Escaping the billable hour model for civil engineering? 2

proletariat

Even though the items you mentioned as being products are set up as lump sum jobs to the client, we still use the billable hour to arrive at that sum. I often set up contracts for civil work as lump sum. I also set up structural jobs as hourly rate sometimes. It is all job and client dependant.

My question to you is: How do you arrive at the fee if you don't know what is costs to produce the product? That is where the hourly billing rate comes into play.

Rik

Estimating lump sum costs using hours is fine. I think the problem comes when the client is billed in units of hours.

For example:
I bill a client $5000 for a traffic study, lump sum. I then have the opportunity to find a cheaper traffic counter subcontractor, replace the human traffic counters with technology, make a MS Word template that cuts report generation time down, etc. You can take advantage of efficiencies under a lump-sum payment.

I bill a client $5000 for 67 hours of work. If I do the work in 50 hours, I make less. The only incentive to find efficiencies is to keep my hourly rate comparable to others in the industry. Furthermore, each person can only generate (hourly rate x daily hours) every day. You will never exceed a certain daily revenue cap for a person. Therefore, you must add people to increase revenue and profit.

See where I'm going with this?

Here's a terrific link to an article that directly addresses your question:

Design Intelligence Article

Surge analysis is a product. I regularly bill a fixed lump sum with hourly rates for additional work.

How do you get recompensed when you save a client millions $$$$s in a coule of hours with a good idea?

I heard of one engineer who didnt charge for the advice given to a senior executive but simply said send me a cheque for what you think it is worth. The next day he received a cheque for $25,000 for a simple suggestion that saved the company a lot more money.

A lot relies on your relationship with the client. Hourly rate basis of billing is a mugs game. It doesnt provide certainty for the client who has budgets etc to handle. Better to give a fat fixed price as this gives certainty and gives you some lee way. On balance I dont make too many mistakes using this approach. I dont starve and have repeat business.. Swings and roundabouts.

proletariat,

If you give a lump sum price of $5000 based on an estimated 67 hours and then only spend 50 hours doing the job, you bill $5000 anyway, keep your mouth shut, and make more, not less. The client does not need to know the hours your worked for a lump sum price. If you go over the estimated 67 hours, too bad for you. You still only bill $5000 unless there is a special reason which was addressed in your proposal or contract. Taking risk can have its rewards. I make more money on my lump sum work than on hourly work.

PEinc, you are a master of the obvious.

However, the original question was - What OTHER civil engineering labor is sold as a product, as opposed to being billed hourly?

It is not a matter of how you want to bill, but what the client is accustomed to seeing. Nevertheless, I had clients telling me that civil/geotechnical fees are such a small percentage of the job cost that even a 33% increase is tollerable. Clients need fast service, experience, trust and someone who will not nickel and dime on every little redesign. Charge a premium as PEinc said and over time you'll learn to fine tune your estimates.

If you really need repeat customers give a good ball park number then bill 90% of it and make a point to highlight the estimate vs the actually billed. By the way, you'll see some clients who bargain, and for those I propose 110% and then give them the 10% bargaining percentage back. As you can see all clients are different and no single solution will work over time.

Obvious? Apparently not to you or you would not have said that you'd make less money on a lump sum job that you designed for less hours than you estimated. How do you make less when you expend less labor but still bill the same lump sum price?

All civil enginering design can be "sold as a product" if you take the time to price it up. For some jobs, it's difficult to determine an accurate and complete scope. For those jobs, I will work hourly. For most, I try to work lump sum.

The original post presented a question that I too, have had before. I agree with the posters above about the benefits of billing that way as opposed to an hourly rate. I realize that most of what I’m saying may be rather obvious to many folks out there…

To me, the idea of billing using a lump sum is more palatable than billing using an hourly rate, because:
1) You can probably make more,
2) It seems easier, and
3) Is more ethical.

1) As others have mentioned, the hourly rate method may be safer, but more money can actually be made using a lump sum or billing according to the value added.

I find that as I become better at something (and I think most folks are the same when it comes to this), I can do it more quickly AND more accurately. I know what specific problems I'll need to address the moment the field work is finished based on the project. If my billable hours truly reflected this efficiency, I would probably be charging $200 to $300 dollars for a typical geotechnical report (not including field work).

If I actually charged that, at least two things would happen; a) I would be beaten (rightfully so) by my engineer peers because it doesn't reflect the "value added" to the project, and b) I would probably be making $10,000 a year or so.

2) Seems easier: I can't tell you how much valuable time I waste entering time-spent-on-project hours on my excel timesheet everyday. Is that the case with everyone here? Who, truly, uses a stopwatch to accurately record these times either?

If I were on my own, and wanted to make $80,000/year before taxes, why not try to bill out $160,000 (with an assumed multiplier of 2-assuming that's a good multiplier for my circumstances), and then have a goal to try to bring in an average of $3,100 per week throughout the year?

I understand why many companies can't do that; they need the "hours" for each employee for accounting purposes. But on your own, I think timesheets could be optional, which would be a dream come true.

3) Fixed cost billing, in the office, is more ethical: I believe that charging "by the hour" should be avoided where possible. Perhaps it's ok to do when in the field devoted to a project.

Unfortunately, I still need to report "hours" on the timesheet for fixed cost projects so that management is happy and able to conduct their accounting duties. So I enter "hours" that will magically line up with the fixed cost given to the client.

The problem with hourly rates in the office is that they are fictitious hours. I chuckle to myself when I give a document to my manager to review. They review it in front of me for 3 minutes and we talk about it for 5 minutes. I get the weekly hours report and find that they charged an hour to the project for that encounter. Maybe it felt like a lot of work, I don't know. The amount of work you can accomplish in a true hour, uninterrupted, is sometimes staggering.

You will soon learn, young Jedi, that billable hours are your bread and butter. Took me a while to figure it out too.

Chinese businessman told me once. 20% of your profit comes from 80% of your work., 80% of your profit comes from 20% of your efforts. Apologies to the original philosopher who he no doubtedly stole it from.

Par Ihto, I think.

Cheers

Greg Locock

Please see FAQ731-376 for tips on how to make the best use of Eng-Tips.

stanier said:

20% of your profit comes from 80% of your work., 80% of your profit comes from 20% of your efforts. Apologies to the original philosopher who he no doubtedly stole it from

Click to expand...

It's called the "Pareto analysis".

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CAD design engineering services - Catia V4, Catia V5, and CAD Translation. Catia V5 resources - CATBlog.

proletariat,

You asked "What OTHER civil work is sold as a product?"

You set up the contract. Set it up as lump sum. Determine your fees however you like. You can do ANY job as lump sum if the client is willing to sign the contract.

You still need some method of determining the lump sum amount. You could just guess or you could use a method to actually determine how much it will cost you to do a project and make a profit. Hmmmm

You may want to be careful describing -- or even thinking about -- your services and submittals as "products." It can expose you to liabilities for which design professionals are not typically covered. You may want to adopt the mindset that your plans, drawings, reports, etc. are "Instruments of Service." In other words, they are tools that help you perform your work.

Just a thought.

Here's a link from the American Institute of Architects, but I think it applies pretty well to us as well.

geostructor,

Interesting point. I haven't thought of it that way.

Does "lump sum" imply "product"?

"Do not worry about your problems with mathematics, I assure you mine are far greater."
Albert Einstein
Have you read FAQ731-376 to make the best use of Eng-Tips Forums?

Ashereng,

I don't think of "lump sum" as implying "product". It is simply a set agreed upon fee for a specific scope of work; as opposed to a straight hourly rate agreement.

Rik

I think this is a good post.

General question/comment:

Once you have your CAD, databases, software, and general engineering process down, wouldn't you see billable hors as a blessing? If you're more efficient than your competition then I would think you're ahead.

To make other streams of income that are not hourly I would look into software or patents.On top of those lump sums you could then make more money as an application software engineer supporting and implimenting the software.

I think billable hours rule.

ELE

I think your missing the point. The efficiencies you learn to impliment are a labor savings on your part, If you then only bill for hours used you cut yourself in the foot.

Example Given: Say I know how to implement my cad system to produce information in a faster means than than most any one else. I find an opportunity to bid on a job to produce the same information on this job that the current vendor supplied on the previous jobs they had gotten from this client. I learn what number I need to beat to win the project. Say my process only takes a week to do. but I know the competition took 6 weeks to produce the information in a manual way. so I promise 4 weeks delivery. In reality I can do the project in a week. I then get everything ready to deliver in 4 weeks and in the 3 weeks I have left for delivery I go and do something else. The client doesn't know or care I only took a week and the competition is left scratching their head as to how I was able to get the job and blow them away.

This in fact is a true case in point. I am learning to do something in Pro/ENGINEER that can cut time in creating required information in an automated way. I can undercut some of the other vendors of this service and not have to take it overseas to get the job done.