A VISION for those in Professional Services:
The standard form of pricing professional services work among architecture and engineering firms still mostly involves some form of “gross up” cost estimating based on predicted labor investment at a defined labor rate. Even when setting fees on a “top down” basis or “cost of construction,” there’s still a “bottom up” exercise in regards to budgeting labor. Almost all firms “monetize” their time in some way by also filling out time sheets. The hours are loaded into the accounting system by project, by phase, by labor code.
Let’s just imagine for a moment instead, a professional services business based only on results and value. There’s no time-sheet in the traditional sense. The business is not selling their time for a labor rate, but is focused solely on outcomes.
What is the issue? The time-sheet, recording time by increment, by labor code, by job number, on an hourly basis, is focused through the lens of effort– a justification model, “People like us focus on monetizing our time, documenting that effort, billing for it, while we hope to get the right results on the project.”
The opposite is a business focused through the lens of results- an achievement model, “People like us produce results like these for fees like this.”
- Everyone is paid a salary – no hourly workers at any level.
- There’s no discussion about “billable time,” only expected outcomes within time frames.
- The focus is entirely on an achievement and income model:
- “People like us produce results driven by value, scheduled completion dates, project milestones and deliverables that are billed at pre-determined values.”
- The expected work week is to “complete the targeted work”- no exceptions. Work status is either “done or not done,” or “on-track or off-track.”
- Jobs are billed based on percentage basis according to the fee and progress against the deliverable, not the time accrued.
- There’s no accounting for time, but only revenue, only outcomes. We determine the percentage complete based on the results achieved vs the results planned. We set the fee based on the value to the market, region, project type, client.
What about Time and Materials ( T & M hourly) work, you ask? Perhaps there needs to be an excpetion for certain activities, but then why not charge more for T & M work than for fixed fee work. (We can’t achieve the margin a fixed fee can allow when we bill T & M.)
Alternatively, we simply stop working entirely on the effort-based model of billing for time. No T & M, ever. We work for clients that value the fixed fee model. For those clients that aren’t willing to pay a fixed fee we take the position of, “People like us produce the type of value where we believe a fixed fee is the only reasonable approach.”
Imagine this business, where everything is results, outcome, achievement driven rather than time-effort driven. Imagine piloting a project or a group that tests this approach.
Imagine quoting projects from the top down only, “We think a project like this should cost this much”. Our thinking is centered on the mindset of, ”Our business costs this much to run per year so we need to sell X-times that cost in executable backlog to be completed within this time frame”