Each week, project management veteran Tom Mochal provides valuable advice about how to plan and manage projects. Tom first describes a common problem scenario, based on real-life situations. He then offers a solution, using practical project management practices and techniques.
Our group often submits proposals in response to government RFPs. We try to take our best estimate—not too lean or too fat. However, our Sales Department then tries to win the business for 20-25 percent less than we estimated. If we win the business, top management expects the same high-quality deliverables but with a significantly impaired budget.
When we asked our sales staff about this problem, they said that they need to reduce the estimate to get the business and that we should then try to make up the difference by invoking change control whenever possible. We have taken this to our management, but they just say we need to figure it out. This process is demoralizing, but what can we do?
You are in a difficult situation, and one where there may not be a good answer. I think the general problem is that you want to work by a set of rules, but others in your organization don’t want to play by those rules. I recognize this problem and have faced it in the past as well.
For example, I can give great advice about managing scope, but I have been on projects where the clients would not recognize or respect the rules around scope change. They wanted their changes and they wanted them delivered for the same cost and schedule as before. It can be very frustrating.
In your case, it sounds like you are asked to estimate a piece of work. You deliver the estimate as requested, but then the salespeople ignore the estimate and make up their own, which you then have to live with. This is frustrating because it makes it hard to know what the rules are and what the expectations are. You have chosen a reasonable path of escalation but have not received support from your management.
I think if we could boil everything down to a process, life would be so much easier. But the hard part of project management is usually dealing with the “people” issues. To be fair, let’s consider the other side as well.
The salespeople must feel that they need to reduce the estimates to have a chance at the business. This could be to cover weaknesses in their sales processes, or this may be a fact of life if you are to get any projects at all. Of course, if you have no sales, you have no job. It would be worthwhile to better understand their motivations.
I have a few suggestions for you to consider:
- Talk with Sales again. Explain to them your team’s frustration. They asked you for an estimate. They cut your estimate. You cannot deliver what the customer wants for the budget they agreed to.
What suggestions (in addition to scope-change management) do they have for helping to constructively work out the situation? You may find, for example, that they don’t trust your numbers. If that is the case, you can work with them on the level of detail required to gain their confidence. But see if they can help you solve this problem so that both groups are more comfortable in the future.
- Negotiate on functionality. Normally, you could try to reduce some functionality to deliver within a lower budget. This may not be an option because you are dealing with a customer on a fixed bid. However, the place to start would be with your sales staff.
Do they see areas of scope that can be reduced or removed from the proposal before it is presented to the customer? If so, then there may be a way to commit to less but also to deliver the reduced scope at the price needed to win the business.
- Look for process improvements. There may be things you can do to reduce the cost of development. Can you hire less-expensive resources? Can you use new techniques that will allow faster delivery? Are there some testing techniques that would result in less rework? Can errors be caught earlier in the project life cycle?
You may be able to find ways to deliver the project for less effort and cost through process improvement.
- Revel in the challenge. Get yourself and your team fired up to the challenge of delivering within the reduced budget. Still prepare a reasonable estimate, but then try to raise the level of team productivity to deliver for less effort and cost. This tactic may be successful in the short to medium term, but it won’t work for every project over the long term.
- Play the game well. The situation you describe is not uncommon. On many fixed-price contracts, the revenue associated with change requests exceeds the price of the original estimate. Some project managers could bid a project at zero dollars and then make the entire project look like scope-change requests.
One option is to be very good at getting your budget dollars back through strict scope-change management. This may or may not appeal to you. Of course, keep fairness and honesty first. I’m talking about tight scope-change management, not cheating the customer.
- Pad the estimate. One option I mention but do not endorse is to pad the estimate. For instance, you could increase your estimates by 10 percent so that if your budget is cut by 10 percent, you can still deliver. The major disadvantage is that the additional dollars in the estimate might make the difference between winning and losing the business. It also introduces deception into the process, which is never good.
- Leave. I don’t know your track record in your environment. But if you don’t like the business model you work under and don’t want to play the game, then you may have to break the stalemate and go somewhere else where you can be more successful.
Starting a project with less money than you think you need is certainly uncomfortable. On many projects, it would be a recipe for failure. If you are in that situation often, and on purpose, I can understand how morale would be bad and it would be difficult to excel.
In most situations, you usually have three options: Fight for change, adapt, or flee. I have tried to represent options for each of these responses. I’m sure there are more as well. Good luck to you and your team as you decide how best to deal with your situation.
Project management veteran Tom Mochal is director of internal development at a software company in Atlanta. Most recently, he worked for the Coca-Cola Company, where he was responsible for deploying, training, and coaching the IS division on project management and life-cycle skills. He’s also worked for Eastman Kodak and Cap Gemini America and has developed a project management methodology called TenStep.
Do you have a question for The Project Management Mentor?
If you have a question for Tom Mochal, send it to us.