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Project Management Case Study – Max Wideman’s Custom Woodworking Case Study – Part 4

July 7, 2010

Before proceeding, you should read Project Management Case Study – Max Wideman’s Custom Woodworking Case Study – Part 1,  Part 2 and Part 3.

In part 3 we left off talking about the planning slide.  I shared my thoughts about the first paragraph and told you I would share my thoughts on the rest of the slide in my next post.  Here we are!

In paragraph two, while I like that Kim has put aside money for contingencies, I am concerned about how the project is being  budgeted.  First, I question why the same amount is being budgeted each month.  It would be rare for a project budget usage to be so uniform.  Another question I have is what is the budget based upon?  I see no supporting documentation of the budget or breakdown of the work.

It feels like the budget is being  determined from up above and that is another red flag for me.  A project budget should be based on the work being done on the project, which is in turn determined by those doing the work.  Budgets that are not determined and verified by the project team will not be accurate or realistic.

The biggest problem I have with Kim’s budget is that he has “carefully locked the chart away in his drawer for future reference”.  A project budget is a governing document which should be shared with the project team and key stakeholders.  It  should be referenced regularly to measure progress and adherence to budget.  It does no one any good locked in a drawer.

Now that I have beaten up paragraph two, I will move on to paragraph three and four.  I will deal with both at the same time because they are so closely related.  I have many questions about these two paragraphs.  I will make the normal disclaimers, I am not a lawyer and I cannot and will not give any legal advice.  I will instead offer guidance and the voice of experience.

Fixed price contracts always make me nervous.  Many times organizations will send out requests for proposal (or some similar instrument) and choose the vendor with the lowest price.  End of story.  Often these organizations are comparing “apples and oranges”.  When considering vendors, you must consider the 360 degree view of the purchase including the total cost of ownership (TCO).  What you pay now for a product or service may be very different from the total cost of ownership.

For example, a company may purchase a software solution.  They have reviewed the vendors and gone with the lowest price vendor.  What they may not have considered is the configuration and tailoring the software solution will require, the hardware required to run that software solution, the software solution’s compatibility with existing systems, future maintenance, licensing and upgrade costs.  The list goes on.  I will spare you the gory details.  What started out as the lowest cost solution from a purchase price standpoint, could end up to be the highest TCO solution.

For reasons on both sides, Moneysworth moved from a fixed price contract to a “fully reimbursable contract”. Mention is made later about a cost-plus scenario with EID charging costs plus for their work and negotiating fixed price contracts with their subcontractors.  Hmmm.  Sounds reasonable, right?  I would want a clear definition of what they mean by “fully reimbursable contract”, cost-plus and fixed price contracts with their subcontractors.  I would also want to understand everyone’s level of liability in case there are problems.  What if things don’t work out with one or more of the subcontractors?  How will that impact the project? What will EID do to prevent that from happening?

Contracts require careful review and understanding.  The organization’s legal counsel/department should always preside over these negotiations.  Purchasing and procurement agents should also be involved.   Another important point from a project management perspective is that contract negotiation and approval takes time and effort – plan accordingly and start the process as soon as possible.

Before we move on to the next slide/stage/phase, a couple of questions for you:

  • Did you see any issues that I did not mention?
  • Does the plan meet the customers’/stakeholders’ requirements?
  • How comfortable would you be with this project at this stage?  What’s missing?
  • What questions do you have?

In the next post we will be looking at the design slide.  See you then.

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