What is the engagement worth once scope grows?
Put in the fees, the costs and the odds at each stage and get back whether to take the work and what to do at the gate. The engagement is worth taking, and most of what it is worth sits in aconversation nobody has had yet. This tree has a decision inside it, so the report tells you not only whether to take the work but what to do at the phase gate.
Work Intermediate Decision Tree Pro engine
After you install, this is the model to open.
Take the Engagement or Pass?
- In your spreadsheet, click the Sortia icon in the strip of icons down the right-hand edge. No strip? Click the arrow at the bottom-right to open it. You can also use Extensions, then Sortia, then Open Sortia.
- Click Start from a template and put that name in the search box.
- Pick the card with that name and click Load this template. It arrives on a new tab with real numbers already in it.
This one runs on a Pro engine, and every free install includes five full-quality runs on your own numbers, shared across all five Pro engines rather than five for each. After that, Pro is $199/year.
The answer
- Take the engagement
- $118,520 against $78,000 for passing
- At the phase gate
- reprice $96,850 against $46,000 for absorbing
- If you always absorb
- $90,550 the margin over passing collapses to $12,550
- Riding on the gate
- 69% of the value is one conversation agreed in advance
A $240,000 fixed fee engagement over five months, for a client with a reputation. Delivered in the planned hours it contributes $145,000; the team otherwise has $78,000 of contribution available on existing work over the same period. The scope grows past the estimate 55% of the time, and when it does you have a real choice at the phase gate: absorb it and keep everybody happy, or stop, reprice and find out how the client responds.
Click Run. Taking the engagement comes back at $118,520 against $78,000 for passing, so take it, worth about $40,520. Now read the Optimal Policy table, which has two rows in it rather than one, because this tree has a decision inside it. The first row says take the engagement. The second says that if the scope grows, reprice: repricing rolls back to $96,850 against $46,000 for absorbing, so stopping at the gate is worth about $50,850 even though it fails 45% of the time.
That second row is where the value of this engagement actually lives, and here is how to see it. Take the repricing option off the tree, which is what you are doing if you are a firm that always absorbs, and solve again with only the absorb branch under the scope-creep node. Taking the engagement is now worth $90,550 against $78,000 for passing, so the margin over walking away collapses from $40,520 to $12,550.
Sixty-nine percent of the value of this engagement is contingent on a conversation nobody has had yet, and the conversation is not with the client, it is the one where the partnership agrees in advance that the gate is real. Write that into the engagement letter and the tree is worth what it says. Leave it as an intention and it is not. Two things the tree cannot price.
Repricing has a cost beyond this engagement: a client who is stopped at a gate may or may not come back next year, and this tree ends in five months. And the 55% creep probability is the number most worth getting right, because it is available in your own records as the share of fixed fee engagements that went over their planned hours. To make it yours, put your own fee, planned contribution and available alternative work on the first three leaves, and set the variation acceptance rate from how many change requests this client, specifically, has agreed before.
The model
It arrives on a tab called Template: Take the Engagement?, carrying these columns:
- ID
- Parent
- Type
- Label
- Probability
- Value ($k)
Once it is in your sheet
- The model arrives with real numbers in it and runs as it stands, so you can press the button first and understand it second.
- Change the numbers to yours. The sheet marks which cells are inputs and which hold formulas, and most labels carry a note explaining the row.
- Press the run button at the bottom of the panel. It is labeled for the tool you are in, and the result lands on its own tab, with a written reading of it beside the figures.
Never used Google Sheets? Start here goes the whole way, in seven steps, and assumes nothing.
Next question
- Which day can you promise and still be right nine times in ten?What deadline gives 90% odds of finishing?
- Which bid is low enough to win and high enough to pay for the job?What bid wins with 70% odds and still makes money?
- Which job offer really pays more?Two Job Offers: Price the Tradeoffs
- Whose calendar is the real critical path?Is Anyone Double-Booked?
- Can the panel agree on an order, if not on scores?Rank the Candidates
- Does the plan need one person in two places?Agency Load: Who Is Overbooked?
Every model like this one, and the method behind them: Decision trees.