Questions - Going from Hourly to Per Project Basis?

Subject: Questions - Going from Hourly to Per Project Basis?
From: "Hart, Geoff" <Geoff-H -at- MTL -dot- FERIC -dot- CA>
To: "TECHWR-L" <techwr-l -at- lists -dot- raycomm -dot- com>
Date: Wed, 1 Oct 2003 09:11:21 -0400


anachie sheakspear wondered: <<For the past 7 months I've been working for a
company as an hourly consultant. A few weeks ago, the CFO told me that it
was costing them too much, so they want to engage my services on a per
project basis. To be honest, I've never done this before and I feel that the
company could take big advantage of my lack of experience.>>

If the starting point for negotiations is "you cost too much", you can
assume that the attempt to switch to fixed price is an attempt to lower
costs, irrespective of the impact on you. Knowing that helps an awful lot in
understanding the situation because it can focus you on the real solution:
not moving to "fixed price", but lowering costs or perhaps (if your hours
per week varies wildly) providing the manager with firm estimates so they
can manage their budget with confidence. These two possibilities (there may
be more) provide the context for your discussions:

<<I'm scheduled to meet with the CEO and CFO next week to discuss the
terms... What key questions should I ask?>>

Before the meeting, spend some time figuring out why you might be costing
them so much. For example, if you know that you've billed for 10 hours per
week playing Nintendo outside a manager's office while waiting for them to
talk to you, tell them right away that such delays are costing them 10 hours
per week of billable time. Propose a fixed meeting time, and make sure the
manager is ready to reply to your questions by sending the questions far
enough in advance that the manager can seek answers, confirming they
received your questions, and showing up ready to record the answers.

There are more pernicious problems too. If you've rewritten the same chunk
of help text 20 times because every company employee gets to review it and
nobody does the review right the first time, propose a different solution:
limit the number of reviewers to only the experts, limit the number of
reviews per reviewer (to 1 or 2), and hold reviewers responsible for the
results of their reviews. If the problem is that the software is constantly
evolving and thus, they pay you three times to document the same menu
function, explain this and propose a solution: don't send you the function
to document until it's final, or finalize it early and concentrate on
getting it working properly.

See the point? If you can come to the meeting with a list of problems and
solutions, you don't need to ask any questions--you can show them how to
solve their problems. Of course, as noted above, it helps to understand what
their true goals are, and you'll need to discuss this with them to provide
the context for your solutions. Moreover, you'll need to ask them questions
about why things are done a certain way (i.e., where the problems come from)
and how willing they are to contemplate changing their approach.

<<Do I base an estimate on my former hourly rate?>>

Yes, but you need to very, very carefully define exactly what counts towards
an hour. You also need to specifically define what constitutes a cause for a
cost increase; for example "one first draft plus one rewrite are free; each
additional rewrite costs you $X". That gives them an incentive to do it
right the first time. Similarly, you need to cover unexpected things like
unavailability of reviewers and SMEs; if you've got to spend 10 hours a week
chasing people, you should be compensated for it. To avoid having to
compensate you, they should guarantee that they`ll yell at anyone not
willing to make themselves available to you. It's easy to lose money on a
fixed-price bid when you don't define your terms and the client starts
asking for freebies that they should be paying for.

<<What are the pluses and minuses of doing business this way?>>

The pluses are that if you know how long it'll take you to do the work, you
can come up with a bid that lets you earn _more_ than what you'd earn on an
hourly rate. The minus, of course, is that you never really know how long
it's going to take to do the work. Thus, you have to pad your standard
hourly rate fairly heavily to cover unexpected extra work, cross your
fingers, and hope you guessed right.

<<One thing that springs to mind is that they can use whatever I bid to find
someone cheaper and I'd be SOL.>>

That wouldn't be a major worry for me. They already know what you cost, and
if the goal were to replace you, they'd have done it by now. If you can find
out what they're really worried about (total cost, budgetary predictability,
something else) and provide a solution, they may even let you keep working
at your hourly rate.

<<does anyone out there have experience working on a "per project" basis?>>

I've done it a few times, and dislike it; I've grown fat and lazy as a wage
slave, and thus, don't get enough practice estimating. I`ve been tracking my
productivity for long enough to have an idea of how fast I work, so I
usually manage to make my hourly rate, but it's often touch and go. The more
you do it, the more comfortable you get at estimating, but working
fixed-price generally means you win some and lose some even if you`re
careful with your bid.

<<How do you determine the scope of the project?>>

Very carefully, using clear and unequivocal wording. Start with a list of
what they want you to achieve (e.g., "document the following 20 menu items:
[list of 20]"*), then use that list to come up with your estimates.

* Note the difference: I didn`t say `document all menu items` because that
would let them add 20 items.

<<Do you use a template>>

Nope. Each project is different. I often borrow text from previous
agreements (e.g., `documents submitted for review will be considered to be
accepted for the sake of determining billing dates if no revision requests
are received within 10 business days`).

--Geoff Hart, geoff-h -at- mtl -dot- feric -dot- ca
(try ghart -at- videotron -dot- ca if you get no response)
Forest Engineering Research Institute of Canada
580 boul. St-Jean
Pointe-Claire, Que., H9R 3J9 Canada

"Work is of two kinds: first, altering the position of matter at or near the
earth's surface relative to other matter; second, telling other people to do
so. The first is unpleasant and ill-paid; the second is pleasant and highly
paid."--Bertrand Russell

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