Getting a Good Deal

18 April, 2014

For project managers, wrapping up a project is difficult. The main problem is usually getting the customer to sign off on the end product or service. They always seem to want more. While dedicated Project Management Professionals (PMPs®) will prepare requirements traceability matrices and carefully follow the Validate Scope process, customers will still drag their heels when it comes to signing off that the work is complete.

Maybe a good way to understand this is to put the shoe on the other foot and look at our own behaviour when we commission someone to do work for us. If you have ever hired a builder, or a tradesman to do some work around the house, you will quickly learn that, once the money has been paid, that is the last you will see of your contractor! So you will naturally be reluctant to pay up until you are 100% satisfied that the work is done.

The problem is: we often do not know when the work is finished. That may seem a ridiculous statement, but it makes a lot of sense: if you were an expert at whatever the job is, you would do it yourself. A good example of this sort of work is having your car serviced: how do you know if the work has been carried out? How do you know if the correct oil was used – have you ever taken a sample and got it chemically analysed? How do you know if the correct parts were used, or even if any parts were changed at all?

Academics have agonized over this problem for years – they have even come up with a theoretical framework to explain it, called “Agency Theory”. According to Kathleen Eisenhardt, Agency Theory “considers the optimal contract form for that ubiquitous control relationship in which one person, the principal, delegates work to another, the agent.” In our own projects, we empower our team members to do some of the project work and we contract out other bits to third parties.

In the case of our own team members, we know (or at least should know) what they are up to. In Agency Theory terms, we have “full information”. Because of this, our contract with the team members is “behaviour based”. That is why we pay our team members a salary – effectively offering them a time and materials contract.

However, when it comes to third-party suppliers, we have a situation where we have “incomplete information”. It these cases, the agent (the third-party) knows how the work is progressing, but the customer is often unsure. So, at the end of the day, when the agent comes to us and claims that the work is finished, how do we know?

This is why PMP® exam students have to study Project Procurements Management. This knowledge area is the only other area, besides integration, where a closing process is required. It is a major responsibility deciding if and when procured services are complete. Essentially project managers need to know exactly what it is they have contracted out and how to assess the end product.

If you work in an organization that uses GAMP (Good Automated Manufacturing Practice), you will be familiar with FAT, SAT and UAT (Field, Site and User Acceptance Tests). These force the third-party supplier to demonstrate that the product or service is complete and works correctly. Often these acceptance tests are developed by the third-party, so the contractor is being given responsibility for assuring the customer that the product is acceptable.

A good project manager will not allow this to happen. Any PMP® should have defined detailed requirements before putting any work out to tender. S/he should also understand clearly what the outcomes of any contract are and have a rigorous set of acceptance tests prepared that exercise all the desired functionality. There also should be tests that assess the durability and long-term reliability of the products or services supplied. If reliability is important, a warranty agreement needs to be negotiated to provide assurance down the line.

Having looked at contracts from the other side, are we surprised to learn that our customers are reluctant to sign off on our efforts?  After putting great effort into getting PMP® certification, we need to apply what we know about Project Procurement Management to Project Scope Management and help our customers define what they want and how they can assure themselves that this is what is delivered at the end of the day. In terms of agency theory, we need to make sure our customers have full information. In terms of our PMP® training, we need to manage our stakeholder engagement.

In summary, if we commission a third-party to do work for us, we need to understand what it is we are looking for and be able to validate what they deliver. Similarly, if we provide something to our customers, we need to be clear what it is they want and be able to demonstrate, to their satisfaction, that we have delivered it. We also need to address long-term concerns and negotiate warranties and maintenance contracts.

A cynic once said that a good deal is where one party makes a good deal and the other party thinks s/he did. However, the Chinese have a better way of putting it: in China, a contract is not legally binding unless both parties benefit. For PMPs® this means not only carrying out the work as agreed, but also being able to demonstrate to our customers that the work has been done. Sadly, this is a step that is often forgotten, leading to a reluctance to sign off on work completed.

 For more information on procurement management, please consider one of our project management training courses. We hold our project management certification courses in Dublin, Cork, Limerick and Galway. Find out more by contacting us.

By Velopi Seamus Collins

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