UNDERSTANDING DESIGN FEES

Post 713 -by Gautam Shah

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Designers often help their clients to acquire or dispose off entities in their completely prepared form. When the transaction originates at producers’ end, it is little above the cost, at a price. Price, reflects the value a producer attaches to an entity. Later transactions may not in any manner relate to an entity’s cost.

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For a thing to have a value, it must be transferable. A latent value becomes potent when it is perceived that someone needs the entity in some time and space, for a utilitarian or hypothetical purpose. A demand for a perishable commodity, if it, does not occur within the life span, is irrelevant. Similarly demand for something in a far off place cannot be satisfied, due to transportation hazards and handling problems. Air has a lot of utility but is not scarce. Rotten eggs may be scarce, but hardly have any utility. Friendship is very useful and scarce, but is not transferable or marketable.

Historic cost of creating a painting may be few drops of colour, a canvas and artists’ few moments. But once the fact is accomplished, the painting gains a very high value due to its extra ordinarily high relevance to the society. Relevance of a product in terms of its utility is (more) likely to degenerate over a period of time, but its value may appreciate or depreciate depending on its relevance to the owner or the society.

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Prices are effected in money. Prices go up or down depending on the fall or rise in the (universal) value of the money. Any change in money (monetary value) affects the prices of all things across the board. Value of a thing, however, is specific. There cannot be a general fall or rise in value of all things. Value of a thing goes up, when we can acquire or aspire for more or superior things in exchange. Value of a thing goes down, when we can acquire or hope for less or inferior things in exchange. Value is relative, referred in terms of something else.

Value of a thing, cannot be always measured in money. Value has many different connotations, typically, it has relevance in terms of, emotions, remembrances, associations, ageing, maturity, heritage, rarity, ecological, environmental, social, etc.

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Valuation, in functional sense, is done to determine what one would gain by acquiring, or forgo by disposing the item, but not necessarily doing so. Value of a product means an addition or deduction to wealth, Cost at the moment of transfer may or may not reflect the value of an item, but it helps in a better judgement of the value.

A rare painting or an antique may have an indeterminable cost, but will have a probable value. Value could be several times more or less than the actual cost of the item. Value is considered to be the true worth of an item, more lasting, but not necessarily reliable. Cost and price are very realistic and reliable, but not always representative of the true worth of the item. Both, perhaps, are required to gain a full insight of the situation.

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Monetary versus Non-Monetary Valuations

Valuations are of two types: Monetary and Non-Monetary. Monetary valuations are not very different from costing exercises. Value of a thing, cannot be always measured in money. Though here utility, desirability, scarcity, availability and marketability etc. of an item are assessed in monetary terms rather than market equivalent costs of such items.

Valuations of non-monetary type are made to check adherence to values, customs, traditions, ethos, rules regulations, laws, etc. Greater adherence to these issues results into higher value realization for the product. Often negative or repulsive aspects of an entity, such as Hitler’s memorabilia, black magic tools, due to their rarity, invite a connoisseur’s favour. Non-monetary valuations have a relevance only to people who are concerned with it in some way. Non-monetary valuations based on one aspect or few concerns are not very useful, desirable, or even reliable. Non-monetary valuations based on too many aspects are not comparable, so must be scaled into some economic or monetary component. These makes, a valuation, very complicated process.

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Costing versus Valuation

Costing is a logical (mathematical) process, and any technically proficient person can carry it out. Costing process must always remain justifiable, and requires many exact inputs, including latest market costs etc. Valuations, however, involve many hypothetical judgments, are very subjective, and so may not seem rational. It is the experience of the valuer that imparts some degree of objectivity and also reliability to the valuation. Valuation on the other hand is a subjective judgment, and no explanations may be asked for.

Costing helps a designer in planning, budgeting and auditing the expenditures. Valuation is used to confirm or justify expenditures, indicate non monetary savings, and to convince a client for quandary options.

 

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Design Practice and Cost Determination Methods

Designers choose entities, increase or decrease their usage by predicting the costs. Designers develop their own cost determination methods, appropriate for the jobs they handle, and for types of items specified in their projects. Input data like market rates for materials, parts, components, labour etc. are continuously updated or sought as and when estimates are to be prepared. Updating feedback is also available through the historic estimates conducted on completion of a project.

In design offices predictive cost analysis is made through Rate analysis. Average prices of all commonly used materials, operations, etc., are collected routinely, reformatted and stored. These are presumed as standard rates, and form the basis for the cost analysis. To simplify the process of cost analysis, number of items and their individual rates or prices are reduced by approximation (through definition of a factor for variation) in quantity and quality.

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Routine jobs and jobs with substantial intellectual effort

Routine jobs have a determinable cost (and by adding a customary margin of profit, etc. one can derive the price). However, jobs with substantial intellectual effort accomplish more than the cost of implementation. So, dilemmas occur, should one charge a professional fee on the total cost of the job, or value accruing out of the job? Authors of creative efforts must know how to value their accomplishments, and thereby demand a fair compensation for it. Designers need to know both the cost and value of their professional services.

Cost versus Value for Designers

The understanding of Cost versus Value of an entity helps a designer at TWO distinct levels:

1 Determination of Fees: Cost-based and Value-based

2 Helping a client for the value-assessment of their possessions.

Screenshot_2020-02-29 Mares and foals with an unfigured background (England,1762) - George Stubbs (1724 - 1806)

Cost-based Fees

Design practice follows age-old traditions of Architectural practice. Jobs are generally executed by appointed contractors or selected vendors. These third party (away from the Architect and the Client) business entities present an invoice, which reflects the nearly true cost of the job. Architects base their fees on this foundation after adding certain percentage amount to account for miscellaneous expenses, (such as on power, water, etc.). Substantial part of Designer’s work follows a similar path.

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Value-based Fees

Value-based Fees are charged for jobs like renovation, extension, addition, conservation, etc. that make substantial change to the existing environment, upgrading the commercial value, or advantages deriving out of it. A unique concept that costs very little to implement, provides a substantial benefit to the client. Should one charge a fee on the cost of a job or on the value of the completed job? Here determining an appropriate cost base for fees is very difficult.

Value Assessment of Possessions

On some sites there are pre-existing structures which are to be only reformed or reused. The design cost of continuing or protecting such structures is difficult to compute, and so must be value-based. Cost of works or supplies by third party vendors and contractors are accountable, but items supplied by the Clients from the existing stock are difficult to document. Cost of Retained Structures, Antiques, Curios, used in a project are often indeterminable, instead their values, if available need to be used. On sites where several Professionals operate simultaneously, exclusive authorship to a creation is disputable, so cost of a patent idea is disputable.

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Cost Plus Fees

Fees for very complex jobs, or jobs that are unique, and without any precedents are very difficult to predefine. A Client wishes to see the job properly done, and the Professional wants a guaranteed, but a fair amount of income. Such jobs are executed on Cost Plus Basis.

The office work of the professional and the site work of the project, both are executed in a very transparent setup. All the expenses at the Processional’s Office (salaries, stationary, conveyance, rents, service charges for equipments, etc.) and at the Project Site (on raw materials (stationary), wages, and salaries, rents for equipments, conveyance, postal and telecommunication charges, taxes, etc.) are well monitored, documented and audited. The Professional is then allowed a percentage over the Audited Costs.

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COMMITTING a CLIENT for JOB

Post 489  by Gautam Shah

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For a young and fresh professional, a new client is like a girl (or boy) friend. You look for the right occasion and mood to propose. And perhaps discuss the terms and conditions. The client may not run away, but will also not indicate any commitment. A fresh professional is always very eager to secure the job, and may not wish to disturb the budding but fragile relationship with the client. But a client detests any formalization of relationship so early with an age-old excuse, ‘does not fully know the professional yet’. That translates to the reality that client wants to delay the decision. Clients are also shrewd enough to have a free taste of thing to come before formalizing the relationship.

When a professional and client decide to establish a relationship, it usually occurs very gradually. An established professional will not show any haste. Rather, express a desire to know more about the project and perhaps the client, before establishing a relationship. All seasoned professionals expect new clients to be familiar with the design field and their projects. This is quite different from fresh professionals who are required to establish their bonafide.

All design professionals (fresh and established) need to know, if they decide to take on a project —what will be their gain, and if they do not take a project —would there be a loss ? To accommodate (accept) an odd project or unusual client, a professional may not only shed profits, but end-up disturbing the routine work and culture of the practice.

Ecrivains_consult_-_Texte_4_mainsFor all professionals, requisition of a formal commitment (consent) from a client, for a job, is a very difficult exercise. Formal commitment binds a professional to deliver the expected services. A professional begins a job, by investing in labour, stationary and intellectual skills. Whereas, a client awaits with uncertainty whether the professional will at all deliver the project with required quality, and in time. When a professional fails to deliver, not only client’s time, but effort expended reaching to this stage are wasted. Clients’ time and efforts both are non-calculable and recoverable entities. And when the client fails to appreciate a professional’s work, all the labour, stationary and intellectual skills are wasted. Few of these can ever be determined.

A variety of problems manifest, till a client formally commits a job to the professional. In case of an individual client (private), only a personal whim can cause a problem in the job. In case of a client representing a formal or informally constituted group, the leader’s relations and position with the group, if changes, it can necessitate recasting of negotiations. In case of group clients or committees, all decisions and actions are necessarily formal, and so job commitment is not a major problem, though there are inevitable delays.

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Ideally a client and a professional should enter into a contract as per the law of the land. But a contract is a very formal expression of intent. It is too much to expect a client and a professional to formalize their relationship with a contract, when they hardly know each other, or have not formulated the project. Just the same, even in the absence of a contract, they must nurture the relationship. In a normal course this is not very difficult, as both the parties are willing. However, at a later stage if there is a problem, either of the parties may refuse to recognize the fact that there was a budding relationship between them. In such a situation a professional will lose all that was invested in understanding, preliminary working, planning of the project. This could include not only labour, stationary but patent ideas. On the other hand a client will never recover the time that wasted in searching, identifying, convincing the professional and waiting for solution.

Angelo Litrico 1957 Italian fashion designer

It is very natural that clients and professional are extremely careful about things they say and do. For a professional, (who is operating in the absence of a very formal commitment), it is necessary to create an evidence that, a client did commit the job or at least was aware that the professional is working on it. The evidence in such a case is usually circumstantial. Circumstantial evidences are not generally tenable in court of law, unless corroborated by other circumstantial or real evidences.

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Best commitment, next to a legal contract is payment of a Retainer amount. A retainer fee, however small, signifies establishment of a relationship, between a client and a professional. (retainer amount or fee should not be confused with retention money). Ideally a retainer amount should be large enough to cover not only the labour, stationary and skill, but the cost of patent (original or exclusive) ideas required to generate a schematic design (or such other stage when fees again become due). The cost of patent or unique idea is collected at first go, because a unique idea or a concept once exposed to an outsider like a client, loses its originality and so the value.

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Differentiating COST from VALUE -Interior Design Practice

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Interior Design practice involves dealing with works of art, artefacts, craft pieces, and many other precious things. It not only involves identifying objects, judging their true worth, for acquiring, and sometimes even disposing off such articles.

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At another level interior designers also help create entities of such merit. The benefits accruing to the client could be several times more than the real cost of creation or acquisition. It is very important for a design professional to be able to differentiate between the cost and value.

Routine jobs have a determinable cost (and by adding a customary margin of profit, etc. one can derive the price). However, jobs with substantial intellectual effort accomplish more than the cost of implementation. So, dilemmas occur, should one charge a professional fee on the total cost of the job, or value accruing out of the job? Authors of creative efforts must know how to value their accomplishments, and thereby demand a fair compensation for it. Designers need to know both the cost and value of their professional services.

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The understanding of Cost versus Value of an entity helps a designer at TWO distinct levels:

1 Determination of Fees

2 Helping a client for the value-assessment of their possessions.

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1a.       Determination of Cost-based Fees

Interior Design practice follows age-old traditions of Architectural practice. Jobs are generally executed by appointed contractors or selected vendors. These third party (away from the Architect and the Client) entities present an invoice, which reflects the nearly true cost of the job. Architects base their fees on this foundation after adding certain percentage amount to account for miscellaneous expenses, (such as on power, water, etc.). Substantial part of Interior Designer’s work follows a similar path.

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1b.       Determination of Value-based Fees

Jobs like renovation, extension, addition, conservation, etc. make substantial change to the existing environment, upgrading the commercial value, or advantages deriving out of it. A unique concept that costs very little to implement, provides a substantial benefit to the client. Should one charge a fee on the cost of a job or on the value of the completed job? Here determining an appropriate cost base for fees is very difficult.

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2.         Value assessment of possessions

In design field valuation is made for all types of properties to assess their wealth. Designers help their clients acquire or dispose off entities. Value is specific, there cannot be a general fall or rise in value of all the things. Value of a thing goes up, when we can acquire or aspire for more or superior things in exchange, and goes down, when we can acquire or hope for less or inferior things in exchange. Value is relative, referred in terms of something else.

Value of a thing, cannot be always measured in money. Value has many different connotations, and it has relevance in terms of, emotions, remembrances, associations, ageing, maturity. heritage, rarity, ecological, environmental, social, etc.

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