Introduction
Did you know that entire businesses are built around building websites for other businesses?
Cheap and easy-to-use tools (Wix, Squarespace, etc) make it seem like anyone could click some buttons, drag some images, and have a website up and running in a few hours. However, businesses that rely on their website to sell their products or services are often much more complex.
The average person might be surprised to learn that it might cost anywhere from $5,000 to $1,000,000 to build a website.
The Lawsuit
Hertz, the car rental company, recently filed a lawsuit against Accenture for not delivering a website for $32,000,000. You can read more about the specific details here.
The first logical question to ask is, “how could a website cost thirty two million dollars?”
Website Development Projects
In broad terms all websites are the same. They are pages hosted on a web server that are accessed through your browser. However, they differ vastly in complexity and scale.
You can imagine the difference between a local restaurant website and Walmart’s website. The local restaurant may have less than a dozen pages but Walmart could have hundreds of thousands or millions of pages.
The second difference is in the number of visitors. The local restaurant may get 100 visitors to their website per day. Walmart gets millions of visitors. The local restaurant is likely hosted on a small web server that is shared by other websites. Walmart has to have buildings full of servers all across the country to make sure that they can handle the amount of traffic coming to their website.
The third difference is in the back-end complexity of the operation. The local restaurant likely has no “functionality” on their website. Walmart has customer accounts, wishlists, shopping baskets, coupons, buy-online-pickup-in-store, credit card payment processing, ratings and reviews, etc.
Each of these components (Page Count, Number of Visitors, Functionality) can be roughly used to understand how a website development project can grow. Here’s an equation that we could use:
Pages * Visitors * Functionality = Hours
The Hertz website is likely thousands of pages with tens (hundreds?) of thousands of visitors each day and with highly customized functionality.
So that alone would be enough to make this website a project in the 5,000 hour range if it were to be completed by a single person.
Web Development Agencies
The next interesting component is that a website like this is not built by a single person. Rather it is built by committee. Hertz would have at least a few different committees that would be involved in this project including Marketing, Information Technology and Operations. Accenture, acting as their agency, would also have committees of people involved.
Committees make projects like this markedly more expensive. If you have a single person design and develop a website they don’t have to repeat their work. However, when they deliver the work to a committee they will likely have to reconfigure many of the items that they designed or developed because of the differences of opinion within the committee.
This problem gets worse when instead of having a single designer or developer there is a committee of designers and developers. Imagine a single one hour meeting has a dozen agency employees in the meeting. That means the meeting costs $3,600.
Here’s the math: (1 hour) x (12 employees) x ($300/hour/employee) = $3,600
So if we initially were thinking this project was going to be 5,000 hours for an individual we are probably at 60,000 hours because of all of the committees involved.
Additionally, we’re going to experience a lot of project management overhead. Since there are so many people involved in the project there will be a lot of time spent making sure that what the client, Hertz, communicates is translated to the project team at Accenture. Let’s throw another 20,000 hours into the mix for project management and meetings.
80,000 hours at $300 per hour is $24,000,000.
We’re not quite there yet. How do we get to $32,000,000?
Padding.
What is padding?
Any time you’re estimating the effort required to complete a task you’re guessing. You might be making an educated guess based on past effort but you’re still guessing. That means a task that you estimated to take 10 hours might take 20 hours. It might take 200 hours. Therefore, profitable agencies will build padding into their project quotes to ensure that they can still deliver a project on time even if some things end up taking longer than their initial estimates.
For a project of this size we might assume 30% padding. That might be high or it might be low but that’d get us another 24,000 hours.
104,000 hours at $300 per hour is $31,200,000.
So that’s how you get to the estimation of hours. But most agencies don’t sell hours. Instead they sell deliverables.
Deliverables are specified in a “Scope” which is essentially a contract that says, “we agree to deliver you these items for this price.”
The scope for a project like this is probably over 100 pages long. The problem with a document of that size is that it is hard for any individual to comprehend. A client reading through a document of this size is doing a lot of “imagining” what the language in the agreement means. There are still a lot of unknowns but they feel good about the fact that the document is very thorough.
The problem that Hertz is suing Accenture over is that the deliverables were never delivered and Accenture said that they needed an additional $10,000,000 to launch the website.
Conclusion
There are a few different places that this project could have gone sideways.
On the Hertz side it could have been that they didn’t clearly articulate their expectations up front. It could have been that their expectations were not aligned with what ended up in the scope. Or it could have been that they changed their mind after they signed off on the project.
On the Accenture side it could have been that they didn’t clearly understand what Hertz was communicating that they wanted. It could have been that they didn’t include everything required in the scope. Or it could have been that the scope was correct but they didn’t stick to it during the project process.
Given the number of parties involved it is unlikely that any one person is at fault. It is also unlikely that either party intentionally acted maliciously.
If I had to guess I would say that there were a series of minor breakdowns in communication at each step of the process that resulted in a huge mess as time went on.
It will be interesting to see how the court will rule. I also wouldn’t be surprised if they choose to settle outside of court as what Hertz really wants is a new and improved website – not to have their money back and start over with a new agency.
