Insights Article

Hours Over Outcomes: Mythbusters

Jesse White
March 9, 2024
March 9, 2024

The traditional time and materials model, long a mainstay of our industry, is being challenged by a more results-focused approach: outcome-based agreements. As with any change, however, misconceptions abound. It’s time to set the record straight.

The myths surrounding outcome-based agreements range from concerns about cost and risk to misconceptions about flexibility and change management. Each one reflects a resistance to change, a clinging to the old ways of doing things. But in this piece, we’ll dismantle these myths, revealing how outcome-based agreements offer a clearer, more efficient path in IT consulting—a path that focuses on real results, not just hours spent.

Myth: “Outcome-Based Agreements Are More Expensive”

There is a common belief that outcome-based agreements are more expensive than time-and-materials agreements. Our experience at Intact over the past decade, however, suggests otherwise.

In fact, less than 1% of our revenue over the past decade has come from scope creep or project change requests. This figure stands in sharp contrast to the industry average, where over half of projects encounter uncontrolled scope changes

The industry’s standard time-and-materials contracts often seem like a bait-and-switch tactic. Clients are enticed with low estimates, only to discover that the costs keep increasing. Intact has a different approach that breaks this pattern with a simple idea: What we quote is what you pay. This model fosters a relationship built on trust and predictability, rather than uncertainty and last-minute adjustments. 

But what about the risk premium that often accompanies outcome-based contracts? Yes, there’s a small premium, usually 10 to 20%, to partially mitigate risk. But in the broader context—one in which traditional IT projects frequently overrun their budgets by as much as 45% and extend well beyond their deadlines—it seems worthwhile. The outcome-based model aligns our success with that of our clients. 

When you consider that 70% of all transformation projects fail and either get scrapped, restarted, or changed entirely, and then compare that to Intact’s 1.5% failure rate over the past decade, the value of an outcome based contract improves even more dramatically.

Initial cost is a misleading myth because, with T&M contracts, the initial cost rarely ends up being the final cost, which often clocks in much higher due to scope creep. Additionally, at the end of the day, cost is not the primary concern of Congress, your customers or your board if you are not successful. At Intact, we’ve turned this model into a win-win scenario by offering our clients a straightforward, transparent path to achieving their IT objectives without the usual surprise fees. 

Myth: “It’s Hard to Define Clear Outcomes for Complex Projects”

Defining these outcomes may be challenging (although it doesn’t have to be), but it is essential. Without clearly defined outcomes, a project is doomed from the start.

At Intact, we have to understand the ‘why’ behind every project. We start by sitting down with our clients and playing a little game of ’20 Questions’. Well, not quite 20, but you get the idea: “What do you want?”, “Why do you want it?”, “So what?”, “Who cares?”. We keep drilling down until we hit the core objective, that north star that guides the entire project. No why, no project. It’s that straightforward.

Now, you might ask, “But isn’t it really hard to define these outcomes?” Our perspective is that it’s not necessarily difficult; it’s more about asking the right questions of the right people. A typical RFP is often chock-full of requirements but fails to explicitly state the desired outcome of the project. What’s the ultimate goal behind all these requirements? 

There’s a cultural barrier at play. Somewhere along the line, we’ve been shamed out of asking ‘obvious’ questions. There’s this pressure in organizations to appear all-knowing. But at Intact, we abandon that notion entirely. We’re not afraid to ask, to probe, to really get to the heart of what our clients need and why they need it.

So, the myth that it’s hard to define clear outcomes for complex projects? Debunked. It’s all about asking the right questions, and that’s where we excel. Because ultimately, knowing the destination is the key to reaching it.

Myth: “Outcome-Based Models Limit Flexibility”

Another misconception is that once you opt for an outcome-based model in IT consulting, you’re locked in, with no room to maneuver. 

At first glance, it might seem like an outcome-based model is about rigidly sticking to the plan. But there’s a lot of nuance here: we’ve baked in a healthy dose of flexibility, equivalent to about 20% of the contract value and work. This ‘flex pool’ allows us to adapt and pivot as needed. While 80% of our focus is locked on securing the outcome, there’s still room to breathe and adjust.

For example, say we’re implementing an out-of-the-box (OOTB) workflow for a client. The core of this workflow remains standard—that’s our 80%, the foundation. But what about the unique considerations of a client’s specific needs, like compliance requirements, or regional nuances? That’s where our 20% flex pool comes into play. We can customize the OOTB workflow and incorporate client-specific elements without deviating from our primary goal.

The idea that outcome-based models are a contractual straightjacket couldn’t be further from the truth. At Intact, we believe in striking the perfect balance between meeting the outcome and ensuring that our clients are more than just satisfied—they’re delighted and able to adjust over the long haul. And that’s where true flexibility lies.

Myth: “Change Management is a ‘Nice to Have’”

Technology, no matter how advanced, only creates business outcomes when it’s used properly. And who’s using it? People. Without their engagement, the most cutting-edge systems become paperweights. For example, think about a self-service portal we deploy in a client’s environment. It’s designed to improve the productivity of their service desk, cutting down on call volume. But if only 25% of people are using it, then you’re only seeing 25% of the potential value. Bump that usage up to 75%, and suddenly, you’re seeing 75% of the potential value. See the pattern here? We need people to see the value of these investments.

Our competitors often put all their eggs in the tech basket. Why? Because it’s straightforward. There’s no pushback from a machine. But to truly realize an outcome, you can’t sidestep the human factor—the fears, the resistance, the need to adapt. That’s where change management shines. It bridges the gap between new technology and its users, ensuring that the tools we implement are embraced and effectively used.

To say that change management is just ‘nice to have’ is to misunderstand the essence of outcome-based agreements. Without it, you’re only skimming the surface of what’s possible. At Intact, we dive deeper, addressing the human side of the equation head-on. That’s how we unlock the full potential of our technological solution and reach our defined outcomes—by ensuring that they’re not just installed, but integrated, understood, and welcomed.

Myth: “Outcome-Based Agreements Are Too Risky”

It’s a common refrain that outcome-based agreements are a risky proposition, but at Intact, we try to make clear that, far from being a gamble, these agreements are actually the safest bet for our clients.

Think about Netflix. They take on the risk whether you binge-watch their entire catalog or don’t watch a single episode. Similarly, in an outcome-based agreement, the risk shifts from the customer to the vendor. The right contract, structured with financial penalties and clear deliverables, means that it’s us, the service provider, who’s on the hook. Not the client.

Why adopt this mode? Because ultimately we at Intact are in a much better position to mitigate these risks. Unlike a sprawling organization, where managing risk depends on various human factors, our incentives are aligned directly with successful outcomes. It contractually aligns us to our customers’ success. We have skin in the game and only succeed when our customers succeed.

There’s a perception that what’s risky for the customer is also risky for the vendor, but this isn’t necessarily true. If you’re changing a faucet at home, for example, you better have your insurance details handy for a potential flood. But when you call in a professional plumber, someone who’s done this hundreds of times, the risk is negligible. They know the ropes, they have the expertise, and they’ve got it covered. If you hired a plumber and they came and asked you how you would like them to go about changing the faucet, what would be the odds that the faucet would be installed according to best practices and in a manner where you weren’t left with a host of issues to deal with when they left?

At Intact, we’re like that plumber but in the IT consulting world. We’ve navigated these waters time and time again. We know what works, what doesn’t, and how to steer clear of pitfalls. While it might seem risky from the outside, for us, managing these risks is just part of our daily work.

In truth, outcome-based agreements offer significant advantages over traditional models. Rather than proving more expensive or limiting flexibility, they promote transparency and agility. Outcomes crystallize vision while change management and flexibility provisions enable fluid implementation. And by shifting risk to those most able to mitigate it, these agreements provide both parties the security to focus purely on shared success. When examined objectively, outcome-based approaches unlock efficiency, clarity, and results unavailable through outdated alternatives clinging to hourly billing and unchecked scope creep. The way forward is clear for those bold enough to debunk the myths.