One of the prevailing superstitions in project management is the "fixed pie" assumption. In other words, both sides assume that the project results, speaking mathematically, are binary - either the team delivers the project on time or it doesn't; either the project is on budget or over, etc. Fortunately, negotiations are typically not like NBA Finals when team A meets team B in a seven-game series where the winner gets the Larry O'Brien Championship Trophy and the loser goes home empty-handed.
In my experience, situations on most projects are similar to the fable involving two kids quarrelling over the ownership of an orange. Finally, their father enters the room and, operating under the fixed pie assumption, cuts the orange in two equal halves distributing the fruit between the brother and the sister. Interestingly enough, the brother eats the orange and throws away the peel. The sister uses the peel from her half as an ingredient in pastry while disposing of the fruit.
The situations between customers and project teams are often similar to the fable described previously: the underlying interests, constraints and risk tolerances of both parties are rarely identical. The proverbial pie usually looks quite different to each party. Hence, a good project manager can increase the size of the pie by looking for things that are of low cost to him and his team and high value to the customers (and vice versa).
Consider the following interaction between an experienced construction project manager and a customer:
Customer: “I would like to add another clause to our contract. If the work on the new mall is not finished by the deadline in the contract, I want your company to pay a penalty of $5,000,000”
PM: “Hmm, we have already signed the contract without the late penalty clause; I am not sure how our management would react to that …”
Customer: “I am sorry, but I have been instructed by my boss not to proceed ahead without this modification to the contract”
PM: “And may I ask you why you guys feel the need to add this clause?”
Customer: “Our CEO is really anxious about hitting the deadline outlined in the contract. He had some bad experiences with construction subcontractors before and wants to ensure a timely completion …”
PM: “I just had an idea! You are very concerned about us finishing the construction on time and we are fairly confident in our ability to do so. Would you be open to the idea of adding (in addition to the penalty clause) a bonus provision to the contract if we finish ahead of the schedule? How does $3,000,000 sound? This way if we are late, we pay the penalty of five million and we finish ahead of schedule, you give us an additional three million”
What happened in this conversation? The hopeless situation was defused by the project manager who honed in on the difference in underlying interests. The customer's interests were deeply rooted in their extreme risk aversion; ensuring that the project is completed on time was paramount. The construction company, on the other hand, was more concerned about generating additional profit. Since they were fairly confident in their ability to finish this project on time, they willingly accepted the penalty clause with the addition of the bonus clause.
Please contact me directly via email at email@example.com or by phone +1-778-995-4396 if you have any project or portfolio management-related questions.
About the Author
Jamal Moustafaev, MBA, PMP – president and founder of Thinktank Consulting is an internationally acclaimed expert and speaker in the areas of project/portfolio management, scope definition, process improvement and corporate training. Jamal Moustafaev has done work for private-sector companies and government organizations in Canada, US, Asia, Europe and Middle East. Read Jamal’s Blog @ www.thinktankconsulting.ca
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Jamal is an author of two very popular books: Delivering Exceptional Project Results: A Practical Guide to Project Selection, Scoping, Estimation and Management and Project Scope Management: A Practical Guide to Requirements for Engineering, Product, Construction, IT and Enterprise Projects.