Managing Requirements Risk is key to Project Success

In recent days the IT industry has seen strong companies becoming stronger and the tier II or tier III companies struggling for keeping its identity intact. For managing reasonable growth, particularly for listed companies it is important to show growth quarter on quarter to please the Shareholders, analysts and other stake holders. Such reporting brings accountability on Management. Accountability is highly correlated to ability to deliver results. Needless to say 10-15% companies have established ability to deliver, others struggle to define themselves, find unique place and establish differentiators. In absence of clear differentiators it is hard to manage growth. The market pressure puts a strain on sales engine and sales tend to get into a Pseudo Differentiator Syndrome. The company starts differentiating itself on Lower Fixed Price even for a relatively undefined set of requirements. Unfortunately customers tend to fall in the trap of lower price and committed delivery. At the end of the day as the requirement is relatively undefined, it leads to a series of commitment failures which leads to unsatisfied customers and loss of business. It does not help anyone; neither the vendor nor the customer.

Let us spend some time in understanding the Fixed Price work. Fixed price work brings accountability on part of the vendor and it gives a delivery commitment to the customer. Obviously, the requirement needs to be well defined and understood before such a deal is struck between the client and the vendor. Invariably, both the client and the vendor gets into a trap. Vendor gets a tendency to differentiate itself on Fixed lower price even though the requirement is not clearly outlined. The client gets into a trap of going with the vendor who gives a go-ahead all the time. This is dangerous as it leads to Project failure, unsatisfied customer and loss of business for the Vendor.

Risk is a part of any business. There is no reward without risk. Therefore, while accepting a job a reasonable level of risk is necessary. Any business cannot prosper without taking a risk. I suggest the following three factors framework which will arrest the situations described in foregoing para.

1. Requirements Uncertainty: Variations expected in requirements.

2. Skill unavailability: Measures if the vendor has right skill sets to deliver. High unavailability means lower delivery possibilities.

3. Time unavailability: This dimension measures the expected time duration by the client vis-à-vis available time to deliver the requirements. High time unavailability means high stretch being committed.

A project scenario should be evaluated either on High or Low parameters. Low on all three parameters is the best situation for a vendor and also for the project success. A High on all three is a “Death Trap”. Vendor should avoid such traps. Invariably vendors get into such traps following “Pseudo Differentiation Syndrome”. High on all three is not taking risk rather it is committing suicide. Other combinations of High and Low can be examined by decision taken based on the risk appetite of the vendor.

Similarly, the client should evaluate project scenario’s on above parameters and match its assessment with vendor’s offerings. A close match will lead to a healthy relationship and project success.
Requirement Risk Management is the key to project success. The three factors described above are three critical dimensions for evaluating risks associated with a requirement.

Needless to say understanding Requirement risk and managing them appropriately is the key to Project success.