Where did all the profit go? How to protect yourself against the dreaded ‘scope creep’

Jane (Agency Leader): It all started off so positively, but now it feels like a bit of a disaster, to be honest. We’re losing money and we’re only four months into a 12-month contract.

Me: Why are you losing money so early in the contract?

Jane: I think the SoW is a little open to interpretation. The KPIs aren’t realistic. And what’s making it worse is that the client’s changed team members and we’ve got no accurate record of changes that were agreed with the old team. Our PM’s tearing his hair out, the client’s not impressed with our results, and our delivery team is scrambling to recover. It feels a bit like we’re in quicksand.

Sound familiar?

If you’re in Jane’s situation, these practical tips will help you get out of the quicksand and prevent this from happening again. In this article, I’ll cover:

• What is scope-creep?

• Why does it happen? (Getting to the root causes)

• Spotting the early signs and stopping it in its tracks

• How to effectively negotiate the contract before starting any work

What is scope-creep?

Simply put, when the client wants more than you’ve agreed to deliver for any given budget/time-scale.

But it’s never that simple. The devil truly is in the detail.

Rather than being a ‘fire hydrant’ of demands in one go, it’s usually more of a dripping tap. “Could you just…” and “would you mind quickly…”

Here are three examples that spring to mind:

• “I know we agreed on the content in Spanish, but could you do a quick version in Portuguese for us?”

• “Thanks for bearing with us while our teams swap over. I’m sure you’ll understand that our new marketing lead needs to change some of the content you’ve developed.”

• “We’re a bit behind on signing off your materials —things have evolved a little and we need to scrap that draft campaign idea you fleshed out, and bring something new to the table.”

Why does it happen and what are the warning signs? ⚠️

In my experience, these are the most common reasons:

• Clients will always want more for the same budget, within the same time-scales. It’s human nature.

• Poor “variation analysis and control” by both the client and agency. As an agency leader, you can spot this easily by asking your PM on a regular basis: “Have we done any work for the client this last week/month that we hadn’t budgeted for – can you show me the approvals?”

• Not enough detail in the SoW and KPIs that are not clearly defined.

• A lack of understanding from the agency practitioners on the exact deliverables, targets, and client expectations.

• Lack of strong project/retainer governance with the client, e.g. regular monthly review of scope and performance, and quarterly business reviews.

• Lack of formal onboarding for new team members (client and agency) to fully understand expectations/scope.

• Additional, seemingly minor daily or weekly requests, informally agreed via email or phone, resulting in material scope-creep over months.

• Because agencies want to delight their clients - it feels “petty”, and often commercially naïve, to keep saying “we’ll have to charge for that”.

What can you do about it?

The first thing is for someone who is not directly involved to run a project/retainer audit. You could use another PM, a director, or a third party. You’ll need to start with a checklist or framework (there’s plenty on the web), then roll up your sleeves and interview agency staff and the client, check the contracts, rummage through emails and delve into the dashboards.

Next, pull together all your data, analysis, insights and plans. This should include (but isn’t limited to):

• What did the client expect in terms of scope, targets, reviews, etc?

• What has actually happened?

• How many informal variations have been requested?

• What does ‘good’ look like, by when?

• Your proposed corrective action plan.

Then, present your findings to the most senior client representatives and their delivery teams (and procurement if they were involved). I usually wouldn’t be asking for any money from the client. I’d be looking to say:

• “We apologise for the handling of the situation up until now, but the variations and governance have got out of control. We’d like to reset the clock. Here’s our analysis and a plan moving forward, including how variations are handled and when we should meet regularly to jointly review progress”.

By adopting this approach, you draw a line in the sand and proactively take control of the situation.

Everyone should now understand what’s been happening and why it’s important to fix it.

I have seen occasions where the client simply denies all the evidence, blames the agency and has no intention of doing anything about it. My recommendation about how to handle this:

• Find a more senior sponsor inside your client who does understand and agree

• Or, decide how you can exit the client in a professionally-managed way and get a strong grip on variation management whilst you exit over time.

What should you be doing when negotiating contracts in the future?

My recommendations are based on over 25 years of being in both camps as a consultant/partner, and buyer/procurement director.

So here are my top six tips for avoiding the quicksand scenario above:

• When you’re negotiating the contract SoW, spend time on the details. Make the SoW and KPIs as precise as possible regarding scope, performance expectations and definitions

• Define in the contract what constitutes a minor and major variation and at what point a re-negotiation and additional budget will be required

• Bring your experienced PM/AM into the back-end of the SoW negotiations. It’s critical that the person in the agency that has to deliver against what’s been sold is bought into the details. Get them to discuss how “variation control” will work

• Agree on a governance process for reviewing performance including reporting frequency, monthly meeting attendees and quarterly QBRs

• Negotiate the SLAs to ensure any small underperformance doesn’t result in punitive measures by the client

• Arrange a “fast-start” meeting(s) between the client and your agency team which should include the client budget holder and the agency member that sold the deal. This ensures alignment of expectations at the outset.

In conclusion, poor scope management is a huge problem for your agency’s profit margins. Get it right at the start, and you’re in for a much easier ride. You can achieve this by negotiating watertight SoWs and KPIs, adopting strong PM/AM governance models (including variation management) and managing client expectations with care and diligence.

Mike Lander is the CEO and founder of Piscari, which empowers agency leaders with better negotiation skills and insights into how procurement professionals work.

Email Mike if you have any questions on this opinion piece, or if you simply want to find out more