Statement of Work

 

What is a Statement of Work?

A statement of work, also known as “scope of work” is a contractual document that outlines what goes into the project in as much detail as possible

A Guide to the Project Management Body of Knowledge (PMBOK) defines a statement of work as “a narrative description of products or services to be supplied under contract

Statement of Work Template

Statement of Work vs. Contract

The statement of work is not a contract by itself, it’s an integral part of the contract that, in turn, covers all the nitty-gritty details of the cooperation and the project

While a statement of work can be sent to the client for approval and is flexible to change and negotiable, a contract is the final step in the negotiation process that binds both parties together

What Does a Statement of Work Document Do

The purpose of the statement of work is to serve as a means of understanding between you and your client

Therefore, it defines the project, including the mission, the scope, basic requirements, a thorough outline of tasks to be completed, start and end dates, critical resources needed, milestones and timeline, terms, and most importantly, a signature from both parties

The agency, the executing team, and the client should all know what's precisely agreed upon

Why Use a Statement of Work

As a fundamental part of the contract, it may seem that the only benefit of SOW is to seal the agreement. However, the statement of work is much more than that! It facilitates the discussion, helping you get the needed overview and understand what you have to offer to the client

Having a clean statement of work from the beginning, you can also get through the approval process faster

Yet another benefit, a good statement of work helps to mitigate a lot of errors. And that’s without even mentioning that with SOW you and your client are on the same page

The Key Elements of a SOW

Looking through hundreds of SOW documents and samples, we’ve made a list of these key elements that go into the structure of every successful project statement of work and make it complete

Project objectives: Most of the time, this section is a purpose statement that answers a set of very specific, big questions. What is the purpose and mission of the project? Why have you initiated it in the first place? How will both parties benefit from the project? 

Scope of work: This is a designated section for putting down what work needs to be completed in the project, how it will be executed, and how much time the project will take. General steps and process details should all be specified here

Place & time of execution: Most statement of work documents use this section to identify where the project will take place. It becomes especially relevant in global settings. For example, when you and your client are in different countries and time zones

Milestones: If the project is long and complex, it’s often broken down into milestones - interim events for measuring progress. Specifying duration and billable hours for each milestone will help you predict the end date of the project

Tasks: Tasks are clear-cut activities to achieve milestones and general steps outlined in the scope of work. This is where you should be as descriptive as possible so as not to miss out on any crucial steps

Schedule: A key element in the SOW, a schedule is a project timeline including milestones, tasks, and resources throughout the project’s lifecycle. Depending on the type of engagement you’re in, the schedule can be left until a later point. For example, if retainer agreements are used and you’re delivering services on an on-going basis, there will be less paperwork and, consequently, the schedule could be excluded

Testing: Testing is relevant in a software development statement of work, for instance. Dedicate a section to it if and how the deliverables will be evaluated

Expected outcomes: This is yours and your client’s definition of how success will look like when the project is delivered

Special terms, conditions, and requirements: Here you’ll specify payment terms and other parts of the project that don’t fit in the above categories

Closure: This will determine how the deliverables will be accepted, and who will deliver, review and sign off on the deliverables

Also, it deals with the final admin duties, making sure everything is signed and closed and archived

What Is Delivery Risk?

• Delivery risk refers to the chance that a counterparty may not fulfill its side of the agreement by failing to deliver the underlying asset or cash value of the contract
• It's a risk both parties must consider before committing to a financial contract. There are varying degrees of delivery risk that exist in all financial transactions
• Other terms to describe this situation are settlement risk, default risk, and counterparty risk.

KEY TAKEAWAYS

• Delivery risk also known as settlement or counterparty risk—is the risk that one party won't make good on its end of the agreement
• If one counterparty is considered riskier than the other, then a premium may be attached to the agreement
• Delivery risk, albeit infrequent, rises during times of financial uncertainty
• Most asset managers use collateral, such as cash or bonds, to minimize the downside loss associated with counterparty risk
• Other ways to limit delivery risk include settlement via clearing houses, marking to market, and credit reports

Author: Nazia Tabassum