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Fixed Price vs Fixed Budget

On the surface a fixed price project and a fixed budget project might seem the same, but they definitely are not! A Fixed Price Project the client and the consultant agree upon a fixed set of features at a fixed price. A Fixed Budget Project, the project expense will not exceed an agreed upon amount. Features will be prioritized and will be addressed until the budget is exhausted or the project is finished (whichever comes first). Both have a "not to exceed" budget, but that's where the similarities end.

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Fixed Price vs Fixed Budget

  1. 1. Fixed BudgetFixed Price vs FOCUS INFLATED BUDGET WORKS BEST Forces client to take a hard look at the requirements NO INFLATION WORKS BEST Feature set frozen High Risk, budgets have to be inflated Risk is on consultant With well knowing requirements such as painting a house FLEXIBLE Can add new features Time and Materials based Shared Risk Project Savings if it takes less time to complete Project costs the same even if it takes less time to complete UNFLEXIBLE With changing or unknown requirements. By definition software projects have high variability $$$ $$ Fix Priced and Fixed Budget projects might seem similar, but they are not. RISK RISK INCENTIVE Reduce cost to increase margin INCENTIVE Prioritize features to build the best product for the money FOCUS To implement features as quickly as possible