A story for development outsourcing clients

Once upon a time there was a client who had contracted a carpenter to make a chair for him. In order to protect his own interests, he spent a lot of time specifying the dimensions of the chair, the material and etc. Then he negotiated with the carpenter to settle on the cost and duration. In addition, he set up a monetary reward for early delivery and a daily penalty for each day late.
Then there was another client who spent a lot of time looking for and selecting a carpenter with good reputation for excellent customer satisfaction. He only told the carpenter that he needed a chair that is comfortable to sit on and then drafted a sketch of the chair. Then he negotiated with the carpenter to settle on the cost and duration. There was no reward for early delivery and no penalty for late delivery. They agreed to discuss to adjust the cost and duration if there turned out to be a need.
Then what was the result? The first client got the chair earlier than the deadline and the carpenter got the reward. However, when the client sat on the chair, it was not that comfortable. Because the carpenter rushed to finish it, the craftsmanship was poor and as a result, the chair was broken in a year. Then, it was found that low-graded wood was used in the inner, hidden part of the chair.
In contrast, the other client found that the chair was not that comfortable during the making. So he discussed with the carpenter to make the necessary change. The cost was increased by a little and the duration was longer by a little, but the carpenter had enough time for him to make a quality chair that he is proud of, which finally lasted for 10 years.

The moral of the story

The moral of the story is that in any project there are four factors to be considered: cost, time, scope and quality. If any of those changes, at least one of the other must change accordingly. The problem is, most people will try to fix/specify all those in planning, but in really only cost and time can be easily fixed, while it is very difficult to fix/specify the scope and quality (they are fuzzy and dynamic). So, from the view of the contractor, to meet the fixed cost and time, he has every incentive to minimize the scope (only make  what is explicitly told and nothing else) and reduce the quality (uncomfortable to sit, poor craftsmanship, low-graded wood).
The reward and the penalty make the matter worse. They double the importance of meeting the time factor, so they double the incentive for the contractor to minimize the scope and reduce the quality.
To solve this problem, many people try to make the scope and quality even better specified. However, this effort is futile as scope and quality are related to the needs of human which is fuzzy and dynamic. In the example of the chair, what is the quality? Perhaps that it should be comfortable to sit on, that it should last long, etc. But these aren't objective (what is comfortable?) nor can be measured immediately (how long it will last?), so they can't be used to bind the behavior of the contractor.
Therefore, there must be a second level of defense to deal with this fuzziness and dynamics. In addition to specifying the scope and quality at our best effort, we must also identify the contractor who really cares for quality. The idea is that he will work for quality on a higher-level (what we really care about) instead of focusing on meeting lower-level but objective metrics which do not necessarily fully reflect quality. That is the best insurance that we can get. Of course, to allow him to work for the fuzzy and dynamic scope and quality, we must be prepared to renegotiate with him to adjust the cost and duration as necessary.
ps, if you'd like to learn more about IT management and governance, check out IT Governance by Examples.