Tuesday, July 5, 2011

The Fastest Way to Kill Your ERP Budget is...

Three Simple© words - "Time and Materials"

Having made a living in the consulting world, I love to work on projects where the engagement is "time and materials" as opposed to "fixed deliverables".  The former reflects an agreement with a consultant where s/he will work on your problems while charging you for the time worked and materials consumed.  The later reflects an arrangement where the consultant is paid for achieving pre-defined milestones on a project or some other endeavor.

To defend those on the consulting side, it is very difficult, especially on large ERP projects, to accurately price an entire project composed of fixed deliverables.  There are several reasons for this.  First, the client will almost assuredly try to squeeze out-of-scope items into the deliverables.  Not a good situation to be in where you, as the consultant, have to constantly be the "bad cop" enforcing the contract.  Second, the nature of ERP projects is that they are human engineering endeavors as much as they are system implementations.  They involve a great deal of diplomacy, change management, and adaptability.  One recalcitrant team refusing to meet their deadlines can throw a carefully planned project off schedule/budget by 20%.

On the flip side, if your contract does not hold your consultants accountable to produce X service by Y date, you are setting yourself up for failure.  The consultant is (usually) not your friend and they are in the business to make as much money for as many services as possible.  If you give an opening, don't be surprised if they take it.

So what's the best way to proceed? (I'm not going to address the topic of change requests here...)

Tell your consulting service provider up front that you are going to insist on a "fixed deliverable" contract.  Then have a frank and honest discussion about how to create a plan that addresses your need to ensure value for what you pay while giving them a reasonable chance of meeting your expectations.  Be prepared to be a little more generous that you might have originally planned, knowing that you are setting up a situation where your service providers rightfully assume their share of the risk.

Good contract negotiations are not about conflict - they are about creating the most optimal conditions to ensure the reasonable success of all parties.

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