Examples of Incentive Contracts

Cost Plus Incentive Fee
Target Cost Target fee Target Price Sharing ratio Maximum Fee Minimum Fee Actual cost $300,000 $40,000 $340,000 80/20 $60,000 $10,000 $380,000

Fee Calculation Target fee $40,000 20% of ($300,000-$380,000)= -$16,000 Fee $24,000 Actual cost $380,000 Fee Final Price

$ 24,000 $404,000

SaipemP&CMod3 CC SLIDE51

Eni Corporate University

when both parties agree on the rates for the senior engineer category. or when the contract contains a not-to-exceed cost clause.Time and Material (T&M) .PMI • • • Hybrid type of contractual arrangement that contains aspects of both cost-reimbursable and fixed-price type arrangements Resemble cost-reimbursable type arrangements in that they are open ended But can also resemble fixed-price arrangements – For example. SaipemP&CMod3 CC SLIDE52 Eni Corporate University . unit rates are preset by the buyer and seller.

Time and Material – US Govt • Description. overhead. and profit and – materials at cost. No Profit • Application. SaipemP&CMod3 CC SLIDE53 Eni Corporate University . general and administrative expenses. A time-and-materials contract may be used only when it is not possible at the time of placing the contract to estimate accurately the extent or duration of the work or to anticipate costs with any reasonable degree of confidence. material handling costs as part of material costs. including. A time-and-materials contract provides for acquiring supplies or services on the basis of – direct labor hours at specified fixed hourly rates that include wages. if appropriate.

T&M – PMI Recommendation • Only used for small elements of project or small project – Short duration/ small $ amount – When definition not possible – If expertise available to manage supplier • In this case are less risky than Cost + type contract Seller Risk High Low Low High Buyer Risk CPPC CPFF CPIF FPI FFP T&M SaipemP&CMod3 CC SLIDE54 Eni Corporate University .

Contract incentives • To bring interests of seller in line with buyer • Can be used with any type of contract • Usually found to be cost effective SaipemP&CMod3 CC SLIDE55 Eni Corporate University .

Subsidiary Management Plans .

Producing the Project Plan • • Project planning process The Project Plan – – – Purpose Contents Production and Use of the Plan • Subsidiary Management Plans – – – – Project Co-ordination Planning & Scheduling (Project WBS) (Cost Breakdown Structure (SAP PS WBS) Progress Measurement & Reporting Procedure Change Instructions Project Management Institute. Copyright and all rights reserved. Material from this publication has been reproduced with the permission of PMI SaipemP&CMod3 CC SLIDE57 Eni Corporate University . Project Management Institute Inc. 2004. A Guide to the Project Management Body of Knowledge (PMBOK® Guide) – 2004 Edition ..

Remember .Why Plan? • • • • Facilitates effective project management Best assessment of how project will be implemented Baseline against which to measure performance Gains commitment ‘THE MEANS IS MORE IMPORTANT THAN THE END’ SaipemP&CMod3 CC SLIDE58 Eni Corporate University .

load Master data loaded for testing Prepare master data for Roll-out Duration 50 days 47 days 10 days 5 days 5 days 5 days 10 days 1 day 25 days 1 day 50 days 20 days 29 days 5 days 10 days 4 days 30 days 1 day 49 days 20 days 5 days 10 days 4 days 1 day 50 days 50 days 30 days 19 days 1 day 49 days Start Mon 25/05/98 Mon 25/05/98 Mon 25/05/98 Mon 25/05/98 Mon 25/05/98 Mon 01/06/98 Mon 08/06/98 Mon 22/06/98 Tue 23/06/98 Tue 28/07/98 Mon 25/05/98 Mon 25/05/98 Mon 22/06/98 Mon 22/06/98 Mon 13/07/98 Mon 27/07/98 Mon 25/05/98 Fri 31/07/98 Mon 25/05/98 Mon 25/05/98 Mon 22/06/98 Mon 13/07/98 Mon 27/07/98 Mon 25/05/98 Mon 25/05/98 Mon 25/05/98 Mon 25/05/98 Mon 06/07/98 Fri 31/07/98 Mon 25/05/98 May June July August September Finish 20 27 04 11 18 25 01 08 15 22 29 06 13 20 27 03 10 17 24 31 07 14 Fri 31/07/98 Tue 28/07/98 Fri 05/06/98 Fri 29/05/98 Fri 29/05/98 Fri 05/06/98 Fri 19/06/98 Mon 22/06/98 Mon 27/07/98 Tue 28/07/98 Fri 31/07/98 Fri 19/06/98 Thu 30/07/98 Fri 26/06/98 Fri 24/07/98 Thu 30/07/98 Fri 03/07/98 Fri 31/07/98 Thu 30/07/98 Fri 19/06/98 Fri 26/06/98 Fri 24/07/98 Thu 30/07/98 Mon 25/05/98 Fri 31/07/98 Fri 31/07/98 Fri 03/07/98 Thu 30/07/98 Fri 31/07/98 Thu 30/07/98 25/05 06/07 03/07 30/07 31/07 25/05 25/05 22/06 19/06 26/06 13/07 27/07 24/07 30/07 25/05 03/07 31/07 22/06 26/06 13/07 27/07 24/07 30/07 25/05 19/06 23/06 25/05 25/05 01/06 08/06 29/05 29/05 05/06 19/06 22/06 27/07 28/07 BUSINESS AIMS (Why?) 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 S-CURVE PROJECT OBJECTIVES TOTAL PLAN RESOURCE/ COST ESTIMATES (How Much) GANTT & MILESTONES SCHEDULES (When) PROJECT STRATEGY SCOPE & ACTIVITIES (What) RESPONSIBILITIES (Who does What) PLANNING/ ESTIMATES (How) RAM PBS (Product Scope) & WBS (Project Scope) RESOURCES ORGANISATION (Who) RISKS CPM SaipemP&CMod3 CC SLIDE59 OBS Eni Corporate University .ID 1 2 3 4 5 6 7 8 Task Name SAP System Development Formal Demo Prepare for demo Invite & brief participants Develop demo scripts Practice demo Give Demo to Biz Units Formal Demo Complete Demo fixes & Integration test Demo Fixes complete NON EDI Interface Integration Develop Non EDI Permanent Interfaces Write Schedules Interface Re-test QA Develop & Re-test One Time Interfaces Non-EDI Interfaces ready for integration tes EDI Interface Integration Develop EDI Write Schedules Interface Re-test QA EDI Interfaces ready for integration testing Master data Prepare Master Data for testing Prepare Master Data conversion .

What is the Overall Definition Process? Problem definition Output Why are we doing it? Cost Project Charter Deliverables Priority Performance What will we deliver Time Scope Statement Solution definition How will we deliver it Project Strategy Plan / implement SaipemP&CMod3 CC SLIDE60 Eni Corporate University .

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