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How the Cone of Uncertainty is Reshaping the Way We Do Business

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The way most companies bid on web design projects doesn’t work. Rather than assign a flat fee and a list of tasks at the beginning of a project, what if web companies and their clients could collaborate and build something better, faster, cheaper?

A Broken Process

The model of bidding for a flat fee on complex web projects is broken. It sets all parties up for potential failure. Agencies that take on these projects get frustrated because when out-of-scope requests arise, no matter how great the idea, they have to push back to adhere to budget or timeline. Clients get frustrated when they’re told new ideas, ones that were not discussed in the discovery process but that could elevate the quality of their final product, will incur additional costs or delay deadlines. In these situations, the freedom of both the client and the agency to collaborate and arrive at the best idea is limited.

Time and again, we compromise creativity in the name of staying true to contractual commitments. This constraint means agencies build mediocre products that only minimally satisfy the client’s needs and don’t stand out in an agency portfolio. So why not strive for the best possible project from the start? Is it possible to embrace a collaborative, creative approach while maintaining deadlines and budgets?

It is, if both the client and the agency are willing to take on a certain level of risk.

The Cone of Uncertainty

Since budgets and timelines are based on specific project elements, clients write exhaustive RFPs that outline as many project variables as possible. Web firms (or any service provider working on large projects, for that matter) compensate by estimating high up front. This negotiation is a time and resource-intensive process that generally yields inaccurate results, as the bidding agency often quotes as much as four times what an actual implementation will cost.

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. The concept originated pre-internet, in 1950s engineering and construction management, but it applies to today’s web projects. Its basic premise is that any project has a diminishing range of uncertainty during its life cycle.

 

Graphic illustrating the Cone of Uncertainty

An example from Agile in a Nutshell shows how the Cone of Uncertainty impacts estimate variability and project workflow.

Unfortunately in the case of many web projects, all financial and contractual negotiations are completed upfront, during the period of highest uncertainty. And that’s too bad.

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 approach also sets up a project culture based on negativity rather than an aspirational one based on trust and mutual respect. By constantly trying to maintain scope, budget and legal obligations, the contracted firm has no choice but to gently rebuff most requests that weren’t discussed up front. Sure, you can put all the new ideas into a ‘phase two’ list for later implementation, but what if some of those ideas were of such high value that they fundamentally change the project’s potential for success?

You’ll have an elephant-sized project that will balloon in scope yet shrink in profitability if you embrace all the great ideas generated, yet you have a client relationship that suffers every time new ideas are met with “sorry.” It’s a lose-lose situation. But it doesn’t have to be.

Putting Value First With Agile

We have been writing about agile methods for several years now and employ them whenever possible. They’re not a perfect fit for every project, but work well on those of larger scope. Agile methods dictate breaking projects into small, manageable chunks with built-in mechanisms for feedback and collaboration.

To mitigate risk, rather than making promises up front, the agile firm weighs variability and commits to working on the highest value deliverables first. These high-value deliverables solve the biggest problems first and leave the lesser challenges to future project phases where timeline and budget might be tighter.

This approach also necessitates creating truly functional deliverables. On an agile web project, one of the earliest artifacts might be, for example, a working content management system (CMS). It may not be themed as you prefer or have all the bells and whistles you want, but it works. From a marketing standpoint, an agile approach might mean first implementing strategies that will result in the greatest ROI, then fixing the little things later.

More importantly, an agile project requires that business relationships be based on mutual trust and commitment to providing the best solution possible. It requires that parties commit to:

  • Regular communication about timing, budget, feedback, etc.
  • Ongoing hands-on collaboration
  • The freedom to extend or stop the project when it makes most sense

Making Agile Work in Business

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 significant amounts of money by doing this, and though the software team only worked a small portion of what they anticipated, their firm received a project kill fee of 20%, which increased their profit margin and opened up the team’s schedule to pursue other projects. Everybody won.

Go Forth and Be Agile!

Companies that embrace these practices will form longer-term client relationships because budget, timing and expectations are managed, but neither party is making promises that they ultimately cannot keep. Clients get higher quality web solutions faster. Users are happy. Web firms better manage profitability. Trust is maintained. And it’s a glorious day.

Tim Frick is the author of four books including, most recently, Designing for Sustainability: A Guide to Building Greener Digital Products and Services, from O'Reilly Media. He is @timfrick on Twitter. Mightybytes is a full-service creative firm for conscious companies and a certified B Corporation. Connect with us on Twitter or fill out our contact form.