It very much depends on who asks. If we take that we talk about commercial projects (and we do talk that) from Customer perspective Time and Material projects are definitely not a safe business. But they may have some other qualities which in a specific situation matters much more. But this is the topic for another episode.
Let’s take the Supplier’s perspective. Time and Material is just a billing method. In fact, it does not define how risky it is at all, with the exception of cash flow risk. We all know two types of Time and Material projects which have completely different risk flavors. The first one is the so-called ‘With Deliverables’ and the second is ‘Man Pool’.
Time and Material project ‘With Deliverables’ is riskier. The only risk it mitigates is cash flow risk as we bill with time progress and spent cost. And obviously we do have the responsibility to deliver and obtain acceptance. And most likely we operate on naked rates without risk uplifts (unless paying party agrees to fund risk budget). Those projects by default should have internal risk budgets.
Man Pool – this one is a more interesting case for the Supplier. We don’t have an obligation to deliver deliverables (at least contractually) and all we do is to provide skills and capacity to the Customer. But can we say this is a risk-free business?
Most Common Risks for Man Pool
In principle longer and bigger engagement, more risky it is. So, what are the common risks for Man Pool projects?
Some, but not all, are presented below.
Resources Change Cost Rate – if we have longer engagement the chances, we will have to change personnel on ‘the flight’ is bigger. People change projects, management changes priorities for people on projects, people simply leave, and so on…
Need we replace people, not always we can fit a similar cost rate as originally planned.
Resources Change Rump up – if we have to change personnel on a project the new person has to take over. This could mean some handover time. Customers are not always willing to cover this.
Resources Change Unexpected Expenses – for some longer and bigger engagement international resources could be engaged. Any change on those could mean unexpected expenses. A one of the examples is resources planned offshore have to move on site. This drives a lot of additional costs.
Some costs are not visible at the beginning. A classic example of undercovered and difficult to assess is personal tax cost if ex-pat is working not in-home country. This cost can hit the project long after it is finished. Mostly after the fiscal year.
Hidden Project Management - this example happens not so rare one can think. Some projects sold as Time and Material Man Pool are not discussed enough with the customer how they are going to be managed in real. Both sides (supplier and customer) expect the other side will do.
Obviously legally statement of work does not make supplier responsible for this. But to make the customer happy quite often some project management is happening on supplier’s cost. Also, quite frequently project management delivered this way is not very effective, as not 100% legitimate.
Above is a just few examples of risks which what may impact Man Pool projects. In fact any projects.
Why We Should Care and What Can We Do
So, Yes Time and Material Man Pool projects can have a risk. The reality is many of them are not financially successful. But this can be managed. Risk should be acknowledged, defined, and quantified at the pricing phase.
"Time and Material Man Pool projects can be risky. Many of them are not financially successful because of risk"
Some risks like hidden project management can be managed upfront, by discussing with customer and addressing them clearly in Statement of Work.
But not all can. The risk which cannot be managed at the planning and contracting stage has to be planned financially.
Someone can say Hey, if I provide Mann Pool of resources on agreed rate card to the customer, does it make sense to define risk budget as I cannot make it part of the price? Why should I bother?
First if we know what risk we may have we can try to share a risk budget with the customer. May not work every time, but worth considering.
Secondly, for project manager not only customer is the sponsor but also the management of his own company. Projects have to be managed for customers and for internal sponsor at the same time.
To keep the quality of management, the project financial view should include potential risks. Internal sponsors want to be informed on the worst case they can expect financially form projects and see it managed.
Time and Material projects even those called Man Pool can and, in most cases, do have a risk. It should be managed. The risk, which cannot be managed at the planning - contracting phase, should be planned financially, even if it cannot drive the price.
We project managers should not be afraid to plan risk budgets on those types of projects. Modern pricing/quote tools allow us to plan and include adequate risk budgets into cost and into the price if we want it.