Monthly Archives: November 2010

Professional Value, Fun with Math

Our lives intersect with professionals. They plan for us, design for us, operate on us, and give us their advice. Our communities are strongly influenced by their ideas:

of legality, of health, of our future.

The fundamental role of the professional is quite simple, although not easy.

To profess.

To affirm openly; declare or claim;

To teach, to claim knowledge of;

To enunciate through recommendations in a consistent and unbiased way certain principles and beliefs upon which we should act. It is a role of leadership within our community, and that is why accountants, architects, engineers, doctors, and lawyers, among other professions, must submit to extensive training and adhere to public standards in return for permission to offer services in these fields.

The meaning of “professional” moves about somewhat. Its contrast with “amateur” (as seen through the 5 lenses of the Olympic looking glass) has turned the professional into “someone paid for it” rather than one who works from purer motives. It is also viewed synonymously with “expert”. “Trust the professional!”

Without in any way denigrating the professional athlete, or any skilled tradesman, the professional has a distinct calling: one who advises action upon principles that she “professes”; and who takes a view of the issues from the public and client point of view, rather than a self-serving one.

Modern professionals occupy a wide variety of positions both publicly and privately, but many are organised into firms of private consultancies offering service for fee. It is here that livelihood and principles find a most uncomfortable intersection: “the billable hour”. Lawyers know full-well its tyranny, and clients its exasperation. The billable hour is rough justice indeed, and in some instances no justice at all.

Here’s the dilemma. Can a consultant truly be paid on the basis of the effect of recommendations, “the success of the project”, when the advice must be implemented by others in an unpredictable world? Whether acted upon or not, advice and ideas have value. This is in part the famous “$1 for showing you the spot to hit, $9,999 for knowing where it is” invoice.

But on the flipside, can a professional make a living by valuing only his or her time, each tenth or quarter of an hour generating a billing, regardless of the relation of that time to the service provided? The slower the service, the higher the bill?

How is a client’s best interest served if fees paid relate inversely to productivity?

To the latter 20th Century, many professions worked from agreed schedules of rates established for different kinds of service ($X as a reasonable fee for this task or that). This rubric of fee crumbled, however, in the face of concerns over monopoly and anti-trust legislation. Professionals turned increasingly to other yardsticks, and especially to formulae relating their remuneration to their time.

But as we often sense, there are problems with the time approach. While apprenticing many years ago at a large architectural firm, I discovered that team leaders knew very well that the firm’s senior partners must never be allowed to work on the project. Why not? Their billable rates would quickly ruin the time-based internal budget. Strange that the experience of the partners would lead to inefficiency, you say? Well, let’s take a look at the mechanics of the “billable hour”, the “hourly rate”, and how they are calculated.

Bear with me mathematically! How is an hourly rate usually calculated in the consulting world?

Working 37.5 hours a week gives 1950 potential hours of earning per year (regardless that professionals may work many more hours than that). A base salary of $75,000 plus a $50,000 overhead amount (for benefits, insurance, leadership, marketing, administration, office rent, technology, furnishings, supplies, training, and a further 20% on the subtotal for firm profit and insurance against unpaid bills) means that each hour must earn $64 to recoup the $125,000. Yes?

A mid-level professional earning that wage, working pretty much full time on billable projects for his firm, still spends some time away from that productivitiy. Perhaps 4% vacation, 3% sickness, 8% non-billable office duties and training, totaling 15% of her time. That means further that each “billable” hour (that is, an hour spent on work that will result in a productive bill to the client or project) must generate more revenue, to account for the non-billable (the 15%).

That brings us to $75.40 (64 divided by .85, ok?). From the client’s point of view so far, so good, because the bill a client receives is still linked to services that benefit his project (that is, it receives the attention of a trained, healthy and productive employee).

Now, here’s where things get interesting. In theory a rise in salary, a car allowance, other perks and items reward the more productive professional. Right? That is, the Jack earning $120,000 a year and costing $67,500 in overhead to the firm, should be accomplishing the same tasks as the aforementioned staff in less time. In fact, work that cost $125,000 from the junior should cost the same from the senior. Since the senior costs $187,500 a year, it follows that the $125,000 of work would get done in 2/3 of a year!

The client receives the same fee request for the same service. Well done. Where the greater project experience or project-smarts of senior staff identify solutions sooner, or craft better solutions, the system still works to the benefit of the client, even though the same hourly rate calculation for the senior fellow yields a billing rate of $113 per hour.

For some items that senior staff do, however, the higher productivity is so obviously not true that clients should be careful in their consulting contracts to specify that tasks best done by more junior employees should be charged at their junior rates. The senior partner likely uses the photocopier more slowly than her assistant, not more quickly.

Well we’ve done ok so far, and the money to value equation seems to be holding. Where might things start to stray?

Well, it’s that management thing. Where senior staff’s wages and overhead (the calculation of their worth to the firm) are more related to their management abilities and responsibilities, or their marketing connections, than their project-smarts, the billing rate calculation leaves reality behind.

So far, we’ve assumed that the senior professional is working on projects 85% of the time. But once in a management role, that same wage, overhead, and profit cost of the previous example ($187,500 per year) must be covered by perhaps only 50-60% of this professional’s working hours, since he is involved in many non-billable internal tasks (hiring the others, for instance). Additionally, his wage level is not related to productivity when he is working on the billable file, since his skills in the trenches may not outshine others earning less, through less use and less familiarity with the file. The client, however, is now paying $190 an hour for somewhere between $75 and $113 of productivity on the project (187,500 divided by 1950 divided by .5 for 50% billable hours).

That is why in the context of mega-consulting firms carrying large hierarchies, project managers often work to keep senior staff away from their projects and clients. They’re trying to get the job done efficiently, either on fixed budgets that can be side-swiped by the partners’ rates, or in an effort to avoid severely higher billings for the same services.

In a world of professional services where the work is often 10% inspiration and 90% perspiration, there is no doubt of the value of senior professionals at key points. Their judgement creates effective solutions for clients, saving hours and money. For these insights they are worth the high billable rate. When they involve themselves in the other 90% of the job, however, their rates do clients a grave disservice unless their productivity is 100% higher for tasks regularly performed by other staff, or unless the billing rates acknowledge the relationship between productivity and consultant billings.

Worse still, some firms have business models with billing for overhead and profit (including the cost of carrying a high-priced management hierarchy and rents in a toney part of town) at TWICE the cost of project wages, or even more. My examples above assume only once the cost (75k wage, 50k overhead, 25k to cover non-billable hours). At these higher levels of overhead, the junior professional bills about $115 an hour instead of $75. That’s a 50% higher bill for the same trained professional producing the same work!

And that more senior professional?

  • with larger responsibilities to the firm that aren’t related to your project, and
  • fewer billable hours to cover the firm’s $360,000 annual expectations?
  • producing an item of work that could efficiently be done by someone more junior?
  • $370 per hour.

At these rates one begins to wonder what priorities are being “professed”.

So next time you are presented with a proposal for time-based billing from a professional, ask him or her to break it down for you. Where does the money go? For productivity on your project? Or overhead? For trained staff to spend time efficiently creating solutions for you, or carpet in the boardroom?

Changing Levels, Connecting Spaces

Ladder stair ramp elevator

Four devices for changing levels. Each is a design with degrees of sophistication, investment of resources, and implications for its users. Ascending a stair burns less calories than climbing a ladder. Ramps of decreasing gradient can be more efficient yet again. Elevators require little apparent energy, and lots of invisible resources from elsewhere (in that “Where does milk come from, Mommy? From the store, Johnny!” sort of way).

The larger resources required to design and build the ramp as opposed to the ladder are invested now for future energy savings each time the ramp is used.

Part of the ramp’s value lies in this aspect of  “paying it forward.” More intensive still, like much of our 20th C infrastructure, is the elevator. The larger resources needed for that device, to hold it in readiness and operate it at our whim, are a cost out of sight and mind.

The elegance of the ramp solution is measured in other ways as well. Ladders require both hands and feet. They reinforce the ape in us. Stairs require that you carry the things you are taking with you, while ramps more gracefully admit the possibility of strollers and children. Ramps respond with access for all instead of a few, and avoid the sustainability issues of the elevator.

Yet for the designer who crafts the connection between levels there is even more possibility. Each solution articulates a different relation between the levels, and adds its own history and vocabulary to the discourse. For instance, as Rem Koolhaas expounded some years back in Delirious New York, the elevator makes possible the notion of many “ground floors” stacked one on top of the other, each a separate world of its own. The elevator is the “Beam-me-up-Scotty” transporter that disconnects you from one world by closing its doors, and, like magic, introduces you to another upon opening them again.

A ramp, however, can explore the opposite end of the connection spectrum. By simply lifting and continuing one plane into the other (instead of intruding a separate device like elevator or stair between them), it questions whether there are really two levels at all, or just a variegated landscape through which we move. The elevator reinforces the separateness of levels, while the ramp addresses their interdependence. The designer may choose and craft these elements in the overall building design to communicate a particular point of view.

The careful crafting of relationships distinguishes design from other methods and processes of making. In a world increasingly filled with “things”, investment in the rich possibilities for their relation is less valued, or worse still, put at the sole service of their sale and private consumption.

At the scale of the City, our experience of relationships and ideas is now dominated by a sort of “monkeys-on-a-typewriter” urban design process. For many decades we have seen our streets and public spaces only as engineered connections between thousands of private destinations A and B, with new growth repetitiously stamping itself across the landscape. Routes for commuting, for example, are not carefully designed experiences that explore our culture’s relationship between work and home. They are “time-outs” between these two worlds; a long ride in an often crowded elevator.

So if the expressways and the major arterials of our commute are the debilitating “elevators” of our story, where are the sustainable “ramps” that more subtly explore and articulate relationships? Let’s follow one example, the deliberate use of curves in our streetscapes, to contrast two very different ideas of public value that such a design tool can reinforce.

Curves In Suburban Design

In the suburban context the curvilinear layout of streets is a highly sophisticated device that organises the experience of a “natural” landscape to reinforce each home as a distinct monument in its setting. The view through the windshield effectively frames house after house as the moving car “pans” along the curving crescent. Each driver values this experience separately, since he is concerned with one address only, his own. And yet the design accommodates all experiences equally.

Whereas a straight street can accent only the privileged address at its end, the curve monumentalises each house in turn, and accords all homeowners special, yet equal, distinction.

The crescent accomplishes an equally sophisticated experience when the street is viewed from the house itself. Because of the curve, the prospect up and down the street is closed, rather than open to the world beyond. This reinforces the special status of the home in relation to its context, since this address is literally in the centre of the homeowner’s perceptible section of streetscape. No suburban house is “just around the corner”. All houses are equally at the centre of their streetscape.

The curvilinear street was adopted in early suburb design by landscape architects such as Frederick Law Olmstead at the end of the 19th Century. From their work in parks and cemeteries, these designers knew exactly what relationships such gradually-revealing paths are capable of articulating. The crescent supports an idea of urban experience in tune with 20th century North American culture: neutral public space organised in support of private monuments.

In contrast to the suburban crescent, and its designed inversion of publicness, there are curves in our historical pattern of streets that celebrate common and shared values. They enrich our now all-too-private lives with some of the experiences we find in great cities.

A simple illustration of the intent of our forefathers is the experience of moving through the bend in King Street at the end of Waterloo’s core, at King and William. Have a look round the google link! With subtlety and simplicity the curve creates two framed views, sets a boundary to Waterloo’s downtown that reinforces its central place in the community, and distinguishes Waterloo from its Berlin neighbour. When the bend is approached from Kitchener, a church is presented, and the importance of spiritual values in our public relationships is highlighted. On the opposite approach, the curve is used to draw attention to a public garden and its monuments. The device of the bend is combined with public control of the adjacent lands so that our shared values are communicated to each passerby. Next time you drive through it, take a moment to look for the signals it sends.

Whether our journey is a simple change in level or a trip across town, careful design enriches our experience and offers literate commentary. Our traditional and suburban streets use design to present coherent but contrasting statements about the nature and purpose of public space. We would do well to read and debate the merits of them, rather than simply follow their lead.

We Are What We Measure

The media runs a business story every so often about how the growth in consumption of oil or some other commodity was down some enormous percentage. Yeegads! It has a graph and everything, so it must be true. It takes a while to extract some facts from the dour headline, storyline, graph, and article itself. Underlying it all is that world consumption of the item had risen once again. It just hasn’t risen as quickly as it had the year before. No mention as to whether the previous year was a historical anomaly, or what the continued growth in consumption might mean. But the tone in these articles is always glum. The news? That growth has taken a nose-dive through one statistical unit measure, one year-over-year. Why exactly would we present a story about one of our planet’s more pressing matters (consumption and resources) in this way?

The old adage: “You get what you measure!” might well apply to these “rate of change” statistics. Might the media be debasing our sense of real value, our connection to real issues? No longer content with its moniker as “dismal science”; or even to measuring a real and even-handed relation between real people, their needs and their means; economic reporting and statistics are now rife with sophisticated “moving averages” and tracks of trends. The up and down of it all no longer seems to matter. It’s whether the up is more upper! It’s not the getting from here to there, or even the speed at which we’re moving. It’s about the trend, the acceleration! Our economic attention span has shifted from planning the quality of our future to planning for speculation. The year-over-year is becoming the thing itself, because the only decision is whether to buy or sell.

There are very few places in a mature and stable system (whether an eco-system, an economy or a community) where a focus on acceleration, where a perception that moving is standing still, is a good thing. A start-up company, an emerging market, a child’s learning; sure, we can understand that zoomier is better.

But once up to speed, is it logical or even safe to continue this focus not just on growth, but on rate of growth?

When forecasts predict fewer cars on the road, That’s a “negative growth” in yesterday’s terms, and a practical free-fall on the year-over-year growth chart, if we use our handy “change in growth” graph. But do all of these statistical trends, no longer climbing so optimistically, really spell doom for our quality of life?

Grow or die!! Growth is inevitable! No growth means no jobs for our children, no increase in tax revenue. These are the mantras of planning, chanted religiously at shareholders’ and council meetings alike. But perhaps, just perhaps, these are the chants of the speculators rather than the true stakeholders.

Those who focus on year-over-year statistics; changes in car sales, housing starts, or increases in tax revenue to name a few; have an overriding interest in acceleration rather than the quality of the thing itself.

We’d all love a little 7% return on our investments. It’s a modest year-over-year increase that will keep pace with inflation and leave a little something to increase our spending power through the “magic of compounding” with which our mutual funds have made us so familiar.

Consider this rate of growth in a community context, however, and it may not seem quite so modest. 7% per year growth means roughly a doubling each 10 years. Regional population 500,000 to a million by 2015. Two million by 2025, four by 2035. Bigger certainly, but better? Shall we double our water consumption each ten years, double the footprint of the cities on our landscape? Double the services or pollution needed to support a quality of life just to the level we enjoy today? Every ten years? Our Region faces the possibility that water consumption will hit a supply wall. Ditto for converting rural to sprawl (although not anytime soon, and over quite a few dead bodies). Setting aside the question of whether we should, is it even possible?

And yet in spite of it all, growth is still our great sacred cow.

Do we make our plans for balance, stability, or maturity?

No, we worship quantifiable, compounded growth, using an ROI-al mentality. We measure it and report it and graph it ad nauseam. By doing so we embed in our decision-making a conventional belief in the power of numerical acceleration to change our lives for the better, to increase the quality of our lives.

The factual evidence for this belief, some would argue, is really quite scarce. Eben Fodor, in his 1999 American study “Better Not Bigger: How to Take Control of Urban Growth and Improve Your Community”, takes issue with whether the urban growth machine really lowers taxes for individuals, makes more or better jobs and housing available to them, or creates a better quality of life. The logical extension of the “Bigger is Better” argument is that more of things makes for better things. Where we measure some items but ignore others, the statistics are used to prop up the conventional wisdom of growth. Yes growth has impact (so the explanation goes), but to others! To us, the benefits! The costs will fall elsewhere.

This is the illusion of economics, where the “externalities” are never measured, and the qualitative ignored where it cannot fit.

In a world of finite resources, in a regional landscape of finite size needing careful balance, as we increasingly turn to issues of quality over quantity, the growth in statistics of growth will hopefully take a downturn. We will no longer be persuaded by “intensity reductions” that plan for increased pollution at, wait for it…, a slower rate each year per unit produced. We will finally start to ask “Is it better?” rather than “Is it bigger?”

Crystal Balls, Visions, Master Plans

My recent tour through parts of Downtown Kitchener, leading WLU’s Dr. Jody Decker and her third year Cultural Geography students set me thinking once again about master plans and visions. Seeing just how little of every master plan actually makes it to reality, and posterity, only emphasizes the craziness of our modern reliance on master plans to organize change in our communities.

Each long-term vision we construct is doomed for obsolescence. To paraphrase Colin Powell: “No master plan survives its first contact with the future.” This is not to deny the importance of dreaming, of desiring improvement, or of pursuing achievements large and small. We must be very careful about how we do so, however. The Master Plan is more enemy than friend of real practical improvement.

Let’s look briefly at the prevalent “visioning” process, usually a half-day workshop or some other well-hyped event. Typically, participants in such exercises are forced into a framework where step ! requires a “vision” of how our city, business, neighbourhood, social issue, or whatever topic du jour should look like. The vision is set way into the future, perhaps 10 or 20 years out. What’s more, we are of course to dream this nirvana using our present, and limited knowledge of the issues and solutions that we will have faced in those 20 years.

Following the construction of this perfect and seductive scene, we are galvanized by an army of facilitators into enthusiastic development of a road map: a “plan” for getting there. Starry-eyed, we work backwards to “phases”, “first steps”, and “milestones”.

But first this commercial break.

Imagine the freedom. Today’s Lotto 649 jackpot is $44 million.” Sound familiar? Well, the sad purveyors of that tax on the hopeful and innumerate, Lottario, know exactly how visions work. Imagine the reward, and take the first step. Their process is eerily similar to the daylong visioning conference, or the development of a master plan, with at least the advantage of brevity. In the thirty second commercial we’ve run the gamut, and all that remains is to make the ticket purchase part of our day. Remember: “if you don’t play, you can’t win.”

Seen through the advertiser’s lens, those “visioning” workshops and master plans (so loved by consultants and politicians alike) are just long drawn out commercials, selling tickets to a dream of your own making. Not pretty, but pretty accurate?

So what’s wrong with conjuring up utopia and then selling us the roadmap?

And if we never get there, is partway so bad?

Well, there are some problems to this method.

First and foremost is that we create our vision from what we know, and we know precious little that is really applicable to the future except through random luck. Combining this with our essential belief and human need for a world of cause and effect, of coherence, means that we overestimate our thin sliver of knowledge and grossly underestimate what we don’t know. Put simply, we don’t know (and refuse to confront) that which we don’t know.

Scientific evidence for the real and emotive basis of our decision-making continues to question the objective myth for how we choose. Homo Economicus and other constructs of Rational Man are giving way to a more practical understanding of our mindset in a world of uncertainty. We tend to decide so that we confirm what we know. Our plans and visions are a projection of the story that we have constructed for ourselves to date. Facts are enlisted to support this coherent world-view. Contrary evidence is brushed aside.

The biases and fallacies of our view, and our underestimation of randomness in the face of uncertainty and risk, are well-chronicled by Nobel Prize winners Amos Tversky and Daniel Kahneman. Our tendency to project into the future on the basis of past results, no matter how silly this may seem upon rational examination, is the basis of most mutual fund sales pitches.

Why then would we endorse a process for designing our civic future that ignores its one predictable feature, unpredictability? Why substitute a serious study of this risky landscape across which we must navigate with an uninformed projection of our story to date? Perhaps it’s just easier. Perhaps it’s what we did last time. Perhaps it helps make decisions, no matter how inappropriate for the future we face.

A second fundamental problem with visioning (and more particularly the master plans they create) is that the nature of the goal is more important than the quality of decisions taken along the route. Instead of confirming values that can be consistently applied to an uncertain landscape, the process creates a product that is to be attained no matter the means. As a stark and recent example, if our goal is to have quality intelligence to help protect against the risk of terrorist attack, a little waterboarding or extraordinary rendition along the way is a small price to pay!

This elevation of “the vision”, created with enthusiasm from a landscape of ignorance, creates a set of decisions that are questioned once circumstances change. Our civic polity is littered with abandoned master plans and visions, all rendered obsolete by changing times, leaving only decisions that cannot stand scrutiny once the goal is questioned.

There is another way forward, and it starts with seeing our future as a strategic design for decisions that are made in the face of uncertainty, for risks that must be braved. Here are potential aids that should likely supplant any “visioning” exercise you’re about to undertake:

  • Analyse risks first, and their potential impact. Create values that will be touchstones for decisions in the face of these risks (“How will we react when …”) rather than using distant outcomes to inform action decisions.
  • Create decision-trees that maximise positive results early (Make things better and better, with less worry about the eventual “best”). The order in which actions are taken is critically important to success, and to creating robust strategies that “degrade” with dignity, for degrade they surely will.
  • Design strategies for some successes and accept that there will be many failures. Limit the effect of such failures and maximise the potential benefits of those successes.
  • Do not invest heavily in a “right answer” since such a vision gambles too much. In other words, never eat anything bigger than your head!

Take to heart these two sentiments from Lewis Mumford:

“You might say … that the city is a place for multiplying happy chances and making the most of unplannable opportunities.” and “New York is the perfect model of a city, not the model of a perfect city.”