Sunday, August 13, 2006

Does this make sense?

This is just a quick rant about billing.  In the area of consulting, we bill by the hour.  That is a terrific approach if we are doing things in the least productive way we can.  The billable hours pile up very quickly.  And if everybody were doing things in the least productive way, there'd be no reason to think about this.  But in the words of a song popularized when I was growing up, "the times, they are a changing.”  I truly believe that someone's going to figure out how to build a model-driven development process (or something similar) that could be at least an order of magnitude more productive than what we are doing right now.  The question is how to bill the client for this value.

 

For the sake of this discussion let's assume that we could produce 10 times as much value for the same number of hours.  Should we increase our rates by a factor of 10?  We might end up then quoting rates in the range of thousands of dollars per hour.  One of the questions in the corporate classes on ethics is: would you be comfortable with your actions being reported in the daily paper?  I don't know about you but I think it might be very difficult to convince the public at large or even corporate buyers that we were worth that kind of rate.

 

I can remember doing a demonstration about 10 years ago of a package that we had built with Microsoft Windows NT and Visual Basic (probably version 4) for a vice president of the defense contractor that I worked for the time.  The vice president asked me how many hours had gone into producing this demonstration.  I responded that I would guess that it had to be at least 10,000 hours.  I got the expected look of shock on the vice president's face.  (You need to understand that this defense contractor typically developed every line of code in the products that they delivered to the military; there was some reuse but very little.)  I went on to say that, of course, most of those hours were invested in the development of the Windows NT operating system and the Visual Basic compiler and we got those for under $1000.  Just to make my point, I said that most of those hours only cost us about $.10 apiece.  That was the beauty of using commercial off-the-shelf software; the vendor could amortize the cost of the operating system and the developer tools over literally hundreds of thousands of customers and that allowed us, the defense contractor, to leverage that's investment to produce value for our customers.

 

Charging by the hour puts us into the following situation: if we invest money to become more productive, I think it is almost impossible for us to recover that investment in the form of hourly billing.  The more productive we get, the worse the situation becomes.  That is why I think that billing by the hour is doomed.

 

We now return you to your normal rational discourse.

 

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