How the Cone of Uncertainty Impacts Digital Projects
In this post, we explore how the Cone of Uncertainty impacts digital projects and how you can use it to improve collaboration and build something better, faster, cheaper instead.
The model of estimating a flat fee for a fixed scope on complex digital projects sets teams up for potential failure. While project stakeholders may clearly understand desired outcomes at project start, no one can possibly know every project detail at the outset.
In project management parlance, this time between project negotiation and a better understanding of exact specifications is what is referred to as the Cone of Uncertainty. If not handled effectively, it can wreak havoc on your projects.
A Broken Process
Agencies that take on fixed bid-fixed scope projects set themselves—and their projects—up for failure. When out-of-scope requests arise, no matter how great the idea, they have to push back to adhere to budget or timeline.
Clients are frustrated when told new ideas—which could potentially elevate final product quality—will incur additional costs or delay target deadlines. In these situations, the freedom of both client and agency to collaborate on the best potential outcomes is limited. This is one of many reasons why RFPs are problematic.
Time and again, project teams compromise creativity and quality in the name of staying true to contractual commitments. This constraint means agencies build mediocre products that only minimally satisfy client and end-user needs.
Worse, many clients are stuck in a set it and forget it mindset. They don’t try to improve products over time based on collected data. This wastes valuable opportunities to reach target goals faster. Why not strive for the best possible outcomes from the start? Is it possible to embrace a collaborative, creative approach while maintaining deadlines and budgets?
It is, if project stakeholders are willing to collectively take on some risk.
The Cone of Uncertainty
Budgets and timelines are often based on specific project elements. Because of this, clients write exhaustive RFPs outlining as many project variables as possible. Digital agencies—or any service provider working on large projects, for that matter—compensate by estimating high up front.
This negotiation is time- and resource-intensive. Plus, it generally yields inaccurate results. The bidding agency often quotes as much as four times what an actual implementation will cost.
The cone of uncertainty concept originated pre-internet, in 1950s engineering and construction management. However, it very much applies to today’s digital projects. The premise is that any project has a diminishing range of uncertainty during its life cycle.
Unfortunately, in the case of most digital projects, teams complete all financial and contractual negotiations up front—during the period of highest uncertainty. And that’s a significant problem.
While detailed specs are helpful, committing to every task, feature, and design requirement up front restricts freedom to build a better product. In reality, once everyone rolls up their sleeves and dives into the project, great ideas arise. Discovery workshops lead to brilliant new feature requests. UX sessions lead to customer insights that perhaps weren’t considered during the negotiation process. But the two parties have already agreed to their terms.
Culture of ‘No’
This fixed bid-fixed scope approach sets up a project culture based on negativity. By constantly trying to maintain scope, budget, and legal obligations, agencies have no choice but to gently rebuff requests not discussed up front. It would serve project stakeholders better to ground the relationship in trust and mutual respect.
Sure, you can put all the new ideas into a ‘phase two’ list for later implementation. But what if some of those ideas could fundamentally change the project’s potential for success? Why not embrace the cone of uncertainty instead and just admit you don’t know everything? Both parties can re-prioritize features and budget, then move forward together to pursue something of higher value to all. Unfortunately, that’s not how many projects work.
If you embrace all the great ideas that arise as you learn new things, you also have to embrace a shifting scope. The cone of uncertainty dictates this. Otherwise, you’ll have an elephant-sized project that balloons in scope yet shrinks in profitability. Plus, relationships will become strained every time new ideas are met with “sorry.”
Embracing the Cone of Uncertainty With Agile
We have been writing about agile methods for many years now. We employ them when it makes sense for a project. They’re not a perfect fit for every project, but work well on those with a larger scope. Agile methods dictate breaking projects into small, manageable chunks with built-in mechanisms for feedback and collaboration through ongoing user research and testing.
Agile firms weigh variability and commit to working on the highest value deliverables first rather than making promises up front. These high-value deliverables solve the biggest problems first and leave lesser challenges to later in the project, when timeline and budget might be tighter. This helps them mitigate risk and use the cone of uncertainty to everyone’s advantage.
More importantly, an agile project requires that business relationships are based on mutual trust and a commitment to providing the best solution possible.
Specifically, Agile requires that teams commit to:
- Regular communication about timing, budget, feedback, etc.
- Ongoing, hands-on collaboration and shared learning
- The freedom to extend or stop the project when it makes most sense
Making Agile Work in Business
Time makes up your life, so wasting it is actually a slow form of suicide.— Jeff Sutherland, author of Scrum: The Art of Doing Twice the Work in Half the Time
In his book Scrum: The Art of Doing Twice the Work in Half the Time, Jeff Sutherland tells the story of a software company that nails this. (Scrum is an iterative and incremental agile software development framework for managing product development.) In Sutherland’s story, the software firm and client both come out winners. Project details were as follows:
- Software firm provides a project estimate, clearly stating that they embrace all its unknowns and that those unknowns could affect timing and deliverables.
- The firm will use agile methods to focus on highest value deliverables first. These deliverables will be provided in agreed upon increments that drive billing.
- The client can cancel the project at any time for a kill fee that represents a small percentage of the overall project.
In Sutherland’s story, the firm’s estimate stated that the project would likely take 20 months. By focusing on highest value deliverables, the firm delivered what the client needed in only four months, so the client stopped the project. The client saved a significant amount of money by taking this approach. The software team only worked a small portion of what they anticipated. The firm received a project kill fee of 20%. This increased profit margins and opened up the team’s schedule to pursue other projects.
Embracing Agility on Your Next Project
Companies that embrace these practices will form longer-term client relationships. Budget, timing and expectations are managed. However, neither party is making promises that they ultimately cannot keep. Clients get higher quality digital solutions faster. Users are happy. Digital agencies better manage profitability. Trust is maintained, so relationships thrive. Everyone wins.
If you want to learn more about moving toward agile processes, read our post How to Transition from Waterfall to Agile Methods. Better yet, download our agile white paper below.