Sunday, July 1, 2012

The journey to an ideal billing option

General speaking, there are two types of billing we are using for our contract work: fixed price and Time and Materials (T&M). Fixed price contract is just like it sounds. Meanwhile a T&M project is similar to being an hourly employee, payment is made based on a set rate for the actual hours that you worked. Each of which has its own pros and cons and articles about that can be found at mostly every corner of the internet, as it turns out that this is a norm in consulting work in other industries too. What got my attention recently is how my ideal billing type has been changing through out the years.

When I was younger, having my first full-time internship, I was always fond of fixed-price projects. Why? It had always given me much less blocker doing thing that way. A project back then wasn't much different from a school assignment. The project requirements were given to me sometimes in a nicely formatted spec, sometimes a Redmine ticket or sometimes just a mockup. The only thing I needed to care was to finish the requirements in time. No one told me whether the project went through four rounds of development and lost us a bunch of money nor did I care about. I got my work done, and that was it. The simplicity made me happy.

Given that I am an untidy person, T&M projects, on the other hand, weren't that fun. I had to keep track of my time, and as I jumped between tasks and my Chinese classes, the little chore turned into a burden. The question "did I turn on/off my timer" kept running through my mind just about when I need some concentration. And even when I managed to get my task done, I needed to mind the time I spent on the task as well. Usually, I missed the estimate made by my PM. Even though this was expected (yo, I was an intern) and we "deal" with it by billing 50-75% of my time only, it still somehow left me a guilty feeling. Needless to say, in the early years of my career, fixed bid was the preferred option.

Further down the road, I gradually took more managerial work and the amount hasn't stopped increasing so far. The fixed bid that I used to love started to haunt me back. I soon learned that fixed bid contract is all about fortune telling and my team efficiency.

In order to make a reliable fixed bid without massively increasing the estimate, I have started to develop weird hypothesis about what would happen during the development process and truly wish for the ability to tell future like Nicolas Cage in Next. Ok, I accelerated thing a bit here. In practice, I make THREE versions of quote, each for ideal, normal and worst case scenarios. This all sounded insane at the first time I was asked to perform by my boss. Soon, though, I realize that engineers are optimistic and idealize most of the misty parts during estimating (hence worst case scenarios quote for the rescue). Yet, there are parts that are hard to predict anyhow, like the learning curve of a newbie, time to set up dev and prod environments for non-standard products, and deployment time. No matter how you look at it, it is definitely more work, boring work : (

And with all of that burden, I am not even making the estimate for myself, I am making it for my team. Which requires thorough understanding about the team and trust that they will do it in the right manner. If we are efficient at doing the work, we make money, or else an even or a lost. Efficiency of a person inevitably relies on one's emotion, the amount of work and morale. That complicated nature making the effort to jell a team just as challenging, if not more, as telling the future.

T&M billing option now proves to be useful for me, as an PM. I can really focus on getting the job done, rest assure that I will be paid for what I have done. Try stepping into customer's shoes, I also find T&M is more valuable for them, given that the consultant they are working with is ethical and trust-worthy. Terralien illustrate the point beautifully using the house building metaphor.
a fixed price agreement will almost always cost more and give you less than you need.
It has been pretty fun looking at the past and noting it down here. I am not sure how would my point of view change in the next few years but unarguably, this is one of the challenges whose answers define the shape of the company and set it apart from other norms. So I am pretty eagerly looking for next challenges here : )

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