How firms can reduce the risks with fixed price contracts

University essay from Blekinge Tekniska Högskola/Institutionen för industriell ekonomi

Author: Alexander Aniol; [2017]

Keywords: ;

Abstract: Firms have had difficulties in dealing with the risks that occur when providing fixed price contracts (FP) for both small – scale and large – scale projects to involved customers. This is general for the most companies surveying customers with the development for a product or service in the IT – industry. Research has paid minimum attention on how firms can imple-ment scientific proven agile methods to reduce the risks with FP contracts to increase profit margin. In FP contracts, the risks lie on the supplier providing the contract, where research has shown that companies have issues in determining the project scope in the planning pro-cess and how they can find certain approaches for increasing the dialogue in a buyer and seller arrangement. Therefore, firms are more comfortable in going into Time and Material (T&M) arrangements where customers pay for the time and resources spent under a project process. This study also makes investigations on how firms can make accurate estimations of the development durations that occurs when providing this contracting form and how firms can identify risks into profitable pricing engagements. The study took ground in Lund, Swe-den at a company named Sigma Connectivity which is a firm developing services and prod-ucts based on wireless communication and the phenomenon called Internet Of Things (IoT).The delimitations that were made for this study was related to the marketing mix concept which conducts of seven strategies for business management of these seven strategies the choice was made to exclude exclude sustainable aspects, physical evidence, internal market-ing related to promotion, and location factors. Internal qualitative directive and semi – struc-tured interviews were methods used for determining variables and key issue with FP contracts that was included in the survey based approach to customers. Agile methods such as Feature Driven Development (FDD) and Work Breakdown Structure (WBS) were implemented in or-der to tackle the challenges of visualising a clear project scope description with clear specifi-cation on what is included in a FP contracts in small – scale and large – scale projects.The results conducted from this study shows that integrating scientific proven methods such as FDD and WBS in a firm, will help them to divide project processes into smaller mecha-nisms, which will provide sufficient access for an increased project scope allocation forcing the involved parties in a buyer and seller arrangement to hold both internal and external re-views which will enable the possibility of making pricing approaches during the project pro-cess. Results also shows that customers find FP contracts to be the most valuable but the diffi-culties that they have felt in this arrangement is to incorporate new ideas for a project scope change during a project process. The use of the FDD framework and WBS provided results that are vital for firms going into FP arrangements where clearer project scope definitions, key role identifications, increased pricing opportunities and communication channels were founded.Keywords: Fixed price contracts (FP), project scope, Work Breakdown Structure (WBS), Feature Driven development (FDD).

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