Time is our fundamental resource. It’s the thing we sell to make a living. Yet the value placed on it varies from nothing to thousands of dollars per hour and the amount of time taken to do a task also varies greatly depending on who’s calculating it.
One of the most common questions older consultants are asked by design graduates is how do you quote for a project. There’s no easy answer. It’s a messy mix of calculation, industry knowledge, human psychology and luck.
We’ve all read the project management and planning textbooks (or at least leafed through them and placed them back in a prominent place on the bookshelf to impress our clients). However the problem for design consultancies and even for many product development teams in manufacturing companies is that they rarely get to run projects by the textbook.
For consultancies projects are often limited by the amount the client is prepared to pay and the price your hungry competitor is prepared to quote. For inhouse product development teams the time constraint may come from the volume of projects required of them and the rigid production deadlines that have been assigned.
Time affects design projects in many ways. In this article I only have the space to deal with one – why the time a job should take and the time you say it will take are rarely the same thing.
If I tell them the real time I won’t win the job!
This one is a perpetual problem for product design consultants, especially at the small project end of the market. The scenario – you’re quoting for a project, it’s a competitive quote against a few other businesses, some bigger than you, some smaller.
You plan out the project structure and the resources required and you arrive at a time which, in your experience, will cover the project if everything goes according to plan.
In an ideal world or by the textbook you’d now add a 20% contingency for real world problems. But you tried this once (more than once actually – I must be slow to learn) and lost the job. You were the most expensive quote by far. So you put your quote in with the time figure you first calculated.
You lose the job. One of your colleagues reckoned they’d do the job in 75% of the time. Welcome to capitalism! So just suppose you had got the job.
Past project history has proven to you that your project estimates are pretty accurate and that, more often than not, the 20% contingency is a requirement to cover the niggly little additions and complications that arise.
And you keep time sheets (you’d be surprised how many small consultancies don’t) so you have good records of actual time compared to past project estimates. So you do the job and sure enough it takes the time you estimated plus a small overrun when some of the components proved hard to find.
So what’s going on here? Is your competitor really 25% more efficient than you? Would they have got the job done in the time or would they be writing off a lot of unbillable time?
Figures that I’ve collated for a Design Institute of Australia (DIA) survey regrettably suggest that the design industry as a whole is writing off too much time. On average small consultancies are working at only 50% efficiency when many other time selling businesses are demanding and achieving 80% or better.
Why are my competitors lying about time?
Assuming that your competitors are rational and reasonable business people there may be a variety of factors allowing them to operate projects successfully at a lower cost.
Their experience in the particular project area may make the project more efficient. The project may fit well with other work happening in their studio allowing their staff to make more productive use of their time.
They may have lower overheads on a per person/hour basis giving them more buffer in their hourly rate to absorb overruns. Or they may simply need the work. Incidentally, using information such as the Design Institute’s annual Fee and Salary Survey to appropriately position your hourly rate can help you to tune your competitive position.
But there is another side to this – to do with strategic behaviour and positioning in consulting. So let’s consider for a moment that our colleague knew how long the job would take and made a conscious decision to put in a low price.
Ignoring the effect that this has on the profitability of the design industry as a whole, there are a number of strategic reasons to do this. The first is ‘whole of life’ client value.
This is the amount of income that a new client may ultimately provide to your business over a period of years. Selling your services to a new client is difficult. Getting the same client to buy from you again is much simpler.
Coupled to this strategy is ‘future hourly rate earnings’. Most consultancies have a mix of work being performed, some to fixed project quotes and some on an hourly basis. Since a designer’s hourly rate has a component that allows for down time and project over-runs work done on an hourly basis for the same client in the future can offset initial unprofitable work.
This can also be the case where there are ‘project extensions’, additional work extending from the first project either to quote or on an hourly rate.
Be vigilant – protect your time
In my experience small product design consultancies don’t operate with a culture of project variations. But this is common practice in the building industry. Relying on project variations to bring a project’s value back to a profitable level as a strategy would be a dangerous small business policy and one that is likely to lose you a great deal of future business.
But this shouldn’t stop designers from being vigilant and protecting their own interests. Product design projects commonly change directions or go through iterative loops that add significant time to the design process.
A well written brief and scope of work coupled with time sheets and good ‘terms and conditions’ can be invaluable in recouping income that was clearly not part of the quoted scope.
There is also the perpetual effect in the design market of designer’s buying experience, taking a loss on projects to establish their skills and credibility in a particular project area.
It’s a fact of life that newcomers to a market segment are often operating at a lower cost point and have less financial encumbrances. But older businesses do it too when they’re looking to open up new streams of work.
Some timely tips
• Understand the components of your hourly rate
• Understand the project’s role in your annual budget
• Consider the whole of life value of a client
• Write a detailed brief and scope of work
• Don’t over-promise in the brief
• Be vigilant about project variations
• Keep time sheets
• Understand the project’s strategic value to your business
• Ask the client what their budget is
• Take advantage of published industry data
Perhaps the heartening news out of this is that if you thought other designers were just more efficient than you and better at quoting then you probably now realise that it isn’t so.
It would be wonderful to think that our design colleagues are operating on a sophisticated mix of industry knowledge and strategic planning but more commonly they are just playing the averages like the rest of us.
One final tip because it sometimes works. Ask the client what their project budget is. If they have one and are prepared to disclose it you can work back from there to determine how much time can be spent.
Not only will your quote neatly fit their expectations but you’ll get an instant measure of how realistic the client is and how likely it is that the project will go well.