I had written two posts earlier on this topic. I wanted to explore a couple of other things to get this topic to a logical end.
We are clear that the value is what the customer thinks it’s worth. But there are a couple of other components – one is the price and the other is your cost of providing the service. One thing that I have learnt with service projects, in B2B customers, is that, they always take longer than planned. And costing is always done on the plan.
Since most of us are under pressure to pick up the deal, we don’t like the idea of putting in buffers for the project going over time, because we are afraid that competition will pick up the order because of the increase in price.
The over runs generally happen in the final stages of the project. If you were to think of the full project as an elephant walking through a gate, then, generally all the components of the project – the trunk, the ears, the 4 legs, everything comes out but the the tail gets stuck in the gate for some reason or the other.
This is the time that the final User Acceptance is getting done and because the user feels that she should not miss anything, she tries to ensure that all the “t”s are crossed and all the “I”s are dotted.
This is where your costs go higher than you had budgeted. The resources that you had thought will get off the project, can’t leave the project to start on another one. That is the people. Then there are the pieces of equipment and tools that are getting used in the project. You will be paying for all this. Without realising, slowly the actual profit starts falling.
The customer doesn’t realise this. If you take the argument of cost over-run to the procurement person, he will find all kinds of reasons to put you on the back foot and in most cases never pay-up.
So you need to figure out a way to ensure that your “Costs” actually take this into account when you give the “Price” to the customer and you need to figure out a way to show the “Value” to the customer. You also need to be clear on the process of signing off the project from the customer end. What kind of tests will they get done, what kind of reports will be needed, the kind of dashboards that will be needed. List out all the points up front while closing the order.
Till next time then …. make more profits