From the Blog

Jan
25

On budgets…

Posted by Jake DiMare on January 25th, 2010 at 9:52 am

When given the choice, I prefer to plan projects with a fixed bid estimate. What this means is if the client accepts my proposal I will fulfill the terms of the agreement with no change in cost. If the effort required to complete the scope of the project is more than I expected it’s my responsibility.

There is one exception to this. If, after the project begins, the client decides they would like to change the scope of the project, we must agree to the new terms in writing before we proceed. This is the best way to help clients avoid spiraling costs but it is also a little less flexible than a simple estimate. Handling changes in scope is an entire topic of discussion for another day.

Proceeding with a fixed bid demands a well defined scope. Consider this example:

You are a landscaper and a new customer calls to have their bushes trimmed back. They explain their last landscaper was fired so if you do well there is a lot more work. You arrive at the address and find a 6,000 square foot mansion on the end of a cul-de-sac with an acre of landscaped property bordered by woods on three sides. The front of the house has a 100′ long hedgerow separating the driveway from the lawn and there are Junipers under the windows on the front of the house. Naturally, you assume these are the bushes. Estimating this will take your team of three men a half day you estimate $1500 on a fixed bid and agree with a handshake and no scope defined in writing. This is a little less than you would normally charge but this is a new client and you really want their business over the long run.

A week later your guys show up and trim the hedges and the junipers and leave an invoice in the mailbox. The next day you get a call from the client, who explains they are not going to pay until you finish the job. Confused, you ask your guys to confirm what they did…which matches what you expected. However, the client informs you, they expected you to take care of the bushes…like they asked. They have 4 acres of undergrowth on the wooded part of their property and they are concerned about wild fires.

The problem here is your definition of the bushes and their definition of the bushes were are not aligned. Because you failed to define the scope of ‘trimming back the bushes’ in writing…you are now in a tough situation. This client could be good for years and years of loyal patronage with such a big piece of property. Argue and they probably won’t ever pay you at all.

So how could this have been avoided? It all goes back to the scope, which we already explored. On the topic of budgets, you will want to repeat back the items in your scope and attach a price to each item. In this example the scope would have been:

1. Trim hedgerow in front – $1000.00

2. Clean juniper bushes – $500

3. Clear out 4 acres of undergrowth – $5000.00

4. Dumpster rental/Waste removal – $1000.00

Put in writing like this there is no confusion about what you are agreeing to provide. Notice the dumpster rental? This highlights another important detail of fixed bid estimating. To be successful you must remember to think the project through and list all the costs up front. If you were to have left all the waste on the client’s driveway because you forgot to include waste removal it’s unlikely you would be asked to return.

This kind of situation can easily occur in technology consulting. If a client says they need you to build a web site it is quite possible they don’t know about hosting, domain name registration and DNS management. Better to include them in your estimate and let them ask for them to be removed than leave them out until the web site is built and then surprise the client with additional costs. Trust me.

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