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RE: Catch-22 Software Cost

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Dennis,

You and I think alike...the difference is that in this one particular case
I was talking about how one might deal with the "learning curve" on a
piece of software that might not really be used again and again, and how
that might effect how one might bill one specific project.

On your "typical" structural software or CAD software, the key is that you
will likely be able to use it again and again on many projects.  Something
like RISA-3D or TEDDS or AutoCad can be used on project after project.
There is usually something that needs to be analyzed, that can be done in
TEDDS or drawn in a CADD program (personally, I use RISA-3D at least once
a week...and while most are 2D models, I have done at least a half dozen
or more 3D models, so the "extra" cost that I incurred to get the 3D
version rather than the 2D version is worth it).  So, to me, the learning
curve on a program like this is part of doing business.  It just means
that on several projects when I first get the software, I will likely
"lose money" so to speak, but will slowly recoup it once I get further
down the road and use it on more projects.

But this threat cames about because Rich was looking to purchase a program
that at this point only looked like it was gonna be used on one program
and MAYBE (if he was lucky) on a few future projects.  In such a
situation, one will not really have much of an opportunity to recoup the
cost of the software purchase AND the cost of the initial learning curve
on lots of future projects that it will be used on.  So, one has to make a
business decision...buy the software and see if there are other ways to
offset the expense (such pass on a lump sum direct expense to the client
or charge for the hours to learn/checks the software) OR don't buy the
software and "do it the old fashion" (and slower) way OR just buy the
software while losing some serious money and hope that you can use it
again (or consider it a learning experience).

By and large though, I am not advocating that if I happen to take a
masonry seminar while working on a masonry intensive project or buy a new
code book or text book while working on a project, that I charge THAT
client specifically for that.  This is because I will more than likely use
it for many other clients.  But, if I am forced to buy a specialized item
to use on a specific project that I have very little chance of using on
other projects in the future, then I have no problem "building" that into
my fees to that one specific client.  If that becomes a problem to that
client, then s/he is free to find another engineer.  It does become a
little harder if _I_ decide that their is a tool that will make my life
easier on a specific project but already agreed to do the project AND that
tool will adversely affect my bottom line.  In such a case, unless there
is a way to use that tool to make things better for the client (i.e.
improve the delivery deadline or reduce the fee, as others have pointed
out) while reducing the adverse effect on my bottom line, then it would
not be worth me getting the tool.

And considering what a structural engineering consultant is likely
charging someone for their services, they likely have some "overhead"
money in their hourly rate.  Considering most consultants that I am aware
of are charging $60 to $100+ per hour, they will have at least a
"multiplier" of 2 in their fee compared to what they would likely be
making per hour working for some large A/E firm.  And that is what pays
teh "overhead" (i.e. computer equipment, software, code/text books, office
equip, non-billable marketing or accounting hours, etc).

Regards,

Scott
Adrian, MI


On Fri, 10 Dec 2004, Dennis Wish wrote:

> Scott,
> Let me ask you this one question - how many software products would you feel
> comfortable without investing in a learning curve. This is not a learning
> curve to understand the basics of say a foundation program, but a software
> of much larger scale such as an FEA, CAD or even a software as seemingly
> simple as Mathcad or TEDDS? In most cases, you would not invest in software
> like Mathcad or TEDDS without it being a capital investment for use on many
> projects, but what if you client required total compatibility with AutoCad
> while you were trained in DataCad. I would sincerely doubt that you could
> justify the cost of the learning curve in a small office not to mention the
> cost of the software plus any annual subscription fee. These are programs
> that require an investment in time to learn and most small offices don't
> have the resources to hire employees trained on that software alone.
> Even FEA programs operate differently and require an understanding of how to
> set up a model, uses springs and releases and how to access the tools of the
> software effectively and economically.
>
> You can not simply discount or ignore the time it will take to learn to
> effectively use a piece of software - even free software like my own
> Multi-Lat(tm). The more you use it the more comfortable you feel with it and
> the more confident you feel in the results you obtain. To your clients
> benefit, the more you use it the more creative you can be and this truly
> makes your projects more competitive. Reducing design fees are one thing,
> but realizing a savings in construction costs can far outweigh the savings
> in design fees and this generally only comes when you are proficient in the
> use of the software.
>
> Regards,
> Dennis S. Wish, PE
> California Professional Engineer
> Join our Free Topic Specific e-Mail Discussions at:
> http://www.structuralist.net
>
>
> -----Original Message-----
> From: Scott Maxwell [mailto:smaxwell(--nospam--at)engin.umich.edu]
> Sent: Friday, December 10, 2004 6:44 AM
> To: seaint(--nospam--at)seaint.org
> Subject: Re: Catch-22 Software Cost
>
> 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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