My wife Anne is a Road Warrior – not of the Dennis Hopper/Easy Rider variety, or even Thelma & Louise. She’s more like Charles Kuralt, “On the Road,” by herself, in search of Americana. I join her for segments of these road trips, stretching my weekends to catch up with her anywhere in the U.S. or Canada.
Most recently, Annie left in her trusty 2000 BMW in mid-September. I’ve flown out to join her in Detroit and Chicago, and just returned on Monday from Seattle. She expects to be on the move until Thanksgiving, except for a seven-day return (by plane) next week to maintain her local relationships.
Critical to Annie’s ability to navigate her favored “blue highways” successfully is a reliable vehicle. And critical to that reliability is our long-time mechanic Vahe Melkessetian who, with his brother Joe, runs J & V Auto Repair in Watertown, MA. For almost 20 years Vahe has maintained and repaired our cars and our kids’ cars to a point at which we take reliability for granted, even after 150-200,000 miles per vehicle.
This kind of service, of course, comes at a price. Vahe is a specialist and a craftsman. He anticipates mechanical problems and takes pride in our cars’ longevity (single-vehicle Howe Family record to date: 275,000 miles). The peace of mind that he provides is worth every cent of the $1,173.50 that we paid him in September to make sure that Annie’s car would navigate the projected 12-14,000 miles without a problem.
I didn’t come easily to this conclusion. In the early days of our relationship, I questioned the timeliness (and cost) of every oil filter and brake pad in Vahe’s preventive maintenance program. Even now, son Will regularly reminds me that I’m paying too much: “I can get this part off the Web and install it myself for half of what you’re paying Vahe,” he says.
“No doubt you can,” I respond, “but I’m paying Vahe for much more than his time and materials. I pay a premium for his experience, his expertise, his knowledge of how your mother and I use our cars, and for his responsiveness to even our smallest problems. Besides, I appreciate the fact that he has overhead to cover.”
In establishing an effective economic model for service providers, I cited a situation in the last issue of Howe’s Bayou ( Sitting in the Banker’s Seat ) in which my former client proposed to lie about his time in order to break even on a project that was misestimated and underwater. The article produced a number of responses, best articulated by Allen Falcon, President of Horizon Information Group , as follows:
I see similar issues in my field. Software and web developers often underestimate project scope or allow too many free changes into the project. This is understandable because estimating software projects is as much an art as a science and companies tend to want to please customers with small, incremental requests. The problem begins, though, when the vendor realizes that they have lost their margin, that the project is “upside down”.
Some vendors take the approach of going “all out” to wrap up what is now a money losing project as quickly as possible. Too many, however, tend to avoid working on the project unless resources are otherwise idle, resulting in a spiral of missed deadlines and payments. Too few vendors approach their clients honestly and admit that they have erred in either the original estimate or by allowing too many changes without additional funds.
The client, of course, has a role to play in this as well. One of my client companies has for two years been developing a next-generation successor to its core medical device product. Having completed most of the work in-house, they farmed out the remaining mechanical design and the software code-writing to an outside specialist, who got them 90% of the rest of the way before he got stalled.
Taking the project to another vendor, my client realized that the uncompleted portion was more like 30% than 10%, and the new vendor also is now approaching “upside down” status. This, despite the weekly project review meetings, the regular submission (and payment) of detailed invoices, and a continuing update of the project flow chart.
In both of these cases, the vendors simply haven’t been honest with my client – and perhaps not even honest with themselves – in determining the full scope of the project and their abilities to respond. On my client’s part, there has probably been too much patience and more trust than was justified in a new relationship.
My client is willing to acknowledge that the scope of the project may have been greater than anticipated. He’s even willing to pay for some of the vendor’s learning curve to supplement his “established expertise.” But the vendor , like my now good friend Vahe, has to earn that trust by his performance and by a candid up-front approach, which includes acknowledging his occasional limitations.
As Allen points out:
In my experience, most businesses understand that if you force your vendor to lose money, you end up losing more in the long run. These businesses appreciate the honesty and are most often willing to cancel or pay for small scope changes and, in many cases, adjust the overall cost for the project.
As a consultant, one of the most difficult and most rewarding successes is to prevent a project failure and save a good working relationship between a client and a vendor.
Amen.
Alligator Bites
Error by Design: A Case Study From the Big Dig
This February 9, 2003 article from the archives of The Boston Globe, researched and written by Raphael Lewis and Sean P. Murphy, fully illustrates all of the shortcomings described in the sidebar “Draining the Swamp,” detailing how a Bechtel subcontractor, Jay M. Cashman Inc., ended up with a contract overrun of 22 months and nearly 60%. It is a quick read, and a cautionary tale.
Draining the Swamp
Ten shortcomings common to service agreements:
- Inadequate definition of the scope of the project
- Lack of prior agreement about the acceptable end result
- Over-commitment to the low bid at the expense of competence, experience, and reliability
- Lack of effective performance incentives
- “Once we’ve won the bid, we’ll make it (profit) from the add-ons.”
- Failures in accountability due to lack of knowledgeable, experienced, and timely oversight by the customer
- Squeezing the vendor to preclude a reasonable margin on the basic contract
- Inadequate provision for contingencies (“Murphy’s Law”)
- Lack of communication about and documentation of change orders
- Failure to establish a framework of trust: reliance on the Agreement as the ultimate authority at the expense of constructive discussion / negotiation