Tuesday, July 11, 2017

Estimating the Unknown

One rainy afternoon last week Roger looked at two projects that turned out to have a lot of unknowns. Because we were unable to define exactly what needed to be done and how long it would take to do it, we couldn't provide our usual fixed price estimate. To keep the price as low as possible, we suggested that the work be done at our standard hourly rate, plus actual costs of materials, equipment and supplies. 

This caused both homeowners some frustration and disappointment because they wanted to compare our approach with others and be sure what we charged was in line and would fit their budget for the work. The problem was further complicated by the fact that although we had been referred by people they trust who know us well and can vouch for us, we were strangers to them. 

Roger and I understood their predicament, but if there are a lot of unknowns we can't give you a fixed price, and even quoting a range of prices is risky if the problem(s) turn out to be much worse than expected. Having said that, we know that some other contractors are willing to wing it and hope for the best, but we're just not comfortable operating that way.

Project #1

The first project was the exterior of a house that was over 50 years old, with many, many layers of peeling, flaking paint. If the surfaces weren't properly prepared, the weight of the new paint could cause even more failure and make the job much larger and more difficult. The amount of preparation time that would be required to achieve a paint-able result couldn't be determined from just looking at the house. There were also going to be some repairs, but they hadn't begun so Roger also didn't know how much cosmetic work he would have to do prior to painting.

Project #2

In the second case the owner didn't want to paint full walls, just bits and pieces here and there on the inside and outside of a large home. In addition there was considerable damage in several rooms from a large, slow water leak, but the extent of the damage couldn't be determined until Roger began digging out the bad areas. He also was told that a high deck needed washing, but the only access was with a very tall ladder that he doesn't carry unless he knows he'll need it, so there was no way to see what condition the deck was in. There were even more "issues", but you get the idea.

The Solution That's Fair to Both Parties

In both cases there was no accurate way to estimate the scope of work. If we quoted a fixed price, we'd have to make it really, really high to cover contingencies, and the terms wouldn't be acceptable. If we bid the projects with unsubstantiated optimism that they would turn out to be no larger and/or no worse than what could be seen, we could be in trouble. 

This is why in both cases we recommended the only fair solution: charging by the hour plus the cost of materials, equipment and supplies. The homeowners would pay only what the work actually cost and we wouldn't lose money on a job that turned out to be much larger than expected. It also would have given them total control of their project because it at any time they were unhappy with the way things were going, they could have paid us for what we'd done and sent us on our way. (BTW, in more than thirty years in business that's never happened!) 

Even after explaining all this, both homeowners pressed us very hard to give them a firm price. We understood and were very sorry that we couldn't do as they wished, but over-charging to protect us would have been unfair to them and under-charging and hoping for the best would have been unfair to us. We much prefer that our pricing for work with a lot of unknowns be just right for both parties.