Reference no: EM131816957

Estimation Ethics

A buy-in occurs when a company agrees to produce a system or product for less than it knows the project will require. Laura could buy-in at Fox Lake if she agreed to build the system for, say, $50,000, when good estimating techniques indicate it will take $75,000. If the contract for the system or product is written for "time and materials," Fox Lake will ultimately pay Laura the $75,000 for the finished system. Or, Fox Lake will cancel the project once the true cost is known.

If the contract for the system or product is written for a fixed cost, then Laura will eat the extra costs. She'd use the latter strategy if the contract opens up other business opportunities that are worth the $25,000 loss. Buy-ins always involve deceit. Most would agree that buying in on a time-and-materials project, planning to stick the customer with the full cost later, is unethical and wrong. Opinions on buying in on a fixed-priced contract vary.

You know you'll take a loss, but why? For a favor down the road? Or some other unethical reason? Some would say that because buying in is always deceitful, it should always be avoided. Others say that it is just one of many different business strategies. What about in-house projects? Do the ethics change if an in-house development team is building a system for use in-house? If team members know there is only $50,000 in the budget, should they start the project if they believe that its true cost is $75,000? If they do start, at some point senior management will either have to admit a mistake and cancel the project or find the additional $25,000. Project sponsors can make all sorts of excuses for such a buy-in. For example, "I know the company needs this system.

If management doesn't realize it and fund it appropriately, then we'll just force their hand." These issues become even stickier if team members disagree about how much the project will cost. Suppose one faction of the team believes the project will cost $35,000, another faction estimates $50,000, and a third thinks $65,000. Can the project sponsors justify taking the average? Or, should they describe the range of estimates? Other buy-ins are more subtle. Suppose you are a project manager of an exciting new project that is possibly a career-maker for you. You are incredibly busy, working 6 days a week and long hours each day. Your team has developed an estimate for $50,000 for the project. A little voice in the back of your mind says that maybe not all costs for every aspect of the project are included in that estimate.

You mean to follow up on that thought, but more pressing matters in your schedule take precedence. Soon you find yourself in front of management, presenting the $50,000 estimate. You probably should have found the time to investigate the estimate, but you didn't. Is your behavior unethical? Or, suppose you approach a more senior manager with your dilemma. "I think there may be other costs, but I know that $50,000 is all we've got. What should I do?" Suppose the senior manager says something like, "Well, let's go forward. You don't know of anything else, and we can always find more budget elsewhere if we have to." How do you respond?

You can buy in on schedule as well as cost. If the marketing department says, "We have to have the new product for the trade show," do you agree, even if you know it's highly unlikely? What if marketing says, "If we don't have it by then, we should just cancel the project." Suppose it's not impossible to make that schedule, it's just highly unlikely. How do you respond?

Discussion Questions

1. Do you agree that buying in on a cost-and-materials project is always unethical? Explain your reasoning. Are there circumstances in which it could be illegal?

2. Suppose you learn through the grapevine that your opponents in a competitive bid are buying in on a time and-materials contract. Does this change your answer to question 1?

3. Suppose you are a project manager who is preparing a request for proposal on a cost-and-materials systems development project. What can you do to prevent buy-ins?

4. Under what circumstances do you think buying in on a fixed-price contract is ethical? What are the dangers of this strategy?

5. Explain why in-house development projects are always time-and-materials projects.

6. Given your answer to question 5, is buying in on an in-house project always unethical? Under what circumstances do you think it is ethical? Under what circumstances do you think it is justifiable, even if it is unethical?

7. Suppose you ask a senior manager for advice as described in the Guide. Does the manager's response absolve you of guilt? Suppose you ask the manager and then do not follow her guidance. What problems result?

8. Explain how you can buy in on schedule as well as costs.

9. For an in-house project, how do you respond to the marketing manager who says that the project should be cancelled if it will not be ready for the trade show? In your answer, suppose that you disagree with this opinion-suppose you know the system has value regardless of whether it is done by the trade show.