Things I Learned Managing Fixed Price Agile Projects

When it comes to managing Agile projects, Jesse Fewell is the expert.  He’s one of the founders of the PMI Agile Community of Practice and a senior adviser on the PMI-ACP certification.  And he recently conducted a webinar on managing fixed-price Agile projects.  A fixed-price contract is essentially a vehicle for transferring cost risk from the customer to the service provider.  Consequently, it is incumbent on the service provider to manage that risk, in terms of deliverables, quality, and schedule.

Typically, risk is accepted at a premium, so a well-managed fixed price contract can be more profitable than a time and materials contract with the same SOW.  As the project manager, you are responsible for more than just the deliverables in the SOW.  You are also responsible for triggering invoices for progress payments and managing to the constraints specified in the contract.  Given that I’m currently managing two fixed-price Agile projects, I thought I’d add my observations.

  • When the price is fixed, change management is your only tool for staying out of the red.  Any change in scope has to be documented in a change order, and funded as provided for in the overall contract.  If the menu says dinner comes with soup or salad, you’ll have to pay extra to get both.  IT projects should be managed on the same basis.
  • Have a clear delineation of responsibility with the customer on the process for vetting and approving change requests.  By time the request gets to you, it should consist of “What will it cost us to change …” and it should have already been reviewed by the steering committee as something they are willing to approve funds to get.  Otherwise, you will find yourself typing up someone else’s letters to Santa Claus.
  • On a time and materials contract, activities are billable. On a fixed-price contract, your progress payments will be tied to specific, well-defined deliverablesWell-defined means there is an existing template for this deliverable, and it’s been delivered before on similar projects.
  • A well-written contract will have a clause that each deliverable will be deemed accepted unless specific objections are raised in some number of days.  Ensure your customer identifies who will inspect each deliverable, and briefs them on acceptance criteria and how much time they have to perform the inspection at the beginning of the project.  Make sure they understand their role.
  • Interaction with the customer is a key Agile tenet, but not all interaction is created equal.  Some meetings are necessary in order to produce the deliverables in the SOW.  Other meetings are necessary to manage the project and coordinate work planned and in progress.  Push back on all other meetings, because those are activities, and you’re not getting paid for them.
  • If you are unlucky enough to get a contract with both a fixed price and a fixed delivery date, you must put a due date on every client input, and document every delay.  This is especially true if there are liquidated damages in the contract.  Remind the customer that delays on critical path tasks delay the delivery date, day for day.  Yours are not the only feet facing the fire.
  • If change management is not in your SOW, it is not your responsibility.  But it is someone’s responsibility, and you need to keep one eye on them.  Ensure the customer understands the importance of communication, training, preparations for support of the system in production, and the dozens of other details, great and small.
  • The scope of testing has to be clearly defined, and acceptance criteria specified.  The pursuit of perfection is expensive; don’t let your fixed price lead to enhanced definitions of quality, “since it’s free.”
  • Be very clear on your responsibilities after delivery.  Ideally, it will be expressed in the SOW as a number of hours, over a period of weeks.  In any case, define up front when support begins, and when it ends.

Agile methods produce high quality results via iteration and refinement, but the iterations needn’t be endless. Agile projects can be managed to a cost target based on constraints such as time boxing and clear definitions of “done.”  The key is to be ruthless in enforcing agreed-to definitions of quality and completeness, and ensure your customer is holding up their end of the stick.