Why sharing risk can be a risky business
Procurement departments within both Public Sector organisations and large Corporates are demanding that IT projects are delivered under a shared or offset risk contracts. The theory is that delivery partners will take on both delivery and integration risk for a given solution and the client will gain more certainty on delivery costs. But how does the reality match up to the promise?
On the ground these contract structures often prove problematic as delivery projects slip into a cycle of change requests, impact assessments and contract amendments, with client and system integrators ending up only being able to talk through their commercial teams rather than acting as partners invested in the same successful outcome.
So how can you increase the success of such projects, and why doesn’t the promise of risk sharing deliver?
An assessment of the maturity of your organisation in the following areas is key to the success of any fixed price project:
- Ability to be definitive about the outcome or requirements for the project
- Understanding of the project interfaces that you will be responsible for and your ability to fulfil them in a timely manner.
Failure in these two areas will contribute significant numbers of change requests to the supplier.
The engagement approach with the supplier is also crucial. Too many Programme Managers assume that having a weighty contract will assure a successful delivery outcome, but a contract is a legal rather than a delivery tool. When a contract is being referred to on a frequent basis it is a good indication of a project in distress.
Finally it is worth considering whether it is ever really possible to pass on your risk to a delivery partner. If a project is late, or worse fails to deliver at all, a shared risk contract will provide some level of financial compensation, but this may be of little comfort where delivery is time critical or where additional projects have ended up being required to address the project’s shortfall.