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The Breakfast Club

November 1, 2009 Leave a comment Go to comments

Most people have heard of the adage regarding the breakfast ingredients bacon and eggs, where “the chicken is involved; the pig is committed”. Fewer have perhaps considered its relevance to project service delivery.

A few months ago I had a very pleasant lunch with a representative from a local law firm who was trying to find new ways to attract business from small companies and entrepreneurs. It quickly became apparent that the major hurdle was how his firm – like most other law firms – insisted on charging only by billable hours x hourly rate. In this “cost plus” method, all the risk of overruns is bourn by the client. There is also little incentive – beyond the potential impact on repeat business – for the law firm to become more efficient in its work. It was clear that they supplied eggs.

A few weeks later I had another discussion with a local utility company. Their challenge was the opposite – in order to ensure predictability in costs, the utility required many of its suppliers to provide long-term, fixed price, contracts. Many of you are no doubt already ahead of me on this: They required total commitment; they required bacon.

Of course, just as bacon contains a lot of fat, so do these fixed price contracts: The suppliers have to allow for a lot of worst case scenarios in their pricing to make sure they don’t lose money during delivery. In some engagements these won’t happen. In some they will. On average both companies should make their target margins. Unlike the law firm there is a direct incentive for the supplier to become more efficient in its deliveries, but less incentive for the customer to do the same.

There is clearly a large middle ground between these extremes, where the customer and supplier come together to agree on an initial baseline or “fair sailing” estimate. When changes occur, Change Orders are created to cover any difference. Even in these cases, however, there is an incremental cost in time and money preparing and negotiating the Change Order itself. There is no free lunch (or breakfast!). The trick is to get the right balance between covering the costs of the project as it evolves, and generating the goodwill required to sustain a long-term mutually successful relationship beyond the immediate project.

A good project delivery environment will not only have a good knowledge base from which to create the initial plan to proactively anticipate & mitigate the risks that cause changes, but also the right cultural balance and value system to know how and when to apply changes.

Most nutritionists recognize breakfast as the most important meal of the day, providing the right foundation for having sustained energy. Project Service Delivery organizations would be well served to do the same.

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