, pretty much, and so the price constraints are pushed to the vendor. But do they flex on the scope.. I think not. From a vendor's perspective, unless you are building a space shuttle, the scope simply is never bolted to the floor -- and even the best specification can create ambiguities, or misrepresent what is going to be built .

All of these constraints that a vendor faces can be alleviated through a T&M approach, or by a more agile approach to project execution. (I am not pitching Agile here, although we all know that iterative/RAD/Agile approaches can certainly be the best way of building out functionality to maximize user satisfaction - where appropriate).

The real risk here is quality of delivery and the adversarial relationship that can occur when clients expect vendors to deliver a set scope in a fixed timeframe and/or budget. The legalese are a nightmare. The relationships can sour and spoil reputations, and the quality of the product can be terrible through corners being cut, functionality being descoped (not always to plan), and customer service can go through the floor.. all of which costs more money directly or indirectly.

Mature relationship, project and risk management are essential (always, no matter the project), but real life is not always that cookie cutter.