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Re: Catch-22 Software Cost [long response]

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Rich -

The way that I would approach it is as follows:

1) Determine (estimate) the value added to the project by
purchasing the software (in dollars).

	SVA = software_cost - (change_in_hours * hourly_rate)

If SVA is negative, then it clearly has value for the customer.

2) Estimate how much schedule savings there would be to the
customer if I purchased the software.  This isn't just billable
hours change, but how much sooner I could deliver the final
design.  This accelerated schedule *might* have value to the
customer.

3) Estimate the value added to my practice by purchasing the
software.  This is a much fuzzier number since I have to guess at
how much faster I can complete projects, assume things like a
constant flowrate of available projects, etc.  Sometimes, a good
gut feel is as good as any level of calculation on this.

Remember that value added for practice might also be *less*
time spent in the office and more time spent backpacking.  Okay,
that would be value added for *my* practice (if I had one), but
you get the idea.  Less time drudging means more time to work on
new and more interesting projects.

If the estimate says that it's likely a good net value to me,
then I would probably buy it.

4) Contact the customer and indicate schedule and dollar savings
available if they are willing to consider the software an "expense"
under the "hourly plus expenses" model.  If they are willing to
expense it, get them to put it in writing *before* I buy the software.
If not, I'd do the job using existing resources and charge them the
costs for that.  I wouldn't bill them for "learning curve" time on the
software if they go for it.  Also, if the computations take 4 CPU hours,
I'd only bill for the portion of that when I'm entering the numbers and reviewing the results.

If they're unwilling to pay, I'd determine whether or not it's
worth it to me (based on item 3) to buy the software anyway and
absorb the costs by increasing my rates for future work.  Even
slightly increased rates will IMHO, over the long term, compensate
for the initial software costs and the perceived future lost fees.
Even if the compensation is more time for me, I can trade off free
time with pay based on my willingness to forgo pay in exchange for
an extra day off.  That gives me a good idea of what an hour of
calculation time saved is worth to me.

I also use this type of estimate to decide whether or not I want
to write a new piece of software (or a new general-purpose Mathcad
sheet) to solve a problem or kludge along with what I already have.
Personally, I'm happier being more productive, and I'm more productive
when I'm happier.  I find that this last issue readily outweighs the
numbers unless my funds are so low that I have to decide whether I eat
two or three beans for dinner today.  ;-)

Charley

--
Charles Hamilton, PhD EIT               Faculty Fellow
Department of Civil and                 Phone: 949.824.3752
    Environmental Engineering           FAX:   949.824.2117
University of California, Irvine        Email: chamilto(--nospam--at)uci.edu




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