IT sector is one of the most competitive markets as there is cutthroat competition. The battle of competition can only win by increasing the number of satisfied customers, by inventing new technologies with new added features and delivering high quality deliverables that too with competitive prices.
This research is intended to give guidelines to Team Leads and Project Managers working in IT sector, about the allocation of Human Resources in a Team (each project may have multiple teams with different sizes.
Optimized Human Resource Allocation in a Team to Increase Profitability without Compromising Quality of Deliverables – for IT Sector (Fixed Price Projects)
Harshawardhan Sunil Kulkarni
Senior Consultant, T-Systems, India
IT sector is one of the most competitive sectors in market, as there is cutthroat competition between companies providing IT services. This battle of competition can be win by increasing the number of satisfied customers, by inventing new technologies with new added features and delivering high quality deliverables that too with competitive prices.
This research is intended to give guidelines to Team Leads and Project Managers working in IT sector, about the allocation of Human Resources in a Team (each project may have multiple teams with different sizes. Example: Development Team, Testing Team, Integration Team etc.) to increase the overall profitability of the project with lowest risk to the quality of deliverables.
There are two different strategies commonly used for pricing of the projects. These are “Fixed Price” and “Time and Materials”.
1.1 Fixed Price
A Fixed Price strategy locks in the total price of the project upfront.
Static Variables: Scope, Cost
Flexible Variable: Quality (but in most cases quality standards are decided initially)
Assumption: The estimate and plan are correct and will not need to be changed.
Risk:Inflating cost; sometimes cause compromise on quality if estimates are inaccurate.
Effect of New Information: Causes conflict about what’s covered in the initial scope vs. what requires in a change order. New ideas are rarely incorporated.
In this strategy, the IT service provider company is taking the financial risk. They commit to complete the project for a specific price. If they complete the job early, it’s a bonus for them (and the client has overpaid). If they don’t complete the job on time then they are in loss. In order to mitigate this risk, they must know all, that can be known about the project and the risks before the commitment to a fixed price.
Also, they will vigorously fight for any variations to the scope of the project during the development of the software or support phase. When variations do occur, there will invariably be an argument as to whether this change is included in the fixed price that was agreed to or not. If not, then it’s time to generate the “change order,” determine the new pricing, and get the new pricing approved by the customer.
1.2 Time and Materials
In a Time and Materials pricing strategy, the IT service provider company will work on a project and bill for every hour worked without regard to any financial constraints.
Static Variables: Scope, Quality
Flexible Variable: Cost (and Timeline)
Assumption: The client can afford to do whatever it takes to accomplish the scope.
Risk: On Client (Resources has no incentive to be efficient or monitor budget of the project)
Effect of New Information: More scope added to project, more cost will be charged, or the new scope is ignored because there’s no more budget.
The customer is taking the financial risk. The customers will most likely have an internal budget they are monitoring and thus they are responsible for ensuring the actual amount worked is tracking to the estimated amounts. Unfortunately, what is missing here is what scope has actually been completed. Without this information, the client cannot accurately gauge the progress of the project and thus does not know if the estimate is going to exceed the pre-decided estimate until it actually does.
Considering above information, conclusion can be drawn as, there is huge scope to increase the overall profitability in the fixed budget projects as, overall planning and execution is in the scope of IT Service Provider Company. This research is more useful in Fixed Budget Projects in IT industry.
Let us consider the costs involved in the projects in an IT industry
Infrastructure, Hardware and Software costs including maintenance
Travel and Training costs
Effort costs (the costs of Software Engineers / Human resources) etc.
From these costs Infrastructure, Hardware, Software, Travelling and Training costs cannot be considered for high level cost cutting as they are required in same amount. E.g. Hardware and Software cost needed for all resources working will be same. But these costs can be negotiated during initial setup or infrastructure up-gradation of company.
So to reduce the cost of Human Resources can be one option with on-going projects.
On the other hand, to maintain long term relationship with the client and to maintain the brand value in competitive market, the highest quality of the deliverables need to be maintained. To maintain the quality of the deliverables, understanding the complexity of the deliverables plays vital role. This helps the project management on deciding the number of Human Resources and their required skill-set.
In this research, above discussed concepts are taken as key point, and tried to find the best possible combination of the Human Resources which reduces the overall cost and minimize the risk for the deliverables which will increase quality of deliverables.
Any team lead and project manager together can follow below algorithm or steps to decide how resources can be allocated in a team (How many senior Resources and Junior Resources can be utilized in optimum combination), that can give the maximum profitability with lowest risk to quality of deliverables.
2.1 General Assumptions
Highly skilled Human Resources (Senior Resources) are with
High experience, in number of years in same technology (Relative Experience).
They are capable to handle very high complex scenarios.
They are highly paid by the company too.
Junior resources may have relatively lower experience in same technology, their capabilities to handle complexities are limited and they are relatively less paid by company too.
Niche skills means skills in very specialized areas and resources are not easily available with those skills and if so, they are highly paid and demanding.
Points to be given in below algorithm should have reference to existing, stable, profit making project in organization and preferably should be given by Team Lead of respective team and Projects Managers.
This algorithm can be used to decide requirement of skilled resources in single team.
Manager and Team Lead should decide how many total resources should exist in team and what should be the highest expertise level in team.
Human Resources are divided in four categories:
Skilled (Lowest Expertise and Price)
Intermediate (Lower Mid Level)
Proficient (Higher Mid Level)
Expert (Highest Expertise and Price)
This algorithm is most useful for the teams with high number of resources and not for the smaller teams.
Below points given to understand the priority of the project from organizational point of view. From below point based system, it will be easier to define the priority between Quality and Profitability of the project. In most of the cases the Quality and Profitability (by charging client at lower cost) are inversely proportional.
2.2 Step to be followed
Decide the total Human Resource count needed in a team except Team Lead
Find the highest level of expertise (Highest experienced resource in number of years) needed in a team. To find, refer to most complex scenario in scope and find the level of resource who can handle that complexity.
Divide the highest experience in number of years by four and categorize them according to skill-set discussed above.
So we can have four categories of years of experience.
E.g. we need Highest resource with 10 years experience, then we have:
Skilled (0 to 2.5 years experience)
Intermediate (2.5 to 5 years experience)
Proficient (5 to 7.5 years experience)
Expert (7.5 to 10 years experience)
Allocate and Calculate numbers/weight on below points:
Future Business Scope with the same client (Long Term Goal)
For this maximum points should be 10
Higher Future Business Scope with higher points
Legal Bindings/SLA/Current Targets of the company (Short Term Goal)
For this maximum points should be 10
Highly defined SLA’s with penalties, Legal Bindings should have higher points
Duration of the project / Deadline of the project
For this maximum points should be 10
Tight deadline project should be with higher points
As the project may need high skilled resources to end up the project in time with high pressure of work to adhere deadlines
Technical Complexity of the deliverables
For this maximum points should be 20
Higher Complexities should have higher points.
This is one of the key factors with highest points associated with this, is because this is the only factor for which client pays – The Deliverables
(Other than above four points new points can be added/updated too, depending on the project requirements. But the total valuation should be adjusted accordingly, which finally can be converted into percentage)
Sum up all the points given above – the total will be out of 50
If sum is not multiple of 10, round off the value to next number which is multiple of 10 (rounding off to next number will give little extra weight towards quality) (Example : If total is 14 then consider it 20)
If team needs Niche Skills, add extra 5 points to the total sum
Multiply the total by 2, to allocate resources in percentages
Whatever the number we have after multiplication, that is the priority for Quality and (100-Number after multiplication) is highest priority for Profit.
e.g. Total of the points is 30 out of 50
The Final Number should be 30*2 = 60
Means projects is 60% reclined towards quality and 40% towards profit.
Resource count should be
Expert Resources Percentage in Team
Percentage of Quality project reclined to / 2
e.g. Considering calculation in point 8
60/2 = 30, So 30% resources in team should be expert
Intermediate Resource Percentage in Team
50 – Expert resource percentage
e.g. 50 – 30 = 20, So 20% resources in team should be intermediate
Skilled Resource Percentage in Team
Percentage of Profit project reclined to / 2
e.g. Considering calculation in point 8
40/2 = 20, So 20% resources in team should be skilled
Proficient Resource Percentage in Team
50 – Skilled resource percentage
e.g. 50 – 20 = 30, So 30% resources in team should be proficient
11. It is recommended to have at-least one resource of expert level in a team who can act as “Umbrella resource.”
12. There can be change made in the resource count of 10% higher or lower, according to actual project situation
There may be different opinions on defining complexities of the project
Priority of the respondent will be changed between Quality of the deliverables and earning profit. (Quality of the deliverables creates long term relationship with client which finally generates higher revenues and Looking for budget over Quality gives short term gains)
Respondent may not be true in answering and may be biased.
Psychology and temperament of respondents play a significant role. Some respondents are more sensitive as against tolerant ones Composition of respondent can affect the answers adversely or favorably.
Cost and profitability go hand in hand with Human Resource cost in an IT project
As Complexity increases overall cost of the project increases
With increase in complexity, Senior level human resource requirement increases
Niche skill impact on the project is very high
Middle level employees are thought to be the most important resource, as they are
Less demanding compared to Senior Resources
Ready to adjust with projects and situation
Have good vision or future plans and good learning abilities
Good for balancing of the team
Above algorithm always considers 50% resource of Mid Level – Equally divided in Higher Mid Level and Lower Mid Level
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