Do you choose a fixed price or post calculation for your project?
When you purchase a project as a buyer, manager or CEO, you have to make an important choice: do you opt for actual costing or a fixed price project? The difference between these two forms of contract affects the success of your project, both financially and in terms of flexibility. Here we explain what each type of project entails, why actual costing is often cheaper and what risks you should consider.
The advantages and disadvantages of a post-calculation project
A post-calculation project is funded based on the actual hours and costs that are incurred during the execution of the project. This means that you only pay for what has actually been done, without having to commit an amount in advance. Sounds appealing, right? It, like everything else, has advantages and disadvantages.
Pro: You only pay for the work that has been done, which is often cheaper than a fixed price.
Pro: Specifications can be adjusted during the project. This offers room for improvements and changes.
Pro: As a customer, you are intensively involved during the project, which enables you to actively shape the end result.
Con: The final costs are only known afterwards
Con: It can be difficult for buyers and managers to make an accurate budget, leading to less budget security.
Con: Due to the ability to determine and change specifications during the project, costs can increase.
Con: Risk is not part of the agreement. Improvements, modifications and repairs are charged as they are not covered by a risk assessment
The pros and cons of a fixed price project
With a fixed price project, a fixed amount is agreed in advance for the entire project. This offers security, but can also limit you in flexibility.
Pro: You know exactly how much the project will cost, regardless of the number of hours or materials.
Pro: The specifications and conditions are fixed, which offers clarity for both customer and contractor.
Con: Because the contractor must hedge against risks, an extra margin is often added to the price.
Con: Changes in specifications during the project do not fit the budget or often lead to additional costs due to a lack of flexibility.
Con: It is often not clear at the start of a project exactly what is needed, so estimating a fixed price is not realistic.
Do you choose fixed price or actual costing?
In practice, it is often the case that the exact requirements are not yet clear in the first phase of a project. What you want to achieve, but not the details. This makes it almost impossible to estimate a fixed price because the scope of the project is too vague.
A subsequent calculation offers a solution here. Because the costs depend on the actual implementation, the project can be adapted more flexibly to changing needs and insights. And because you only pay for what actually happens, it is often a cheaper option for both the customer and the contractor.
Are the product scope and specifications clear? Then opt for a fixed price. Then you also have absolute budget security.
Fixed price, actual costing, or hybrid?
As you read, there is no single right answer. Each type of contract has its advantages and disadvantages. Actual costing offers flexibility and can be cheaper; a fixed price actually provides certainty about the costs.
In some cases, a hybrid approach may be the best solution. Start a project based on actual costing until you are clear about the exact specifications and scope. Clear? Then you can switch to a fixed price model to guarantee budget security. This offers you the best of both worlds: flexibility in the initial phase and predictability in the implementation phase.
