Right now there is quite a bit of hype going around for value billing practices. There is a wide range of discussions about the topic and not all of them are good. Yes, some of the viewpoints are well thought out and articulated. I find them quite illuminating and have shared them with some clients. Some stated viewpoints on the topic are a bit heated and I’m not sure what to believe. One FileMaker developer is being accredited with saying that any developer doing hourly billing is unethical. I haven’t been able to hunt down the particular place where that statement was made but it is inadvisable for any FileMaker developer to take it personally.
As some of you know, I’m studying to attain a certification called the Project Management Professional (PMP). Being able to place the initials of PMP after your name is recognized worldwide as a personal and professional achievement in project management knowledge. I am striving to be one of the few (perhaps the only) certified FileMaker developer that also has PMP certification to bring to the table. Whether that will make me special or a bit of a freak ... well the jury may still be out on that one.
Anyway, I’d like to let you know how (as I see it) the Project Management Institute has categorized billing contracts in the fourth edition of the Project Management Body Of Knowledge (PMBOK). This doesn’t mean it should be considered gospel by any means but I think you might find it worthwhile to absorb. If you are working with (or wanting to work with) a larger corporation, knowing the PMI slant on things may be a significant advantage to you.
The PMBOK discusses contract types on pages 322 - 324 in the chapter that deals with the Project Procurement Management. It breaks the topic into three broad categories of Fixed Price, Cost Reimbursable and Time & Materials. You might find it interesting to note that Time & Materials is considered a hybrid-type and not nearly as frequent as the other two. This viewpoint lends some credence to some of the points “Value Based Billing” advocates keep making.
FIXED PRICE CONTRACTS
The PMBOK breaks these down into three subcategories and they are firm fixed price (FFP), fixed price incentive (FPIF) and fixed price economic price adjustment (FP-EPA).. Firm fixed price doesn’t really need much clarification but feel free to do so via commenting on this blog post. Fixed price incentive is pretty straight forward as well. An incentive to the seller may be awarded for meeting / exceeding goals in regards to cost, time, quality or other determined factor. Fixed price with economic price adjustment is used in very long term projects in which some economic factor needs to be taken into account. One example that comes to mind is if you are to fly to a client location once a month for a week onsite and the costs of transportation soar (as they can do).
This is broken down into three subcategories by the PMBOK as well. They are cost plus fixed fee (CPFF), cost plus incentive (CPIF) and cost plus award (CPAF). The names pretty well describe the process but feel free to look into them more detail.
TIME AND MATERIALS
The acquisition of experts and staff augmentation are the two big reasons the PMBOK guides says the time & material contracts come into play. It also says this is often used when a precise statement of work cannot be quickly prescribed. Does that sound familiar to you and your consulting business?
NOW LETS CHAT A BIT ABOUT RISK
The general impression I’ve gotten from all the project management training I’ve received in the last year have come back to managing risk. Project managers right now have two big tasks to handle and they are to manage communication and to manage risk. If we were to say that “value billing” equals “fixed price contract”, then most project managers agree it is less risky for the buyer. The risk is solely upon the seller because they agreed to a fixed price contract (either in writing or verbally). In this regard in FileMaker development for hire, I’m talking about scope definition and acceptance criteria. These are two big risks in any FileMaker project for hire.
If you are a risk adverse business person, then value based billing might not be your cup of tea. If you are risk seeker or risk tolerant, then value based billing may be a sweet addition to your business strategy. Remember that risk acceptance (and managing it correctly) can be very beneficial to any company.
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© 2009 - Dwayne Wright - dwaynewright.com
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