Thanks for your article. I enjoyed it. However, I do not think you go far enough. Over th past decade I have come to the conclusion that there is NO situation where time and materials is superior to a fixed price agreement. This does not mean that there are not change requests in fixed price projects, that does occur.
The problem is that T&M is based on a demonstrably false premise, that hours time rate equals value. This is NOT true. It is a derivative of Marx' (Karl, not Groucho) Labor Theory of Value. IT customer do not buy hours, they never have and they never will; they buy results.
As high rates of IT project failure continue unabated, CIOs should examine alternative approaches to pure time and materials implementation contracts. While traditional contracts offer maximum flexibility, which is appropriate for some situations, open-ended services on large projects place substantial risk on enterprise buyers.
Related
CIO backgrounder: Understanding packaged solutions
Since 2006, I have advocated packaged (also called productized) services and software solutions to combat the risks inherent in traditional implementation arrangements. Today, many enterprise software and services vendors offer packaged solutions, to help their enterprise customers reduce implementation cost and risk.
To explain key concepts behind packaged solutions, I recorded a short video, presented below [disclosure: I received compensation from SAP]. The video covers several key points:
What are fixed-price solutions? Fixed price projects achieve predictable outcomes by combining specific scope of work with a clear implementation process. Packaged solutions work their magic by standardizing the process around pre-defined components such as accelerators, roadmaps, and training materials.
When are packaged solutions a good fit? Consider these solutions to automate core processes that are substantially similar to those used by other companies in your industry. Custom implementations are better for better suited for unusual, highly differentiated processes that embody an organization’s “special sauce” of intellectual property and methods.
How does a modular approach reduce risk? Packaged solutions “chunk” an implementation into groups of smaller, modular projects. By aggregating these smaller project modules into a broader portfolio, the approach increases control and transparency into the implementation process. Perhaps an obvious point, but greater control and visibility are highly beneficial on complex projects.
To see a longer, more detailed version of this video, click here (registration required).
