This week I was asked what is the most optimal way of delivering an ITOM solution. We’ve never really been asked this so I thought we should write down our thoughts.
Firstly what is “optimal”? We would define optimal is where the customer receives a positive return on their investment. This is often a critical factor when developing a business case for funding within an organisation. The success of a positive return on investment is frequently dependent on user and process adoption. Meaning that the client has adopted the technology fully and it has been embedded in their value chain processes, plus delivery hasn’t taken forever and the price to deliver was on budget.
Most customers of our customers assume that Fixed Price is the only way to go for large projects because it’s certainly our most popular delivery model. We suspect they do this for good reasons, namely they want their services provider to have guaranteed outcomes with budget certainty. However, to achieve an optimal delivery, we don’t necessarily think the Fixed Price delivery model by itself is the most optimal. For that, we propose a Hybrid model below.
These are the most common delivery models we encounter:
- Fixed Price (Fixed Outcomes)
- Time and Materials (Flexible outcomes)
- Hybrid (Both fixed and variable outcomes)
Fixed Price + Fixed Outcomes
A Fixed Price engagement usually contains a fixed estimate to deliver a number of project requirements. This type of engagement requires a large amount of assessment upfront. It also includes a large number of assumptions and, most importantly, it includes a fairly significant risk factor.
There are a number of advantages namely,
- Fixed Price
- Defined delivery milestones
However, there are downsides:
- Additional cost (to account for risk)
- Strict terms
- Focus on managing change that often leads to a very transactional relationship
- Unforeseen requirements can often lead to additional costs
The biggest downside we see with Fixed Price is managing change and also frequently under scoping of user adoption and training. More often than not towards the end of a project, the budget is severely limited and the ability to absorb change is the lowest when it’s the most needed (when end users are starting to use the system). This causes conflict in the project and takes everyone further away from an optimal outcome.
Yet, there are big advantages to the Fixed Price delivery model. Namely when kicking off a new project for delivery of hardware, infrastructure and systems integration. These big items benefit from traditional waterfall methods of delivery and can generally be estimated with a high degree of accuracy.
Time and Materials (T&M) + Flexible Outcomes
In T&M engagements the customer plays a greater role in the delivery of the solution and carries the majority of risks. Within T&M the customer will manage the engineers (Staff Augmentation) and sometimes the integrator will manage them to guide them to an outcome (T&M). Pricing and upfront effort of scoping of these engagements is usually quite low. Since the customer is carrying the risk these engagements are typically the lowest cost way to gain skills to deliver complex solutions.
- Flexible requirements
- Relatively low cost
- Transparency of costs
- Uncertain timelines
- Higher customer cost & skills
- Undefined budget
The time & materials delivery model appeals to customers who value flexibility and want to run an agile or devops project execution.
Since there are advantages to both fixed and T&M projects we feel the most optimal way would be to use both in two phases. To deliver a complex solution platform fixed price is the right way to go, this is Phase 1. This is where the heavy lifting and complex part of the solution is completed.
In Phase 2 we commence configuring the solution to meet a business requirement or process is when T&M is the most optimal as resources can flex with the change management process. It also offers better value for the client because user requirements have the most uncertainty and are therefore priced accordingly.
What types of scope should be in each model:
- Fixed Price
- Infrastructure (hardware, virtual)
- Base software
- Systems Integration
- Critical Requirements (regulation etc)
- Time and Materials (Easily scoped)
- User interfaces
- Process adoption
- Configuration of the platform
Choosing the right model
Both fixed price and time and materials delivery models have their place and we see them go in and out of fashion. The hybrid approach is actually often adopted but it’s often accidental and is rarely defined upfront as the planned method of delivery.
For your next project, we suggest you consider a hybrid approach. Ultimately this type of delivery model will significantly reduce the pre-sales effort and delivery effort and provide you a much quicker time to value.