Should I create a fantasy budget?

November 2006

"We started offering a series of fixed-price, fixed-scope services that have been very popular with our customers. Unfortunately, my staff consultants are so used to working on open-ended engagements that their hours usually run way over budget. How can I get them to stick to the plan?"

Mike: Fixed-price services work best when there's buy-in from the consultants who deliver the work. If your consultants don't feel you've allocated enough hours to do the job right, or if they think your methodology is flawed, they'll probably ignore your plan and try to "do the job the right way." So your first step is to discuss the cost overruns with your service team to see what's gone wrong.

Even with buy-in, of course, fixed-price services need firm project management and cost-tracking, preferably on a daily basis and on-site. In particular, you need to make sure your customers are holding up their end of the deal. If your client fails to provide essential data or access to key people, your consultants will have to put in extra hours--which should be immediately recorded as an extra-cost change order.

Should I create a fantasy budget?

September 2006

"One of our major clients just gave us two days to come up with a budget for
next year. It's a meaningless exercise, because we have no idea right now
what they'll need us to do. In fact, I'm sure our project champions just
want to make sure there's enough cash allocated for future work. How should
we respond?"

Mike: Don't try to build a bottoms-up budget based on specific hours and
tasks--that's clearly not what the client wants. Instead, offer a high-
level view of what you *could* realistically accomplish at three different
funding levels--bare bones, about right, and over the top. Focus on big
ideas and tangible deliverables, not line-item costs.

Of course, you need to make sure the client realizes that your discussions
are preliminary and not binding on you or the client. But I'm sure they
understand the situation. What your client really needs to know is simply
whether the total cost of a project is "bigger than a breadbox." The details
can be worked out later.