Sunday, July 27, 2008

Completion Bonds for software projects

My friend Eric, who will be presenting at Agile 2008, points to an interesting talk to be presented at the conference: insuring IT projects by using the equivalent of a completion bond (more info). [The original idea is from a Valtec colleague of Eric's.]

A completion bond, also known as a completion guarantee, is a legal undertaking by the guarantor to the film's financier(s) that the film will be completed and delivered to the specification agreed (i.e. based on the agreed script, featuring the agreed principal cast, being of roughly the agreed length etc.), by the date agreed in their contracts with the producer and within the agreed budget. The guarantor works closely with the films producer and may "step in" (take over) one or more aspects of the film if things are not going according to plan. Corrective action could involve anything from minor tweaks to the budget to bringing in a new director. In the worst case the guarantor will repay the film's financiers, but usually it is usually in everybody's interests to deliver a film, even if it does not meet the full original vision. The guarantor of course charges a fee, which is typically 4% - 6% of the film's budget.

As a side note, big budget Hollywood films are "self-guaranteed" :)

It is interesting to contemplate if such a bond could work for IT projects. Some of the pros I can think of:
  • Assuming you can find a guarantor with enough IT experience, the guarantor can validate whether the scope/budget/deadlines of the project are realistic or not. (If they are not realistic then the guarantor will sell the bond for a very high price!)
  • Many financial clients would be comfortable with the concept of insurance and terms like "strike price" ("production price")
  • A guarantor would have the authority to force the hard decisions to keep a project on track
and some of the cons:
  • I could see the temptation for a guarantor to mainly tweak the budget, rather than guiding major aspects of the project (depends on the skill set of the guarantor I guess)
  • Giving regular updates to the guarantor could add significant overhead to small (3-5 people) projects

2 comments:

Eric Lefevre said...

Hi Robert,

Some nitpicking: though it is indeed Laurent Bossavit (who I know) who got the original idea, it is in fact Graham Oakes (who I do not know) who will be giving the talk on Insuring IT Projects at Agile 2008.

Cheers,

Eric

Robert Maldon said...

Ah, so Mr Oakes has taken the idea and is trying to monitize it for himself :) I've corrected the blog to give credit where it is due. Have fun in Toronto!