The fixed-price project lowdown
We're happy to announce that as of this month, Runn supports the planning and tracking of fixed-price projects!
Here's our lowdown of what fixed-price projects are, what to watch out for when managing one, how they compare to time and materials projects, and how Runn can help you control your fixed-price project's costs, budget and schedule.
So what exactly is a fixed-price project?
You probably guessed this one! As the name implies, fixed-price projects have a fixed budget. This is based on your estimate of how long it will take to deliver the project's scope of work, which most commonly is also fixed. With fixed-price projects, you need to take good care up-front to understand and document your client's requirements and what you and your team are expected to deliver.
You carry the risk
With fixed-price projects, there's always the risk that it will take longer to complete the agreed-upon scope or that extra work that wasn't budgeted for creeps in. Therefore, you'll need very tight project control and a robust change management process (have you read our blog article on managing project change?) to keep your project on track and ensure it's profitable.
Fixed-price projects tend to get a bad rep, but they can be really good (and lucrative!) for projects with known and repeatable steps, projects with a well understood scope, and smaller projects.
Five tips for managing fixed-price projects
- Diligently estimate how long it will take you to deliver the scope and how that translates into $$ up-front. Make sure to involve the people who are intended to work on the project in this process, they usually know best what's required and how long tasks might take to complete.
- Document any risks and make a plan on how you will deal with those risks should they become a reality.
- Add some buffer for uncertainty.
- Define and agree with your client on how you will deal with changes.
- Tightly control your costs, budget, and schedule once the project is underway.
How time and materials projects are different
On a time and materials project, your client gets billed for every hour that you and your team work on the project. Depending on your agency's pricing method and what you have agreed upon with the client, your hourly rate might be different for each role or person working on the project (e.g., you might bill more for a senior developer than a junior developer) or "blended", which means you're charging the same rate for everyone on the project.
In reality, there's hardly ever a client with unlimited funds, and pure time and materials projects are actually pretty rare. Often there's still a budget cap, which you'll need to keep a close eye on to ensure there are no surprises.
With time and material projects, scope tends to be more fluid, which makes them better suited for agile projects, where you regularly review and adjust the scope with your client.
How to set-up and track fixed-price projects in Runn?
The initial set-up is pretty straightforward - just choose "Fixed Price" as the pricing model when setting up your project.
Know your baseline
Enter your project's budget so that you can keep an eye on your baseline. In this example, you're running a web design project, and you've estimated that you'll need a budget of $345,000 to complete the project scope, using a blended rate of $150.
Schedule your project
Next, create a project schedule for your project. This is a really straight-forward process in Runn. Runn's project planner allows you to quickly add all the people you need, then create assignments for them by clicking and dragging on the timeline. Use the "Project Stats" feature to make sure you don't schedule more hours than you have budgeted for.
When you're done, you'll have your initial plan and schedule baseline:
Keep your project on track
Once your fixed-price project is underway, you need to keep a close eye on how the project is tracking so you can take action quickly should the project go off track.
- Capture project actuals
Runn provides a number of ways to capture actuals data - your team can manually enter their timesheets, or you can automatically sync the data from another time-sheeting system using our API or Harvest integration.
Once you have the data on what actually happened, you can compare that data with what you had planned. Runn's variance report will give you a weekly breakdown:
2. Monitor your project's performance
Runn's project performance report will show you, at a glance, where your project is at with regard to the plan, actuals, and budget. In this example, it's clear to see that your project is expected to go over budget if it continues on its current trajectory.
3. Make decisions based on your data
Depending on how the project is going, you might need to take corrective actions to steer the project back on track. This can include adjusting your project schedule, swapping out resources, or going through a change request process with your client to update the budget or scope.
Don't fear the fixed-price project
Managing a fixed-price project can be daunting at first, but with the right planning and a good project control system in place, you'll be able to keep your project on track and confidently manage your clients' expectations!