Different ways to consult-does this apply to engineering?
Different ways to consult-does this apply to engineering?
(OP)
I've recently read a book called, "Getting Started in Consulting," by Alan Weiss, PhD. It was interesting to read and he seemed to make a lot of sense on many things.
In particular for the purposes of my question today, Dr. Weiss believes in billing strictly according to value (for the intended outcome) rather than ever using an hourly rate.
That line of thinking made a lot of sense to me at first, but then I thought about it and examined the following; Dr. Weiss's consulting areas include mainly working for very large corporations, helping them improve efficiency and profit. For example, a fee of $50,000, Dr. Weiss can go in and improve operations in a variety of ways which may improve the profits of a company by $5,000,000 per year. A very real value added to the bottom line of the company. Also this would be relatively easy to measure for the company so they would actually see the benefit to the services provided by Dr. Weiss.
My question for you is this; does it sound to you that this type of fee origination (according to value added) would apply to the engineering end of consulting? To me right now, it doesn't seem to because 1) in many instances, the value added to a civil eng project, for example, are not easy to measure, even if the civil engineer is the finest available for the project, 2) Because the value added isn't clear, it seems that engineers would need to continue billing using an hourly rate, and 3) engineering is considered by many out there (sadly) to be a commodity rather than a professional service so it’s difficult to bill much more than the going rate for similar services provided by others.
So in what instances can fees used in engineering be based on value rather than going hourly rates? Does anyone have any success stories in convincing a client that the value that YOU will add to a project is worth more than the rate they would be paying to a competitor of yours to accomplish similar tasks?
In particular for the purposes of my question today, Dr. Weiss believes in billing strictly according to value (for the intended outcome) rather than ever using an hourly rate.
That line of thinking made a lot of sense to me at first, but then I thought about it and examined the following; Dr. Weiss's consulting areas include mainly working for very large corporations, helping them improve efficiency and profit. For example, a fee of $50,000, Dr. Weiss can go in and improve operations in a variety of ways which may improve the profits of a company by $5,000,000 per year. A very real value added to the bottom line of the company. Also this would be relatively easy to measure for the company so they would actually see the benefit to the services provided by Dr. Weiss.
My question for you is this; does it sound to you that this type of fee origination (according to value added) would apply to the engineering end of consulting? To me right now, it doesn't seem to because 1) in many instances, the value added to a civil eng project, for example, are not easy to measure, even if the civil engineer is the finest available for the project, 2) Because the value added isn't clear, it seems that engineers would need to continue billing using an hourly rate, and 3) engineering is considered by many out there (sadly) to be a commodity rather than a professional service so it’s difficult to bill much more than the going rate for similar services provided by others.
So in what instances can fees used in engineering be based on value rather than going hourly rates? Does anyone have any success stories in convincing a client that the value that YOU will add to a project is worth more than the rate they would be paying to a competitor of yours to accomplish similar tasks?
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RE: Different ways to consult-does this apply to engineering?
I've done several projects on a "hard dollar" basis. I come up with the fixed amount by guessing how many hours the project should take, adding in a very generous contingengy, and then multiplying the sum by 150% of my hourly rate. About 1/3 of the time I do ok. About 2/3 of the time I make markedly less than I would have on an hourly job (on one disaster the client kept changing the requirements and I made 1/2 my hourly rate--now I have safeguards against a dithering client).
There's nothing right or wrong about either technique. One client baulked at my hourly rate (which is nearly twice the going rate in my market) and I quoted him a fixed-dollar estimate. The project was done (for almost twice what he would have paid by the hour) and he said that the bill was around 10% of the (non-binding) estimate he had gotten from a big engineering firm. The difference of course is that his project had my undivided attention and I don't have any office rent or support staff to pay for (one man firm working from a home office). The big firm was going to put 3 junior engineers with a supervisor on the project and the total hourly rate was going to be huge.
David Simpson, PE
MuleShoe Engineering
www.muleshoe-eng.com
Please see FAQ731-376 for tips on how to make the best use of Eng-Tips Fora.
The harder I work, the luckier I seem
RE: Different ways to consult-does this apply to engineering?
I'd much rather work for an hourly rate than try and sort out contracts, scope definitions, and responsibilities. I did work for a company that made a good living out of 'fixed price' contracts. They underbid on the main contract in the sure knowledge that they would make up big time on the extra work that was bound to happen. Of course, it means they spent more time working on budgets and contracts than engineering.
Cheers
Greg Locock
Please see FAQ731-376 for tips on how to make the best use of Eng-Tips.