Today’s software ecosystem is drenched in competition, scope creep, and costs. The average IT project failure rate is over 10%, and one in six IT projects go 200% over-budget. To be clear, this isn’t only a modern problem. Companies have been dealing with project failure for decades. In 2004, The Standish Group Report showed that 72% of projects went over-budget. So, we’re all still worming around the same core issues that we’ve been dealing with for years.
Despite advances in technology and the hefty tech stack we all have packed under our armpits, the simple truth is: launching projects is still problematic for the majority of businesses. So, how do you minimize these failure rates and eliminate pesky cost overages? For many, the answer to this question (and often the source of the issue) is their engagement model. Your engagement model is the plan that identified project execution and launch details between your business and whoever is launching your project.
One of the most popular engagement models is the firm-fixed model. This classic engagement model virtually eliminates scope creep, budgeting issues, and timing frictions, but (like most things in life) it also has some serious downsides. Here’s what you need to know about firm-fixed, and why it may help you launch smarter and more efficient projects in the future.
What is a Firm-Fixed Engagement Model?
A firm-fixed engagement model is a fixed-price contract that requires outsourced development agencies to create a project in a fixed timeline based on a set-in-stone, upfront cost. So, the development team will sit down with the company, discuss the project, and set the upfront scope, scale, time, and price of the piece before development begins. Once the contract has been signed, the company will know exactly how much they need to pay, and when the project will be delivered to them. Any additional costs accrued during the development phase due to unknown or unaccounted for features will be on the outsourced development team — not your company.
There’s a safety net that comes with firm-fixed contracts. Developers can’t add additional hidden fees, go “over-scope” and charge you the difference, or adjust project requirements halfway through the development process. However, there are also some downfalls to firm-fixed. You can’t change the scope of the project mid-way through the development process without incurring additional charges, and firm-fixed doesn’t work well with mid-horizon (+3 years) or loosely-defined projects.
Remember, firm-fixed sets the project in “stone.” So, if the market changes during the development phase, it’s difficult to readjust the project requirements. For some companies, this sounds “anti-agile” or “anti-lean.” However, firm-fixed doesn’t mean the dev process has to have anti-agile tendencies. This depends solely on your outsourced developers. That being said, firm-fixed does not suit in-house or hired team development — since it’s difficult to operate on fixed costs in this type of environment.
How Are Costs, Time, and Scope Accounted For in a Firm-Fixed Engagement Model?
The firm-fixed engagement model is a classic. It helps align outsourced devs and businesses to the same goals, and it keeps the entire project on-budget and on-time. So, how does this work in the context of scope, flexibility, and time?
- Budget: From the moment you sign the contract, your price is fixed. Under the firm-fixed model, you won’t have to deal with any pricing changes (unless you redefine the project requirements) regardless of any scope or scale frictions. This is perfect for teams that want to map out development costs to a fixed and reliable budget, and it helps you plan ahead, and forecast needs with greater accuracy than non-fixed contracts.
- Scope: The scope of your project is also predetermined at the start of the contract. You’ll sit down with your outsourced team and discuss plenty of details before the contract is actually signed, so the scope is set-in-stone from the start. Again, this can help with predictability, forecasting, budgeting, and expectations.
- Flexibility: Firm-fixed lacks mid-project flexibility, but there’s plenty of upfront flexibility that you can bake into your contract. However, flexibility is the weak point of firm-fixed models compared to other engagement models (e.g., time and materials, dedicated teams, etc.)
- Timeline: Along with price and scope, the timeline of project delivery is established during the contract. Your outsourced developer will have a specific time period to deliver your project, and you can expect that project at a specific point in time.
Which Project Work Best With the Firm-Fixed Model?
Traditionally, the firm-fixed engagement model has been primarily leveraged by outsourced teams. That still rings true. In-house teams have little to gain from firm-fixed, since it locks you into a less-agile framework for project development. With in-house teams (both salaried and sourced), it makes sense to use agile models that emphasize iterations, continuous adjustments, and consistent re-works. Everyone is on-site, deeply integrated with your company, and juggling multiple high-impact projects.
Outsourced teams exist in a different space. Firm-fixed helps you align everyone to a clear-cut goal with hyper-predictable cost structures and timelines. You may not want your outsourced team to have the potential to scope creep your project, add costs onto the dev cycle, or miss that ever-so-important deadline. Firm-fixed bakes project requirements directly into the contract.
So, when we look at projects, firm-fixed works great with zero-to-launch projects that have an identified scope. These are things like websites, portals, small software programs, and extensions or updates on apps. Firm-fixed lets you cut through the grease, identify requirements, and get results all within a predictable budget. However, zero-to-launch projects that have a mid-horizon timetable (think +1 year) may not work well with firm-fixed, since you lose agility and the ability to rapidly adjust project requirements to changes in the marketplace or consumer behaviors.
To help clarify the value of the firm-fixed engagement model, let’s look at some recent statistics from PMI’s Pulse of the Profession — which surveyed +3,000 project managers, 200 senior execs, and 510 PMO directors:
- 43% of projects go over their original budget.
- 49% of projects go over the original timeline.
- 49% of projects experience scope creep.
- 14% of projects outright fail.
In other words, almost half of projects go over budget, over the timetable, and over scope. That’s a big problem! Firm-fixed provides you with an easy-to-use model that circumvents these types of common project issues. Sure. You lose some agility on the front-end, but for zero-to-launch projects that can be completed in under 1 year, firm-fixed is a more affordable, approachable, and predictable model than Agile.
Your Model; Your Way
Creating, launching, and maintaining amazing IT projects isn’t easy. We can help. At Mobomo, we specialize in best-fit project execution. Whether you want a rapid-fire project on a firm-fixed contract or a long-term behemoth that’s agile and purpose-driven, we can deliver incredible projects that impress boards, amaze customers, and win revenue. Contact us to learn more.