What The Joker Teaches Us About Construction: Cost, Price, Value
What can a fictional, sinister, evil comic book character teach us about construction? It is simple: cost, price, and value.
“Half” –The Joker, The Dark Knight
Every project has three things in regard to the financials: Cost, Price, and Value. As every business owner knows, there is a vast difference between them. Most businesspeople have just not put these three up for comparison, and have missed out because of it. Business owners, project managers, and leaders need to live in the world of “value” while still managing costs and prices. These three are inseparable; but if you manage them right, they will work together to get you everything you want out of a contract.
Cost: The hard rates of your project, job, or initiative.
Price: The amount someone is willing to do this project, job, or initiative.
Value: The amount this project, job, or initiative means to you.
Notice how everything here has a dollar amount on what it means to a person. When you’re dealing with business, it is not only just dollars and cents, contracts and legalities, bids and builds. It is dealing with people, including your own opportunity costs, expectations, desires, and dreams.
The good news: since we are dealing with people, everything here is negotiable. The bad news: since we are dealing with people, everything here is negotiable.
Your goal should be to get the best value out of the costs and eventual prices you are quoted. If the value does not exceed the price you are going to pay, then it’s time to ree-value-ate. And all of this has to be considered on the front end, before anyone even lifts a shovel.
To illustrate this, consider a nugget of wisdom from the Joker in the movie The Dark Knight. At one point in the height of action in the incredible movie trilogy, the ever unpredictable archetypal bad guy, the Joker, is asked the question as to why he did not yet get rid of the spoiling-everything-the-bad-guys-do Batman. One mob boss asks him: “If it’s so simple [to get rid of Batman], why haven’t you done it already?”
The Joker menacingly replies, “If you’re good at something, never do it for free.”
Here is someone who knew the differences between costs, prices, and value. The cost would be relatively cheap. The value would be very high. But the price was the negotiable part. Just what is his price? How much would he have to be paid to take action on what the mob bosses needed?
Because the Joker knows just how much value he can bring, he later parlays his services into a price of half of the entire mob’s riches. Half!
If you, as the owner or manager, are over a barrel–as everyone is when they go up against Batman–the price goes up, nearing the value threshold. If the contractor is over a barrel, the price goes down to nearing the cost threshold. Sometimes dealing with selected contractors can feel like dealing with the mob, the Joker, or even Batman: intimidating, frightening, knowing that no one is going to walk away happy. But where is that happy medium so that you can get what you want and not ruin your business while doing it?
Dream in values; negotiate in costs, and land with a mutually-beneficial price. LESSON 1: DREAM IN VALUES
We all work to get what we want. No one would do anything unless it really moved him or her forward. There is no reason to exert effort in negotiation, design, management, and–after all of that work is done–maintenance and operation of the thing you built, unless there is a value coming out of it. This is dreaming in values. Once philosopher put it this way:
“He who has a ‘why’ to live for can bear almost any ‘how’.” –Friedrich Nietzsche
This is also the reason you can (and have to) sell this vision of value to stakeholders you work with. If you have the why, or the value of the proposition, you can frame the value correctly; and there is not a single shred of resource that will be spared in pursuit of this value.
That is exactly why you have to dream in values.
If you are a business owner, this is easy: you know what you want and how to get it. You have very few people to convince. However, on the other hand, you still need to put a value on just what it is you are building. If you cannot tie that to anything in reality, you are simply dreaming.
And while the value dreaming is the best part, it quickly if reduced to the drudgery of slogging through negotiation of costs. LESSON 2: NEGOTIATE IN COSTS.
Dreaming about values will only get the project started, but it will not put brick and mortar to your dreams.
“Here at Constructable, we dream in brick and mortar, in actualizing the vision you have created. We also create in the real world all those things you ask us for.” –Jared Hellums, Principal, Constructable
The joys of dreaming up a project must go through the rigor of cost negotiation to get to the final price. Is your dream doable? Absolutely. But at what cost? The cost will determine if your idea soars to new heights or crashes and burns miserably. Thus, negotiating the cost effectively is the only way to put legs on your vision.
Here your contractor and sub contractors, vendors, procurement managers, engineers and architects have to duke it out in a gladiatorial style melee, each with their own dreams at stake. Here is where it gets difficult. Yet here is where the magic happens. At the end of this process, you must have clearly-defined goals, plans, and phase gates to know that you are really on your way to reality.
Everything is negotiable. Just because someone says there is hard cost does not mean they are at their bottom dollar. Everything is negotiable. If your contractor wants the business this badly, then he or she will have to move closer to the real costs. If you want the dream this badly, you’ll have to move closer to the proposed value. Give and take; tit for tat; sacrifice this to gain that. These are the rules of the game. LESSON 3: LAND WITH A MUTUALLY-BENEFICIAL PRICE.
To return to the Joker’s wisdom, “If you’re good at something, never do it for free” is an apt reply to mobsters and contractors (some of whom seem to be largely the same). No one is going to do anything for you for free. Your stakeholders will not support your vision for free; they have to get return from it and not look foolish for throwing their weight behind you. Even then it will cost you their trust, backing, and time. But if you can weather the cost negotiations with the dreamed-up value firmly in place, you can finally reach the mutually-beneficial price.
In getting half of the mob bosses’ money, the Joker was dealing with value of his job (the fact that the mobsters would not be killed or have to go to jail). Such a good negotiator and such a huge value assured him that they would land on his price (half) out of necessity.
A worker is worth his wage, says the ancient wisdom. And the person you are dealing with has his own margins, bottom line, and family to care for. That is why business is inextricably linked to people. Meeting those people where they are at and landing at a mutually beneficial place is what your are dealing with when you negotiate based on price.
But, if you have dreamed appropriately and negotiated carefully, you can land on a price that is mutually-beneficial. And your stakeholders will be satisfied as well.
THE SOLUTION: DREAM IN VALUES. NEGOTIATE IN COSTS. AND LAND WITH A MUTUALLY-BENEFICIAL PRICE.
While it is true that there are some out there to get the best deal at all costs; some who pull a bait and switch on price; and some who will throw the whole process into chaos, it is possible to get what you need out of the project. None of this need bother you if you are firmly grounded in a realizable dream with solid costs. It is at this point you can land with a mutually-beneficial price; and then you will get to enjoy the long-lasting value you were dreaming about.
“At Constructable, we bring your ideas to reality through a carefully-thought-out quoting, procurement, and engineering process that provides an end-to-end solution for any size job.” –Jared Hellums, Principal, Constructable
Let us be the one to help you get the value you want out of your project. Visit us at constructable.pro to start a free estimate.
ACTION POINT: (With each article we will present one action point as a measurable takeaway for any owner or executive sponsor.)
Really, we’re serious here: know yourself and what you’re good at. Know what you’re bad at as well. Then play to your competencies and strengths and cut out the rest. Don’t try to be good at everything. If you try to be good at everything, everything else will suffer and you’ll end up not being good at anything. That is why it is so critical to let an expert come alongside you to staff up what you cannot do. It’s your job to dream in values, sell it to your team or stakeholders, and drive the business forward. We will get you what you need, and the job done.