How to Handle Scope Creep in Your AE Firm
A well-defined project scope sets the framework for the project plan, including phases, tasks and timeline. It also establishes the resources required to do the work, the internal budget and the amount and schedule for client payments. To meet or exceed the target profit margin, the project manager must coordinate all the moving parts to achieve key milestones while staying in-bounds of the plan’s budgetary limits.
Plans and specifications inevitably change as the project progresses through its various phases. The contract should specify the means to handle change.
Scope creep occurs when adjustments to approved design specifications carry an expectation of no change to the budget, timeline or allotted resources. Some changes can be accommodated without renegotiating the terms of the deal if the impact is relatively small or the project manager chooses to prioritize client relations above profit. Others throw the project manager’s orderly world into chaos if left unattended.
Many factors contribute to scope creep:
- The project development team did not spend enough time with the client to gain a detailed understanding of the requirements. A poorly crafted project definition or statement of work failed to unearth the disparity between client expectations and the firm’s proposed deliverables.
- The estimator failed to understand the complexity of the project and did not allow for sufficient time, money or resources to meet the firm’s contractual obligations.
- The proposal failed to document the firm’s policies and procedures for addressing extra service requests or deliverables, placing the project manager in the awkward position of having to negotiate with the client on the fly and, hopefully, amend the contract.
- The project manager did not communicate effectively with the project team to define the project scope and discuss the means through which adjustments will be handled. This failure can lead to poor timesheet management practices and/or undocumented verbal agreements between lower level employees and the client.
- A shrewd (or unscrupulous) client uses scope creep as a means to get extra work without paying for it.
Managing scope creep begins with effective client communication. Pre-proposal discussions should be thorough enough that the project manager and/or estimator can build a detailed project plan. It should define major phases, tasks to be completed within each phase, resources required for each task, allotted timeline, and task dependencies that could potentially impede progress on the plan.
Ideally, the work uses a pre-existing template that reflects best practices and the firm’s history with similar projects. Once drafts of the project and budget are complete, peer review could reveal issues that might jeopardize the project manager’s ability to complete the project on time and within budget.
Refinements to the proposal and subsequent contract negotiation should ensure everyone is on the same page about the work to be completed, project deliverables, schedule and major milestones. It should also discuss the change management process, the rate schedules to be used and the players involved in negotiating the adjustments. Ongoing communication between the client and project manager should minimize unpleasant surprises on either side of the negotiating table.
Once the contract has been signed and resources allocated to the project, the project manager needs to meet with the team to communicate the project scope, review the project plan and establish guidelines and processes for handling change requests.
Every member of the team should feel a sense of urgency to complete tasks on time and within the allotted hours. They should understand how their work fits into the whole picture and how deviations from the schedule affect others. The project manager will also define requirements for timesheet submission and monitor adherence to the project plan and budget.
Should scope creep arise for which a negotiated adjustment in fees is not possible, the project manager needs to develop a response and consider the impact on billable hours and the bottom line. He or she should also determine the root cause of the problem to avoid the issue in the future.
Post mortems on projects offer opportunities for continuous process improvement. They can reveal required changes to policies and procedures, proposal and estimating tools, personnel assignments, client relations management or internal training and development practices.
While scope creep may be a dark cloud on the project manager’s horizon, a proactive and positive approach to turning weaknesses into strengths can be the silver lining.
Meet the Author
Gary Alongi, CPA, CCIFP®
Aldrich CPAs + Advisors LLP
Gary Alongi brings over two decades of experience helping his clients reach their highest level of success. His extensive knowledge of the construction industry allows him to provide value-added services that save clients money, helps them comply with regulations and requirements, and take advantage of opportunities helping them grow their business. American Institute of Certified... Read more Gary Alongi, CPA, CCIFP®
- Audit and assurance services
- Certified Public Accountant
- Overhead rate (FAR 31) audits and compliance
- Certified Construction Industry Financial Professional (CCIFP®)