As a Project Sponsor, you are responsible for approving the Statement of Work (SOW). Before signing the SOW, you must thoroughly check project estimates. Checking the quality of effort estimate (cost) is one of the most critical tasks during the approval process.
Before signing SOW, you may have many questions about project estimates, like:
- Does the vendor has provided realistic estimates?
- Is the vendor overcharging?
- Is the vendor low balling now, and I may receive bitter surprises during the project?
In this post, I am sharing ten points you must check before approving the SOW. These points will guide you about the risks and common pitfalls. Use the following points as a checklist to manage risks due to the lousy estimates in SOW. Make sure to tick the following points before signing the SOW.
Let us have a look now:
1. Check Project Estimates to ensure coverage
Ensure that the vendor has covered the complete project scope. Sometimes, vendors skip critical project tasks in the SOW to keep the project cost low. However, during the project implementation, they come up as a bitter surprise. So, work with your team to check that the estimates cover the entire project scope.
2. Does assistance tasks have enough budget allowance?
This is another tactic to keep the project cost low during SOW approval. In every project, few tasks are the client’s (yours) responsibility. The vendor only assist you with these activities —for example, Data migration, User Acceptance Testing and End User training. To keep the project estimate low, vendors often include a minimal budget for these assistance activities. So, ensure that there is enough budget for the vendor’s assistance activities.
3. What are the assumptions?
All estimates have underlying assumptions. As a sponsor, you want to check those vendor assumptions are valid and realistic. So, carefully review the assumptions under which the vendor has prepared the estimate. Then, check if the assumptions are reasonable. For example, consider the following assumptions:
- Reports: The customer (you) is responsible for developing all the reports
- Standard reports: The customer will use standard ERP reports
With the above two assumptions, the vendor handballs the report development to your team. If there is no prior agreement on this, then you must raise all such assumptions with the vendor.
So, firstly ensure that the vendor list all assumptions clearly in SOW. Secondly, take time to understand and get an agreement on the assumptions with the vendor.
4. What exactly is the vendor delivering?
Get your team to review SOW to understand the project deliverables clearly. During project implementation, the vendor handles many deliverables and outcomes. For example, documentation, presentations, product showcase, support activities (Testing support, Training support). Ensure that SOW lists all the project deliverables, outcomes and associated estimates.
5. Role and responsibility of your team in the project
The SOW should clearly state what does vendor expect your team to do? The SOW should illustrate the role and responsibility of the vendor and your team. Get your team to review their commitment to the project. They must agree and onboard to take on the required work as per the plan. Any ambiguity on the responsibility of your team can be an unexpected cost. So, take the time upfront to understand the role of your team in the project.
6. QA the Project estimates
Do not assume that consulting rate, subtotal, totals are always correct in SOW. Check that the estimate within SOW has a correct consulting rate. Double-check the subtotals and totals in SOW. Ensure that the SOW includes any ongoing cost such as managed services. Any project expenses, such as travel; should be part of the estimates.
7. Check the experience of the vendor
During presales, you must assess the vendor’s expertise within the context of your project. The quality of the estimate is as good as the people who are as estimating it. So, suppose the vendor has a lot of experience in the projects like yours. In that case, there is a high probability that the vendor will provide solid estimates. But, if your project is a new concept to the vendor, then estimates can be a hit or miss.
8. How complex is your project
Uncertainly of the estimate is directly proportional to the project’s complexity. If your project is overly complex, then there are high chances of a low-quality estimate. So, always have a reasonable contingency to cover for unknowns during the implementation.
9. Specify budget contingency separately
Ensure that SOW lists any budget contingency separately. It will help you to track when the project is using a contingency budget. You can also set tight budget controls and safeguard budget contingency.
10. Have you given right amount of information to the vendor?
The quality of estimates depends on how much the vendor know about your project. If you have given a vague project brief, you should expect a rough ballpark estimate. But, if you provided detailed project background, objective, problem statements, then you should expect a quality estimate.
In summary, before signing the SOW, ensure that the project estimates are realistic. Evaluate your risks and develop risk management strategies during the commercial and contract negotiations. Finally, take the time it takes to be on top of it before SOW approval. It is worth it!
Use the above points as your checklist to validate estimates in SOW. Note that as an SOW approver, you are accountable for the project delivery. SOW is the baseline and agreement on deliverables, cost and plan between yourself and the vendor. So, make the required effort to ensure that the quality of estimates before signing the dotted lines.