Situation: A company conducts both engineering feasibility studies and development projects. These are high budget projects and must be managed diligently to prevent cost overruns. What have others done to assure that projects are planned and managed to budget? How do you manage major projects?
Advice from the CEOs:
- What is the structure of most contracted projects?
- Most projects are fixed price. They come from feasibility studies which are essentially “marketing” for future sales. Typical terms are 30% up front, with the other 30/30/10 upon achievement of milestones and completion of the project.
- Get complete buy-in from the customer as part of the initial negotiation.
- Stay ahead of expenses by billing in time to maintain positive cash flow from the projects.
- Structure pricing so that custom work is profitable if the project mix is 50/50 custom vs. standard work.
- Push-back if the customer wants to reduce project cost up-front.
- Carefully document work papers – above what is required by the contract. Get buy-in for this in advance, during the initial negotiation.
- Once the feasibility study is completed, revise the scope and deliverables of the work agreement based on findings from the study.
- Separate the “concept” phase from the execution phase and charge a premium for the concept work.
- Position this as a value to the customer.
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