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.

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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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MANAGING FEES -for Building Design practices PART – IV

Post 511 by Gautam Shah

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Building Design firms often provide many different design services, such as Architecture, Interior Design, Structure, Interiors, Landscape, etc. And within these broad range of groups, the actual services may relate to New constructions, Renovations, Alterations, Extensions, valuation and project assessment, project feasibility reports, etc. The projects, when handled simultaneously rarely remain within the confines of well-documented definitions. Like some pre-emptive work for interior or landscape design will occur in the architectural scheme. And when the post building construction, other services are prematurely terminated, the ‘pre-emptive’ work will not get paid.

Serpentine BP Pedestrian Bridge by architect Frank Gehry’s Buckingham Wikipedia image by Author Torsodog

The Louvre Museum

These services occur in different schedules, and their scopes are based on very different criteria. Building design fees are chiefly collected on the basis of floor spread or footprint, except in few countries where it may be based on hours spent on it. The floor spread based varies with the type of project. Fees charged for Architectural projects include the construction cost (built-up coast) + some extra for site development design works. Similarly structural design fees are computed on the construction costs, but that may be a small part, in comparison to costs of site development works like land contouring, retaining walls and other support entities. Interior Design fees cannot always be calculated on the basis of carpet area, as lot of materials and objects are retained or reused.

Maggie’s Care Centre, Glasgow, Scotland Wikipedia – Flickr image by Author scarpadog (Jon-Marc Creaney)

In a group or associated practices the savings occur from the seamless handling of a project. This occurs when common entities are detailed or specified just once. Like for Landscape design site structures (pavings, curbs, retaining walls, water-body formations) are specified with architectural details. Electrical layout for architecture and Interior design is nearly identical.

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Das Haus der Deutschen Kunst in München.

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Yet, in all these, the most important issue, vis a vis a client that comes through is, What should be, and How to determine the Cost of the job? The term Total Cost of Job nominally means to include all the costs of actually executing the designed job, similar costs of inputs from other design consultants or agencies, and the cost of all the peripheral work executed on the site through or by owners themselves or their agents, during the Currency period of the Design Services. The total Cost of Job will also include the estimated value of the work being preserved or maintained on the site.

interior-of-maintenance-shop Public Domain images by Hillebrand Steve, U.S. Fish and Wildlife Service

At the start of a design project, the total cost of the job, is not available. As a result some notional figure is determined, to bill the first installment of fees or a lump-sum figure is used for first bill. This figure is determined on the basis of total cost of the job, but more importantly the intellectual rights of design formation. To determine the cost of a job, spread of the job or the built-up area is very useful. Structural engineers often base the fees on RCC (or structural) component of the project or a percentage of fees payable to the architect. Interior designers base their fees on Carpet area, but more surely on Interior Design intervention area, which is more rational or realistic. In spite of this in a group or associated practices it becomes difficult to derive a common fee’s formula.

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The Louvre Museum

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HOW DO PROFESSIONALS and CLIENTS SEEK EACH OTHER ?

Post 484  by Gautam Shah

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Professionals and clients seek each other in a variety of ways. A client can go about it without any inhibitions, whereas a professional can go about it with certain restrictions, depending on the type ethics followed by the profession. Client and professional come to know about each other primarily through intermediaries like friends, relatives and so on. However, in a rare case, the client may contact a professional directly after seeing or experiencing the work as a real entity, sketch or a publication about it.

CLIENTS’ approach

A lay-person as an Individual is always free to appoint any person as an adviser or helper for the professional services. Here no Government regulations or rules of the professional bodies like council or guild can be operative. Perhaps by dealing with ‘unrecognized professional’ one may not get legal protection or redressal.

When an organization, as a client is not allowed, or authorized to deal with any professional, on a person to person basis; a process for an appropriate selection of a professional is required. The process of selection begins with invitations offered to:

  • any competent member of society,
  • member of bodies with a certain level of competence
  • members of a body who necessarily have certain level of competence.
  • persons belonging to a certain geographical region, experience, age, sex, nationality, religion.

For complex jobs, selection of a professional is done through a competition, wherein professionals are required to tackle certain essential components of the job, or offer a holistic concept towards the issue.

Intermediary

A client may not contact a professional, unless there is some foreknowledge, reference or suggestion by someone. This usually comes through another professional, like a financial adviser. Members of the society usually know where and how to locate professionals of well established or traditional fields. However, in newer branches of human skills, the professional and the client do not have an appropriate forum to interact. In such situations, the intermediary professionals help to bring together the potential clients and professional.

PROFESSIONALS’ approach

A professional on realizing a person’s potential as a client, may seek the person directly or through a mutual acquaintance or a friend. However, if the person concerned is a potential client in the official capacity (employed official of Government or private organization), than an official appointment with the clear declaration of intent is necessary.

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A professional can seek a client in a variety of ways. Most of the professional bodies regulate a professional’s exposure and consequently the behaviour with the society in general and with potential clients in particular. Many professional bodies discourage direct advertisements by professionals to seek clients and assignments. “An advertisement however effective cannot project the professionalism or the competence of a professional”. It provides an undue advantage to the user.

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Most professional organizations believe that professionals should receive jobs in proportion to their professionalism and not their capacity to project through media. Paying out any consideration or any promise to that effect, to procure a job is also considered unethical. Problems of this ground arise; when a person is a client on the basis of the official position (so is capable of selecting / appointing and compensating a professional).

1024px-Consultation_-_Health_Check-up_Camp_-_Howrah_Swamiji_Sangha_-_Dumurjala_-_Howrah_2015-04-12_7598Cultivation of social contact is the most common method for a professional to come into contact with a potential client. Other Personal approaches include, specific letters, generalized bulletins, telephonic calls and face to face meetings. The impression created through a meeting or telephonic call may not be of desired type and intensity. Letters are very objective, last longer but have to be brief to be effective. Professionals get clients from other professionals. Here their competence is assured by the referring person.

Bio-data or resume is ever lasting, and very effective medium of exposure. Bio-data may contain basic information about the person, professional achievements and competence. Bio-data could be a very specific document, prepared (tailor made) for a potential client or could also be a generalized document that may serve to a set of potential clients with similar needs. Bio-data could be a very general introduction, good for any person whether potential client or a lay person.

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A bio-data that is tailor made, may reveal or emphasize data that is relevant to that particular exposure. Concealment or non emphasis of data in such a bio-data is intentional and is generally not unethical though could be malafide. General bio-data tends to create impression of a commodity pamphlet. Creative professionals generally do not favour this type of medium. Internet has become an ideal medium for placing a Bio-data. A digital document is very flexible and accessible worldwide.

In dealings with clients, what kinds of behaviour, actions or attitude are considered as unethical, malafide or bad, varies from country to country, region to region, profession to profession, and time to time. In professions where rules regarding behaviour have not been formalized, it may vary even from a professional to professional.

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PROFESSIONAL FEES

Post 475 —by Gautam Shah

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Rare professional skills earn a high return in society. Sometimes a professional also earns more by exhibiting exemplary behaviour or professionalism. An experienced professional earns more than an amateur or novice. A young professional with fresh or new talent may demand more fees. Professional fees are often suggested or prescribed by their bodies, public groups or Government, yet professional fees remain subjective and negotiable. It is private understanding or a covenant, sometimes secretive, and no one else needs to know or be informed about it. Professional fees are very subjective. A professional may charge different set of fees for nearly similar project or assignment conditions. Fees vary from a professional to professional, from project to project, and also from one client to another. There are no standards.

Fees’ determination and thereafter fees negotiations are very difficult aspect of professional practice, but (first) fees collection sometimes more worrisome matter.

Senior professionals have experience, and so can prejudge the value of their professional services. Fresh professionals and even seniors venturing into unknown fields cannot do so. They would rather compute the cost of input first, and then add a fixed or a percentage amount, as profit, or more simply find out what others are charging, and follow that up.

A notary at work (painting by German artist Max Volkhart).

To determine a right fee, a professional is expected to know the following:

(a) What is the Value of professional services to the client, and in the society,

(b) What is the cost of providing professional services (cost of input),

(c) Wills there be a surplus (profit) after deducting (b) from the (a).

A professional’s involvement in an assignment or a project depends on many factors: Personal attitude (sincere, commercial), Demands by the client, Nature of the assignment / Competition from others / Client’s readiness to bear the additional costs (of intense involvement), etc. Cost of involvement in the project is as per the agreement on the variety of design services offered and agreed upon, and the scale of the project. Any downward sizing of the project does not automatically reduce the involvement of the professional. Though, upward scaling of a project, increases the professional’s work.

Scale of a project varies during planning, designing and the execution phase. Even at fixed spread or volume, the costs inflate or deflate according to the economic conditions.

Professionals conduct two types of jobs. ONE, where the projects are materialistic [1] consisting of materials, labour etc. and charged on the Cost basis. And TWO, where the projects are metaphysical [2] may be delivered as formatted over some media. The cost of creating, delivering such a metaphysical entity is of course negligible, and the cost physical actualizing could also be very small. But the affectations of such offerings are great. A client may gain extraordinary advantage by such professional contribution.

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[1] Materialistic projects are like Architecture, Interior Design, Software programming, etc. Metaphysical projects are like project consultancy, medical, legal, delivery of proto-types.

[2]  Metaphysical  projects are made up of concepts, advises, ideas or abstract offerings like artwork or literary compositions.

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