Economic Order Quantities
Some Caveats
- BYO Business Acumen.
- Damn it Jim, it's a model, not a doctor.
- If you're pointing fingers,
make sure you're looking in the mirror. Kthxbai.
Pro Tip
Ignore everything I'm about to tell you
and do Agile instead.
Some problems
- Working for the man.
- Selling your life by the hour.
- Client wants a fixed price.
- Client wants to go out of scope.
- It can be hard to get paid for out of scope work.
Some goals
- Pursue the right work.
- Avoid the wrong work.
- Mitigate risk.
- Charge according to value.
The model
Pq =
o *
log10
(C + R + V)
* d + m
The model
Pq
=
o *
log10
(C + R + V)
* d + m
Pq:
Quote price.
The model
Pq =
o *
log10
(C + R + V)
* d + m
C, R, V:
Complexity, Risk, and Value
The model
Pq =
o
*
log10
(C + R + V)
*
d + m
o:
Overhead
d:
Ideal days
m:
Material and direct project costs
The model
Pq =
o *
log10
(C + R + V)
* d + m
Overhead
Pq =
o
*
log10
(C + R + V)
*
d + m
o: Overhead
Overhead
Moonlighter's example:
Match your preferred beer to your overhead rate.
- Pabst Blue Ribbon - $50 / night
- Spotted Cow - $75 / night
- Guinness - $100 / night
- Chimay Blue Label - $125 / night
Overhead
Freelance example:
- I want to take home about $30,000 a year.
- Taxes are about $7,500 a year.
- Health insurance costs $6,000 a year.
- I spend $1,800 a year on sales and marketing.
- I spend $2,000 a year on new computers.
- I spend $3,000 a year improving my skills.
- I expect to do billable work three days a week.
Overhead per work day = ( 30,000 + 7,500 + 6,000 + 3,000 + 2,000 + 1,800) / 150
Overhead per work day = $415
Overhead
Agency example:
- Operating Expenses (including payroll): $72,000 / month
- Employees engaged in production: 5
- Productive days per month: 20
Overhead per day per employee = 72,000 / (5 * 20)
Overhead per project day, per person = $720
Ideal days
Pq =
o
*
log10
(C + R + V)
*
d
+ m
d:
Person-days required for the project
under the most ideal circumstances
Unicorn by Enokson
Direct project costs
Pq =
o
*
log10
(C + R + V)
*
d +
m
m: Materials and direct project costs.
Examples:
- Travel expenses - hotels, meals, mileage, etc.
- Hosting a development environment for the specific project.
- Hiring a project manager.
- Contracting specialized work.
- Buying project-specific training materials.
- Software licensing.
- Etc.
Fuzzy Math
Not actually fuzzy, just logarithmic.
Complexity scale
Pretty much anyone in your field could do it.
There are few people in the area who can do it.
There are few people in the country who can do it.
It probably can't be done.
Risk scale
There are some problems with the project.
There are signficant risks with taking the project.
Value scale
The financial impact of the project will be at least double the cost.
The financial impact of the project will be an order of magnitude greater than the cost.
The financial impact of the project will be two orders of magnitude greater than the cost.
An Arab prince has already written you a blank check.
The Hunger Game
How to discount your work:
- Look for snacks, not huge meals.
- Quote full price and then apply a discount.
- Your discount may be a marketing expense.
Talk to your accountant.
Advanced use: Nesting
Advanced use: Analysis
Ideal Cost:
o * d
CRV factor:
log10 ( C + R + V )
Hard, but worth it
Assholes and superheroes
Danger Will Robinson!
Sweet spot
