Last week I saw this post on reddit about one of the challenges of project management and freelancing.
After posting a brief response I thought the topic deserved some more detail.
The situation is common. A client has a project in mind but has not got the scope fully defined. The features and functions have not been defined. But they know they need to get going.
In addition the client needs to know the cost of the project.
The challenge with quoting with this type of project is that the scope, time to deliver and cost is unknown. But business being business you need to move ahead.
Several options exist and each has pros and cons.
You can read more about how to price your project in these other articles.
There is also lots of useful stuff on project management methodologies and how to start a project and checklists that you can use.
There are also some useful templates that you can use to start a project including a statement of work template. Also the most popular product, a simple to use template to price your project so that you can actually see if you will make or lose money.
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Option #1-Provide a Time and Materials (T&M) rate for your time.
This is usually expressed as a daily or hourly rate. A low risk approach for you but very hard for the client to understand the total cost of the project.
A time and materials engagement can be a quick way to start a project but is not usually suitable for a longer-term engagement.
If a client does not know their requirements then suggest that you can start on a time and materials basis and work with them to define the requirements or complete the design phase of the project. At the end of the design phase you will then know the scope of the project and can quote more accurately.
Option #2 Benchmark the quote
Use this option when you have done similar projects, either for the same client or different clients. Based on your experience of working on similar sized projects.
Suggest the price ranges for 3 different types of projects, for example small, medium, large. This allows the client to allocate some budget, and for you to have a commercial envelope to operate in.
Agree with the client that this is not a fixed price quote but an estimate based on similar projects and what you know now. When the client asks for more features or widgets, it allows you to go back and say that the extra work will mean that the project is no longer small but now medium and does the client approve the extra cost.
This gives some broad estimates and you draw down and charge against the budget envelope agreed with the client.
This option can be useful when the client is in the early stage of project initiation and could be preparing a business case to justify the investment.
The challenge with providing ranges when the scope and time to deliver is unknown is that any estimate acts like an anchor in the client’s estimation of the total project cost. So even if the scope increases the client has an anchor expectation of what they are willing to pay.
From Wikipedia. Anchoring or focalism is a cognitive bias that describes the common human tendency to rely too heavily on the first piece of information offered (the "anchor") when making decisions. During decision-making, anchoring occurs when individuals use an initial piece of information to make subsequent judgments. Once an anchor is set, other judgments are made by adjusting away from that anchor, and there is a bias toward interpreting other information around the anchor.
For more information on anchoring and the effect it has during contract negotiations and what you can do about it there is an excellent book called Thinking fast and Slow by Daniel Kahneman. An awesome book and it will help you update your approach to negotiations and thinking.
Option #3 Fix the work effort and cost.
This is often referred to time boxing. For example 10 web pages, including design, build, test and deploy is $X. Then if the client wants 12 pages the price goes up. This is nice and tight and keeps the project moving forward.
This is aligned to the agile project management method of delivering projects and the concepts of scrums.
To work effectively there needs to be a good working relationship between the client and the supplier. The communication needs to flow and the project cannot be delivered in a linear fashion. If marketing are giving the project requirements they need to come to the meeting with the developers so that questions can be asked and answered. The project managers need to be disciplined with the time allocated to each phase or spirit otherwise effort can be wasted and the client can become frustrated with progress.
In addition this method does require that the two teams have most of the tools and resources that they need to work. This will not work as well if the project needs to acquire equipment up front before even the most basic development can be done. However with much software now being offered on a subscription or freeium basis this is becoming less of an issue. For more useful resources, check out our resources section.
The iterative nature of delivering projects like this can often lead to innovation in the finished product or business process as it involves looping back to the original design.
For more detail on delivering innovation you can read about it here.
Option #4 Fix price up front
Probably the hardest for you and the client and slows down the creative process while they define the requirements.
If there really are no requirements or the scope is unknown this is a very risky approach for any supplier, contractor or freelancer.
However if the client is demanding a fixed price quote then you need to de risk the approach. The best approach is to be very explicit with what is in included and what is not included. For example you might include up to 10 days design in the scope and when the design process takes three weeks you can raise a change request.
Another de risking strategy is to make it very clear what are the deliverables that will be produced as part of the project. This could be documents or software. When you describe the deliverables you can define the acceptance criteria. For example a document might be the deliverable and the client has 3 days to review and provide feedback after which it is deemed accepted and payment is due for completion of that project milestone.
If a client has only a broad outline of the project but is seeking a quote, you have several options to choose from. There are advantages and disadvantages with each.
My preference is a hybrid model and is to agree with the client what can be fixed priced, and have a budget estimate for those areas, which cannot be priced because the scope and time is unknown.
For example three weeks of post go live support by 2 resources is very easy to fix price. The design elements could then be done under a T&M type arrangement.
Thanks for reading