As a business and digital consultant for more than a decade. I have often had long debates with customers if they should pay by the hour (days) or a fixed price, which is agreed upfront. Having a software background, in our world, we would call it Agile i.e. focus on the end objective but not how we get there. This also comes bundled with adaptive planning and short cycles of planning/implementing. The other method is Waterfall , generally pre-planned and has series of steps all agreed in advance.
Most customers prefer Waterfall
There is no doubt that customers love 'no' surprises. Its widely believed by customers that a supplier has a magic wand to come up with precise pricing. In reality though, no two projects are the same. Even if two projects have exactly the same specification, the founders are different and hence they have different expectations and experiences. Hence the project will inevitably be different. No company, can precisely predict the time and cost involved, its therefore known as an estimate.
How does a supplier counter the unknown?
The supplier generally knows that its rather tricky to come up with accurate time estimates, hence they add a contingency or buffer. Its not abnormal for this to be 25-50%. In fact , a good supplier should have a large buffer to give the customer what they need. In my previous business, I used to add 40%, making us expensive but water-tight.
Almost any good project has a changing finish line or scope. Most supplier deliver projects in stages or by milestones. As the customer sees the progress, new thoughts kindle and Project definition changes. Projects worth $100,000 become $250,000 by the time the idea turns to reality. In fact, organisations like IBM make a significant amount of money on project change management.
How should a client protect their interest?
Keeping all these factors and potential cost of change management, how should the client plan their project? In my opinion, the ideal way to work with consultants is to:
1. Divide all the tasks into large headings, ideally produced by the supplier. Obviously, only after you have given them a proper brief or detailed explanation over the phone.
2. Now let them tell you in a document as to what they have understood. In addition providing milestones and phases for the project.
3. Award them the project and track the hours they are working.
4. Monitor them and their work, daily or every couple of days. Make sure they deliver what you had in your mind.
5. If they get it, results will be fairly evident. For smaller projects the results are out in the open within 7-14 days. If they don't get it, explain, correct and try again. If they still don't get it, fire them and find someone else!
That's how one finds a good supplier and gets work done on tight budgets