why don’t the leaders get to the root cause of the problem?
Lay-offs, Lay-offs, Lay-offs, we are hearing and even experienced if we are a part of the corporate world.
Does the problem lie in the Market Place? or slow economy?
Does it affect only a selected group of people on the corporate ladder and not the leaders?
The answer is NO. . .
Are the only solutions — A reduction in Salary or Lay-offs . . Answer again is NO. .
As we don’t understand the problem at hand how can we arrive at the result?
Let’s try and understand the problem. . .
The problem lies at the ground level, so the leaders need to understand some details here. Let’s forget the main topic for a while and look at the ground level, where and how the work is done.
If you have been in the Software industry or the corporate world you would have been asked for what is called the ‘Estimates’. It could be the time estimates to arrive at the Cost Estimates. Now, the dictionary definition of the estimate is— “roughly calculate or judge the value, number, quantity, or extent of.” which is provided for the project work. This is how we calculate Time and Cost in the Software industry. This goes as the input to the Invoicing and that’s how we generate revenue which in turn is the salary of each one of us working for the industry.
What if the problem is this whole process. . .
The Current Scenario in a Corporate world
Whatsoever the technique for estimation we are failing and failing badly. The above picture depicts the Hire and Fire cycle which is due to the incorrect estimates we have in hand. Let me tell you this isn’t the case of a single project or a single company, it’s the scenario throughout the industry and beyond.
So, now we say we aren’t doing our math right?
well, the answer to this is NO. Estimates are one of the aspects we are failing at, yes it is the most important one but there’s a solution to it.
Not every one of us knows about contracting as it’s done by the leaders of any company as this is where the real business happens. Let’s try and understand contracting. I would not be going through all the types of contracts we could have but the two most important ones. The first one is the Fixed price contract, which is pretty straightforward, as the name implies, it has a fixed price. We know what work we are going to accomplish as a part of the project and so we know how much the client would be charged.
Now, let’s look at the other contract which we have, this is the one we use in the Software industry quite often as the industry is relatively new. It is called the ‘Time and Material’ Contract or T&M short.
“A time and material (T&M) contract is a type of contract in which the customer is charged for the amount of time and materials used during the completion of a project. The customer pays for the actual hours worked and the materials used, rather than a fixed price for the entire project. This type of contract is often used when the scope of the project is not well defined or if the project is expected to change during its completion. This type of contract allows for flexibility and can be beneficial for projects with a high degree of uncertainty or risk.”
This implies, in a Time & Material contract a supplier (IT Company, in our case) shouldn’t be giving any estimates at the beginning of the project as the amount of work done will only be known after the project and that’s when the actual Time/Cost can be given which leaves no room for the estimates!
Let’s look at the construction industry( the industry was born when humans began to build their shelters) which is a very good example. Even today any construction project doesn’t come up with an estimate at the start of the project! however, in a relatively new industry-” The software industry”, estimating is a key skill for a project manager’s existence! if you are an SME or Lead or a Project Manager you would be asked for the estimates with the confidence level in your project which is the norm.
Now, let’s look at the issues with estimating in a T&M contract.
When we don’t know how much work we are going to accomplish and we give an estimate of Man hours and cost, we fail miserably, this is the current situation in the software industry. This failure is leading to the cycle of Hire and fire.
If we bill the customers after the completion of the work we do fair business by getting paid right, paying our employees right, hiring when needed thus eliminating unexpected layoffs, and delivering what was expected. Sounds like a win-win situation? it very much could be.
This would also bring stability to the recruitment process as the hire and fire cycle stops employees would tend to stay in their current job too as there would be a comparatively lesser jobs in the market. This would end the chaos which can be seen in any company right now as people come and leave at a very high rate. As organizations would go past the ‘Storming’ stage of Tuckman’s 5 Stages of Team Development there would be stability.
However, to measure the progress we have different techniques like Schedule and Cost Indexes, etc.
This contracting solution is not just limited to the software industry, any industry or business that is new or has taken up a particular work for the first time, in short, the scope of the work is unknown so is the cost/time. Invoice post the work is done.
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