The mere summary of a substantial technology project can be both dazzling and disheartening all at once. First, there comes the recognition of how much impact a technology transformation, whether building a new digital product or migrating to a new platform, can have. \u201cThis could remake how we work\u2026or how we earn!\u201d Then comes the fear factor: \u201cHow can we possibly keep the costs for this reasonable and predictable? We can\u2019t afford this.\u201d\nFor those of us in the tech industry, the ever-overrunning project budget is a tale as old as microchips.\u00a0 Business leaders are determined to keep ahead of market transformations and look to technology (cloud computing, predictive data analytics, AI\/machine learning, etc.) as an essential tool for getting and staying ahead. At the same time, they want and need to keep costs reasonable. To solve that dilemma, many decided that fixed cost pricing is the answer. The goal is to set the final price before the project begins to ensure there are no overruns or any other unwelcomed surprises. Does it work? Not when you\u2019re looking for innovation or efficiency. Here\u2019s why.\nThe fundamental flaw in fixed pricing\nFixed price, at the surface level, seems to be a predictable, cost effective approach to budgeting compared to \u201ctime and materials\u201d financing. However, fixed pricing\u2019s fundamental structure does not produce great tech results in today\u2019s era of iterative, agile world of IT development. With technology tools and platforms in a constant state of change, tech teams have learned to work in short, agile bursts that are assessed regularly and reset as needed. Agile development, which embraces the idea that the anticipated final outcome will evolve as work progresses, has become such a commonly understood and accepted approach that you see other departments, from marketing and sales to business development, borrowing the language to describe how their teams more efficiently operate in a world of change: \u201cWe are going to be more agile and adaptive in how we work.\u201d\nThis widespread embrace of agility explains the fundamental challenge of fixed pricing. It\u2019s impossible to \u201cfix\u201d a moving target.\u00a0 What happens when an IT vendor has to \u201cfix a price?\u201d Vendors are forced to make numerous assumptions in order to determine the price. Even if a team does its best to gather requirements ahead of time and factors in every possible customer, market or technical curve, it\u2019s still tenuous for a vendor to accurately predict a fixed cost.\nThe alternative: do both better\nRather than using either a fixed price model or a time and materials approach, the most effective IT project\/solution financing method is to leverage a hybrid model. Rather than basing the cost only on requirements, the vendor can use strategic assumptions to build an estimated time and material budget. This has to be done in close collaboration with the client and all of the project\u2019s key stake holders. The client then adjusts and finalizes that budget and any assumptions to create a foundational and logical budget framework from which all work and financing can be measured. It\u2019s a budget, but not a fixed one. Instead, it is a collaborative and carefully controlled financial framework that grows or shrinks (yes, reductions can and do happen) over the course of the project to meet changing requirements. What it does is created a communication-centric IT budgeting process that mirrors how agile development teams work. Regular check-ins and adjustments based on progress keep everyone on the same page and budgets well-managed.\nDoes it work? With the right vendor and communications excellence, it works every time. Here are three tips on how to make agile-inspired IT budgeting work for your IT projects:\n1. Define \u201cestimate\u201d\nThe word \u201cestimate\u201d is often a problem in IT budgeting. The vendor might use estimate for a ballpark figure whereas the client sees as the final number. When vendors give you estimates, find out exactly what they mean. Is this the cost with a small margin for overruns? How small? Ask for percentages and formulas. Good vendors will show you exactly how they estimate and invite you to help them increase its accuracy.\n2. Get iterative!\nIt\u2019s an agile world and the key to smart budgeting is strategic, iterative check-ins. Define with your vendor how often you want to see progress as it relates to the budget. After every week? After every milestone? Ensuring both client and vendor are checking in regularly is key to managing budgets in a change-centric world.\n3. Insist on full visibility\nInsist on a zero-surprise relationship with your technology vendor. In years past, IT teams would joke about \u201cthrowing something over the wall to see what comes back.\u201d With vendors today, there should be no walls preventing constant communication and transparency at every stage of the project. If your team is pushing for elements that will add costs, expect candid feedback from your vendor. If your vendor is taking longer to meet requirements or struggling, expect to know it and have a frank conversation on how it impacts budget and timelines.\nIn the end, effectively managing to an IT project budget is a shared responsibility between the vendor and the client. Technology advancements will not slow down. Disruptions will not go on vacation. Over the course of any project, expect change but don\u2019t let it derail your budget and project goals. Instead, let your iterative, transparent, dual-party approach throw potential budget overruns right off their tracks.