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Re: Catch-22 Software Cost

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Rich:

I think that Jim here is heading in a similar direction to my thinking.

Let's look at it another way...

Let's say that you are contact about doing a job in a state that you are
not currently licensed in at the moment, but there is plenty of time to
get the license by receprosity or they have a temporay license
provision...but it costs money.  And this state is not a state in which
you normally do business.  It would not be unreasonable to tell the client
that in order to do the job you will need to obtain that license which you
otherwise would not not need.  Thus, you would normally not need to pay
that extra expense of the application fee and maybe the renewal fee
(assuming that you decide to keep the license in effect after the
project).  Thus, it is not beyond reason to expect them to pay slightly
more to at least cover the application fee (but not likely the renewal
fee).  I know of engineers that will do this.

So, I would say that if the software is something that you will use on a
regular basis, then you just swallow the cost as a capital expense.  If it
something that you are doing JUST to do their job and MIGHT be able to use
every once in a "blue moon" otherwise, then approach them about them
paying part of the expense as part of the project (above and beyond the
actual hour rate amount that you charge for that actual design work).
"Sell" the idea to them as a way to reduce what they have to pay.  After
all, if it reduces your hours on the project by an amount that reduces
the fee more than what the software costs (after you take into account
some discount for tax deductions or not), then net effect is that they
will pay less money.  Unless you said somewhere in the contract or discuss
that you were gonna use such software to do the work, there is nothing
that requires you to use it.  So, if they don't like that idea, then do it
by hand...which means they pay more.

It comes down to a business decision.  Is the cost of the software really
gonna be a major expense that you cannot recoup well because you will not
really use it on enough projects?  If yes, then either try to get it
recouped on the project that you can use it on or don't buy/use the
software.  If on the otherhand you will use it enough to help other
projects in the future, then you can likely "spread" the cost over more
projects.  This is that dilema of capital investment that companies always
face.  You end up having to weigh things like will the extra number of
projects (maybe some with room for better profit margins...i.e. lump sum
where if you get it done faster means more $$$ for you) that will be able
to do offset the lower number of hours per project that it takes you.

And don't forget that while you will be able to get things done faster
with the software eventually, this may not be the case until you get up to
speed and comfortable with the software.  Your education process on the
software and maybe intensive hand checks the first couple of times that
you use it would normally not be something that you would charge the
client (even though it "benefits" them)...at least some would think so.
But, in this case, it would not be unreasonable for some of your hours on
this project to be learning or checking time.  And since you should be
charging enough that include some "overhead", you will recoup some of the
cost that way.

Regards,

Scott
Adrian, MI


On Fri, 10 Dec 2004, Jim Wilson wrote:

> Richard,
>
> Being much in the same situation as yourself, I would probably consider if the software is the type of product that most competing engineering firms would already have.  If so, and it is a product that you will use over and over again, then it should be a capital investment only.  Such examples would be Enercalc, Risa, etc...
>
> However, if you are purchasing a specialized software package for a specific type of engineering, then perhaps you could explain to the client that you will be charging them a quantity of hours equal to a portion of the cost of the software.  The architect or engineer reviewing your invoice might be happy with that.  The bean counters won't see that their employees were covering a portion of your capital expenses - which is probably a no-no unless it is agreed to up front in a contract.  If they can understand that you are 'saving' them money and that you are willing to invest in a product to better serve them, that might invite even more work in the future.
>
> Best of luck,
> Jim Wilson, PE
> Stroudsburg, PA
>
> Rich Lewis <sea(--nospam--at)lewisengineering.com> wrote:
> I would like to know if anyone charges for the use of software in their
> design.
>
> Let me explain a particular situation. I am a small, one-man firm, that
> is getting established. I am working on the design of a special
> foundation. The project is an hourly fee plus expenses. I don't have a
> choice on that right now. I could do this design with the limited
> software I have and by hand calculations, but it would be much more
> efficient if I bought some special foundation software and designed it
> with that. The dilemma is that since this is an hourly fee the software
> that helps me be more productive actually reduces my fee. On top of
> that I still have to put out for the software. That's what I think is
> the Catch-22. If I become more productive by making a capital
> investment then I reduce my fee, hence making my capital improvement
> harder to pay for.
>
> Now you could say that I still have the software to use on future
> projects. That's true, but future projects are again cut short fee wise
> due to the increased productivity. That means I need a lot more
> projects to recoup the cost. That also assumes I will have the kind of
> projects that will need this software.
>
> I was thinking about charging a "use" fee on the software to help recoup
> some of the cost. Is this commonly done by others?
>
> If you are tempted to change this thread into an argument of "for or
> against" hourly fees I ask that you start another thread because I would
> like this one to address the issue of capital improvements and recouping
> costs and not get sidetracked.
>
> Thanks.
>
>
> -------------
> Richard Lewis
> Lewis Engineering
>
>
>
>
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