Knowledge Hub

So you think you need outside help to address your business opportunities?

Or maybe you’re not sure if it’s worth the (sometimes fairly high) expense?

Are you a consulting firm looking for input on why buyers use consultants?

Review the input in our Knowledge Hub to increase your understanding of consulting.

Consulting Articles

Most RFPs are Decided Before They’re Issued

Consulting firms know the story: They receive an RFP (Request for Proposal) from a current or prospective client, put a ton of time.

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The Typical Consulting Project

We have reviewed an overview of how a client and consultant will work with each other before, during and after a project, but what is typically included in the actual project itself? Now all projects are unique, and steps can be omitted and added as necessary, but we have described a typical consulting engagement below. A reader may be inclined to think this is focused on assessment versus implementation, but these steps are followed even during an implementation-only phase, just at a smaller scale…

Note: We do not want to cover how long each of these phases should take here, as every project will require different levels of attention at each phase.

On-boarding

Clients must ensure everything is in place administratively before the project begins to avoid paying costly consulting fees for wasted time. Also, the client team should know what to expect generally, including required time and materials. This seems to be an easy task, but it is very common to have unprepared clients.

Initial meetings should be set before the consulting firm arrives, including an introduction to the project team and a reminder of the process and objectives. If anyone is not available, ensure they have proper representation or have remote access if not on-site (phone and / or video).

Lastly, clients need to be sure the workspace and access are set up, so they don’t end up with consultants looking for a place to begin working…

Discovery

  • Data gathering – This can be a huge hold up if access is not approved or information is not clean (often this becomes a project itself, especially in today’s data insights and business intelligence focused world). Consultants will need access to a lot of data pertaining to the project, and often operational and financial data will be used to view past results and predict future performance. Consultants may use the client’s reporting and visualization tools or request the raw data, depending on the capabilities, timing, and scope of the project.
  • Interviews – Interviews can be a painful process for the client’s employees as they answer a lot of questions they may have answered in the past and feel they are being interviewed for their own jobs by “The Bobs.” (as seen in the film Office Space). The interviews will include internal stakeholders of all levels but may also include those external to the client organization, including customers, suppliers, competitors, regulators, or other industry experts.
  • Review of existing documents, including process maps and policies – Whenever possible, current-state documentation of processes and existing policies should be shared between all project stakeholders. The consultants will sometimes leverage this to assess the maturity of the existing operation, but it is common for them to be lightly referenced as both parties are aware processes are not always followed closely, which is a reason process optimization is a common project on its own.
  • External research – The consulting firm will also conduct external primary and secondary research, including industry reports, articles, surveys, and previous project work. This work will help play into the assumptions about the future, and these sources are extremely valuable for strategic business planning projects.

Analysis & Assessment

Many consulting firms, such as McKinsey, begin projects with a specific hypothesis for the project.(1) Clients should be wary to ensure the partners remain objective while also remembering that expertise bias is a leading reason to bring in outside consultants.

  • Pros of the hypothesis approach
    • The teams will be laser focused on a specific objective and streamline data gathering and analysis.
    • Proving a hypothesis wrong also helps limit focus on non-existent problems or opportunities. However, problems which do not exist today can become issues in the future, so suspected opportunities and issues must be revisited.
  • Cons of the hypothesis approach
    • Narrowing focus on a specific hypothesis can often make it difficult to investigate peripheral topics which may be more pertinent to the opportunity or issue. This can lead to costly rabbit holes that ultimately do not fulfill the objective at hand.
    • Consultants do not like to be wrong, and they may try to prove a hypothesis to avoid embarrassment at the expense of identifying a true root cause.

Lastly, it is common for executive clients to bring in consultants to prove a hypothesis (even if it could be incorrect) to justify an action or strategy to other team members, customers, or investors.

Analysis

  • The phases from here on out are the ones clients really pay consultants for: they want the experts to share their findings and recommendations from their interviews, research, and artifact analysis. They will often couple interviews and surveys with internal and external data to analyze causes of and issue or justification of a new opportunity. For qualitative intel, it is best practice for consultants to objectify the qualitative data by leveraging rankings and bucketing non-quantifiable intel.
  • In this phase, a partner will often assess a client’s position or actions relative to best-practice and benchmark existing strategies or operations against competitors.
  • There will often be a lot of complicated work associated with this phase, but the key findings should be summarized and easily digestible by any audience and should also include access to the detailed analysis.

Assessment / diagnosis

  • Once the key findings are identified, the consulting partner will assess how to use the information and analysis received and uncovered to this point. Findings are great, but clients want to know “what to do” with the intel. The project team will leverage the assessment to determine where to focus resources moving forward.
  • Often the analyses lead to updated strategic assessments of the client, market, and industry. Many people balk at “MBA” tools, such as ⦁ SWOT and ⦁ Porter’s Five Forces, but there is a reason they are taught and used at the most prestigious organizations: they are valuable.
  • During this process, consultants will often find additional opportunities (i.e. new fee-generating projects) which must or should be addressed, including other problematic processes, people, or systems. And while it may seem self-serving for the consultants, for an organization to be successful in the long-term, all three of those areas must work well together, and immaturity in any one area cannot be overlooked forever.

Consultants must include client stakeholders in the discussions of analysis and assessment before making final recommendations and output. This serves both parties. It serves consultants by making sure analysis did not leverage any faulty intel on the way. It serves clients by increasing the odds of internal buy-in for the next phase (recommendations).

Solution Design (Roadmap)

As we’ve discussed, the steps to this phase may have been completed prior to the existing engagement, and the consulting partner may be brought in to determine the solution to the problems or opportunities and not the problems or opportunities themselves.

The first step here is to identify all the possible solutions to address the topic. No idea should be considered off-the-table, including those which seem impossible or foolish (the team will just categorize as such later in the exercise). Once the teams agree on the universe of solutions and tactics to address the situation, they should bucket those which seem reasonable to execute using consensus from the core stakeholders.

Now begins the exciting part, in which the consulting partner will take those primary possible solutions and run cost-benefit analysis (CBA) analysis on each one. Inc. does a good job of explaining CBA in this article, but it is essentially the attractiveness assessment of a particular action by understanding and quantifying the positive and negative impacts, intending to identify those actions with a positive number as the difference and thus creating value by executing those actions. Another way to view this assessment is by determining the return on investment (ROI) for each potential action or impact versus effort. Below is a sample of a matrix used to visually plot individual actions / initiatives to help prioritize which to undertake.

After the options have been prioritized, assumptions need to be re-validated with all stakeholders to ensure the feasibility of the next steps, and the project teams must be sure required resources, such as technology, finance, HR, etc., are able to contribute as needed. While decisions are made in a conference room, results are created on the floor, and proper planning and execution will be paramount to any initiative’s success.

Clients and consulting partners will agree on the major milestones and estimate the calendar for the implementation but must understand that milestones will move. They key is to understand how any alterations in schedule will affect resource allocation. Risk and scenario impacts should be documented, as teams must do their best to plan for the unknown. With this analysis it is best practice to identify (and quantify if possible) the potential impact and the likelihood of occurrence with each risk / scenario. If either of these metrics is high, project teams must keep an eye on the risk / scenario revisiting often throughout the implementation phase. Teams must also understand how an action in the project will impact any other workstreams. Not all solutions will be independent of one another.

Another periodic time / milestone-based consideration is what the go/no-go decision criteria will be for key points in a project. While no one likes to have to abandon a project after putting time and money into it, sometimes it is advantageous to cut losses, which is why it is key to have these measurements / thresholds documented before implementation.
Note: Momentum is key here! Not only for personnel and other stakeholders (including partners) but also for model relevancy. Elements can change rapidly, and if too much time passes between the analysis and implementation, the solution may no longer be valid. It will depend on the market and industry, but if a solution sits idle for over six months to one year, the assumptions and models should be revisited.

Implementation

This phase is where the teams enact changes to the people, process, and technologies to achieve the goals outlined in the previous phases. To properly execute, the team must deliver results and achieve the milestones laid out in the solution design phase and have clear action items for adjusting when anticipated results are not achieved. The element to remember here is: things will change. Being flexible and having the right problem-solvers on the implementation team will be key to success. Also, while parameters and project management tactics must be used to keep everyone on track, it is very important to make sure the management of the project does not interfere with the actual execution.

If a client has previously assessed the actions needed, the implementation phase could be the point at which a third-party consultant(s) is brought in. However, most consulting firms will verify roadmaps and objectives to assess the assumptions and feasibility of achieving the goals to insulate themselves from failures due to poor planning or those impacts out of their control. On the other side, many consulting firms do not participate in this phase and only run strategy or assessments. Ultimately, ongoing execution will ultimately reside internal to the client, so they must be careful to avoid reliance on their partners.

So… Should the advisor and diagnostic expert be involved in the implementation of changes? As with everything, it depends. There is considerable debate on a third-party advisor’s role in implementing changes at the client’s organization. In 1982, Harvard Business Review published this great piece, where Arthur Turner describes the ambiguity of this topic and states:

“Some argue that one who helps put recommendations into effect takes on the role of manager and thus exceeds consulting’s legitimate bounds. Others believe that those who regard implementation solely as the client’s responsibility lack a professional attitude, since recommendations that are not implemented (or are implemented badly) are a waste of money and time.”(2)

However, these days, more strategy firms are developing implementation practices.(3) (The same is true of operations and implementation firms integrating into more strategy work). It pays to have some skin in the game for both sides, especially if an engagement follows the value-based fee structure as laid out in our article on fee structures.

Lastly, with implementation, change management is the most important (and often most difficult) piece of the equation. People are often not aligned within an organization, and they are naturally resistant to change due to fear or complacency. This fact is not isolated to projects involving external consultants, but external counterparts usually drive additional resistance from internal team members. It is so important and difficult to tackle, change management is its own profession…

Measurement and adjustment

All processes should have formal and informal feedback loops, and this is especially true of consulting engagements as so much progress is made each week that any undesirable effects or questions must be addressed early. If any part of the project is not going according to plan (this happens often), there will need to be a course correction. This can take many shapes, but the most important item is that changes and adjusted plans are agreed to by all stakeholders. If milestones are moved or goals adjusted, the communication on how and why must be early and often to all those affected, whether directly or indirectly. (Note: clients must be cautious of false alarms, especially in external communications such as those to suppliers or customers).

For formal measurement, the team should agree to metrics measuring success ahead of time, including those in the go / no-go decisions. These metrics or factors should be reviewed with the core team to ensure the project is on track.

The core team of project resources should meet weekly to discuss the milestones and accomplishments, updates, risks, and upcoming tasks. This is the chance for all team members to measure the progress but also prepare those client resources for reporting back to their leaders (and project buyers). Monthly meetings should include the executive leaders on the project and partners-in-charge from the consulting firm (if not attending weekly meetings).

If project management and execution are going well, additional needs are often uncovered, thus expanding the relationship of the consultant and client. Delivering quality work is the best way to increase customer retention, and marketing studies have found “acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one.”(4)

 

Clients, let us know how your partners perform on your projects by signing up and leaving a testimonial.

Are you a consultant? Make sure you or your firm is listed in our directory, so you are visible to the highest propensity clients.

Consensus is a directory and review database of management consulting firms and their services. At Consensus, we believe there is lack of information pertaining to the quality of work executed by consultants in the eyes of the client stakeholders. We are working to build the largest database of genuine, accurate, and helpful testimonials from  consulting clients.

 

Sources

  1. Brannon, Joey (July 2012). McKinsey Starts with a Hypothesis. Should You? Axiom Strategic Consulting. Retrieved from: http://axiomstrategic.com/blog/2012/7/18/mckinsey-starts-with-a-hypothesis-should-you.html.
  2. Turner, Arthur N (September 1982). Consulting Is More Than Giving Advice. Retrieved from: https://hbr.org/1982/09/consulting-is-more-than-giving-advice.
  3. The Economist (May 2013). To the brainy, the spoils. The Economist. Retrieved from: https://www.economist.com/business/2013/05/11/to-the-brainy-the-spoils.
  4. Gallo, Amy (October 2014). The Value of Keeping the Right Customers. Harvard Business Review. Retrieved from: https://hbr.org/2014/10/the-value-of-keeping-the-right-customers.
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What is Management Consulting?

There are a lot of phrases thrown around in the business world. Of course, most of them are important, but many people don’t know exactly what some common words or phrases mean unless they work in the field. Take management consulting, for example. The professionals who work in this industry provide an incredibly valuable service, helping companies of all sizes, and in many different industries, improve performance and hone in on best practices. After all, there’s always room for improvement, but if businesses don’t know this type of assistance exists, they’re letting valuable opportunities slip right past them.

What is Management Consulting?

Management consulting is a professional service that enlists the assistance of a third-party firm or independent contractor whose subject-matter expertise or knowledge is leveraged for identifying, executing, optimizing, or validating a business decision. At least that’s how we define it.

Management consulting tends to be an overarching category of many types of consulting services. There are different views of the high-level categories management consultants tackle, but this field can accurately be broken into the following three categories:

  • Management – True management consulting constitutes anything included in the day-to-day functioning of a company and involves working to improve those tactical functions via operations or cost improvements. Typically, these functions reside within a single department of the organization with influence from other groups.
  • IT / Tech – IT / Technology consulting specifically relates to a company’s technology, including hardware, software, data services, networks, and systems. It’s worth noting IT consulting could really be in its own category, as annual revenues from this practice area in the U.S. exceeded $400 billion as of August 2017(1), according to IBIS World, a leading research firm.
  • Strategy – Strategic consulting includes corporate and organizational strategy and focuses on initiatives which affect the entire company, such as growth or diversification strategies. This brand of consulting is as much art as it is science.

There are other categories of consultants for specific industries, such as not-for-profit or government, and that industry focus is often what sets one firm apart from another, especially in strategy consulting.

Why Use Consultants?

Every organization and need are different, and management consultants play varying roles, depending on the project. No matter what the industry or company goals, however, there are two elements that are key to the success of any engagement: proper diligence and preparation. We’ve detailed the pros & cons of using consultants, but we’ll summarize the important benefits below:

Benefit #1: Expertise

Clients may not have a specific subject-matter expert in-house. Consultants often bring applicable knowledge from other clients, which builds on the foundation of best practices clients may not otherwise have been privy to.

Benefit #2: Flexibility

By using consultants, clients can scale up temporarily in times of need without racking up long-term costs associated with benefits and on-boarding

Benefit #3: Outside (Objective) Perspective

Management consultants uncover a lot of opportunities and problems, some seemingly obvious, because they’re not living and breathing the client’s company every day. Consultants bring an outside perspective, and they have limited preconceived notions of the client organization.

How Do Management Consultants Work?

Consultants work with their clients on engagements, otherwise known as projects or gigs. Separate engagements may overlap, but when projects are being scoped each which will have its own goals, scopes, and project teams.

One note of caution: consulting firms often boast of proprietary and self-built “methodologies” that claim to increase engagement or enhance process management. Our experience has shown these tactics are often just uniquely named variations of already proven best practices.

We’ve provided more details on a typical consulting process, but we’ll cover the basics here.

Identifying the Problems, Opportunities, and Solutions

If a client is hiring a management consultant, they already know there are opportunities to be better. The client leaders may not always know what the problem or opportunity is yet, and consultants are often solicited to uncover those.

Once the project is defined, and the client and consultant decide to partner, they agree on the following terms:

  • Timeline
  • Scope
  • Personnel
  • Objectives
  • Pricing

During projects, there are on-boarding, data-collection, and analysis periods, both qualitative and quantitative, before the teams begin to see improvement through solutions and execution. Teams can usually expect these beginning phases to last for a few weeks to a few months, depending on the project.

Implementing Solutions

All consulting firms do not offer to assist in the implementation of solutions. After all, the ongoing management of the business is the client’s responsibility… However, having a partner who can implement (or an implementation-specific partner involved in scoping) will increase the odds that solutions are logical and attainable. There are also firms who specialize in implementation, but most firms will find a way to assist in implementation because: 1) they want to help their partners as much as possible and 2) there will be consulting fees.

Meetings & Milestones

Regular meetings are important, as they allow the stakeholders to review findings and output, track progress, and identify and address potential risks to the project. Most milestone (or “check-in”) meetings occur once a week. Depending on the type of engagement and the specific needs, meetings may be more or less frequent. IT-related projects, for example, often have daily meetings. Between these formal touch-points, however, the consultants will be working with the client’s internal team throughout the project, whether on-site or remotely.

Management Consulting: Who, When, & Where

Naturally, organizations want to have the right people on the team, at the right time, and in the right place.

Who

Consultants are typically hard-working, business-minded professionals who are skilled in pragmatic and critical thinking. Again, everything is variable in the consulting world, but in our experience, a representative team might be comprised of two to four full-time resources, including one engagement manager and one to three analysts. Clients can also expect senior-level oversight from a principal and/or partner of two to ten hours a week. Large scale projects can have up to a few hundred employees for enterprise-wide implementations.

When

The length of time warranted for a project will also vary dramatically, from a couple of weeks for needs assessments to multi-year for large implementations. On average, however, management consulting engagements typically last from three to six months, with options for expanding and adjusting scope on a regular basis. Remember, each engagement will have its own scope and objectives.

Where

Work-spaces have evolved a lot over the years. Traditionally, consultants have been on-site Monday through Thursday every week, with Fridays being worked from the home office. However, with costly travel and enhanced connectivity, remote work has become more common. Consensus conducted a survey of almost 500 management consulting buyers, and we found having on-site partners was rated among the least important project success factors. However, our experience shows that face-to-face sessions are highly beneficial for communication efficiency.

In the end, the most important item stakeholders really need to know about management consultants is that they’re in business to see their clients succeed. When the client succeeds, the consultant or firm succeeds (in the form of additional fees and rewarding work). They are partners throughout the process, working with the client’s entire team so everyone understands the process, expected outcomes, and bottlenecks that could be holding clients back from achieving optimal success.

 

Clients, let us know how your partners perform on your projects by signing up and leaving a testimonial.

Are you a consultant? Make sure you or your firm is listed in our directory, so you are visible to the highest propensity clients.

Consensus is a directory and review database of management consulting firms and their services. At Consensus, we believe there is lack of information pertaining to the quality of work executed by consultants in the eyes of the client stakeholders. We are working to build the largest database of genuine, accurate, and helpful testimonials from  consulting clients.

 

Sources

  1. IBISWorld (August 2017). IT Consulting in the US. IBISWorld Industry Report 54151.
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The Pros & Cons of Using Consultants

Many business managers and executives question the value of management consultants: “Why do I pay a high price for someone who does not know my business? Wouldn’t we be better served to hire or train someone in house?” Often the best approach IS to hire someone internally, but as we’ve covered in our piece 5 Occasions for Engaging Management Consultants…, there are occasions where clients benefit greatly from consulting services.

A quick recap of those occasions where using a consultant or consulting firm is the right choice:

  • A skill gap exists
  • The project needs are temporary
  • External perspective is required
  • Testing is required before a full-time hire
  • Hiring isn’t an option

In the article above, we really focused on the reason to hire a consultant, but here we would like to cover both the pros AND the cons of levering outside consulting help.

Pros

Specialists / niche experts

Perhaps the most important and common reason to partner with management consultants is the need for specific subject matter expertise. The necessary skills may not reside in-house or be available for leverage when organizations most need it. While sole industry focus has its own risks (see Cons below), in our experience, those firms and individuals focused on specific practice areas or industries have a better chance of success.

Flexibility

When a client has temporary or project-based work, it makes sense to be able to flex their workforce up and down as needed. Onboarding and offboarding employees can take months, and often immediate needs cloud judgement when properly vetting hires. Consultants, theoretically, have subject matter expertise, so ramp up time should be minimal, results realized quickly, and termination easy, if needed.

Note: We want to call out the difference between management consulting and staff augmentation, as often consulting firms pitch services which are more the latter for predictable revenue. Staff augmentation is periodic (usually more long-term than consulting) scaling of up and down of typical day-to-day work versus management consulting which is a specific project or engagement with an end objective (and expected return on investment).

Cross-industry / functional experience for comparison

A bit of a challenge (or supplement rather) to the above Pro is the breadth of experience gained when employing an outside consultant. While specific experience is highly beneficial, a well-rounded resource will have invaluable insight into other industries, geographies, etc. which can provide unique insight not attained through industry “lifers.” Regularly, lessons learned and results from other industries are highly applicable to clients’ current or future state. There is a reason many executives ask their team members to think “outside the box.”

No preconceived perceptions

There is a saying in companies and organizations which gets thrown around when consultants try to initiate change or challenge convention, and while it sounds like an easy obstacle, it can be a major roadblock to innovation or change. That saying? “But that’s the way we’ve always done it…” Sometimes clients just need an outsider’s perspective on identifying and seizing opportunities, and if they partner with a smart consultant or firm, innovative ideas can come simply from a fresh set of eyes.

The objectivity consultants are hired for also affords them the ability to ask hard questions and challenge procedure without hurting feelings or needing to tread lightly due to company politics. This third-party is often the agent needed to make changes or take risks not previously bought into by company leaders.

Smart & hard-working resources

Management consulting is generally considered a difficult field to succeed in and top academic institutions are feeders to the field (15% of 2015 Harvard graduates entered consulting).(1) The combination of skills required (interpersonal skills, critical thinking, discipline, willingness to work long hours) is not for those wishing to coast through their careers. This drive is especially present in younger and up-and-coming consultants, whose competitive nature often makes them feel they have something to prove.

“Client is King” mentality

When clients hire management consultants for a project, the consultants are tasked with satisfying the needs of the client within reason and usually within a relative scope. In almost all cases, the project team is focused on that engagement explicitly and takes a “client is king” mentality. Having this focus is an advantage over many internal employees who may not be as enthusiastic about taking orders outside of his or her understood and agreed upon responsibilities. The ardent attitude, coupled with the hard work, of a consulting partner can be a great addition to a client’s team.

Speed

Another advantage to the dedicated resources of a consulting resource is the speed in which they execute as they strive to prove worth and can focus on specific goals and actions. Many of the other pros contribute to this benefit, and the use of consultants is highly recommended if a requirement for the task is speed to completion.

Costs

Some readers will question the inclusion of costs as a pro, but clients will see there are some tangible cost advantages when using management consultants versus hiring full-time. The costs associated with employees include benefits, RHO (recruiting, hiring, and onboarding), taxes, and potential legal fees and are not shared when leveraging consultants (directly at least). Also, with true management consulting partners, clients should be realizing a substantial ROI on the projects they work on and this should justify any of the expenses associated with contracting. Lastly, consulting contracts are typically non-recurring and easily terminable providing the client a lot of flexibility when it comes to exiting partnerships and limiting the costs affiliated with dissatisfactory delivery.

Cons

Hourly cost is typically high

Just to contradict ourselves, we also show why consulting is considered expensive on the surface. Hourly rates for consultants vary tremendously depending on the experience, reputation, and level of consulting resource staffed. So wide in fact that you may expect to pay $100 per hour (or less) for some independent consultants or up to $1,200 per hour or more for a partner at MBB (McKinsey, Bain, BCG) firms. (Note: many firms now bill by the day, month, or project as reviewed in our piece on 3 Consulting Fee Structures).

However, when you consider the firepower and expertise you receive with the more prestigious firms, often the spend is well worth it. As with any initiative, it is imperative to understand what the goals are to assess your willingness to invest in those results.

Limited to no experience with company / industry

We us the term “third-party” in our definition of management consultant, and we saw above that this external perspective can be very valuable. On the contrary though, clients must consider that a new consulting partner or one working within a new division of an existing client is going to have to learn about the client’s operations, culture, etc. as they go (and learn on the client’s dime). It can be painful for your internal stakeholders to get the consultants up to speed, but the impact can be lessened by sharing information (e.g. processes, systems, stakeholder organizational structures, current struggles) with the consulting partner ahead of time. Often the resources assigned to the project will want to appear knowledgeable and will conduct pre-work and research to achieve that.

Limited long-term investment

With all the benefits (and worries) of an external partner, perhaps one of the main concerns is that the consulting partner is not truly vested in the long-term success of the project. Clearly long-term relationships and quality work will generate more work and referrals, and, thus, consulting fees, but fees really are the primary objective of consultants and consulting firms. Picking the right partner, monitoring milestones, and getting creative with value-based fees are all ways to share accountability with consulting partners.

Team engagement risk

Another potential issue, and one which is very common and difficult to mitigate, is the risk of consulting resources not integrated well with team members. When we surveyed 472 consulting buyers, approximately 25% were not satisfied with the cohesion with their internal personnel. Furthermore, North Highland consulting firm and Forbes Insights surveyed 169 executives and “revealed that communicating with internal teams and management is among the top five challenges for consulting firms.”(2) Mitigation techniques here are difficult because consulting projects touch so many stakeholders whose professional relationships styles are all unique. Clients should find partners they know their teams can work with and be sure to have multiple team members vet any new partners before contracting.

Limited client exposure to staffed resources

Keeping on topic with personnel-based concerns and as we pointed out in 5 Occasions for Engaging Management Consultants…, knowing the exact, or at least a similar, resource which will be staffed on the project can be highly beneficial. Again, clients rely on their consulting partners to hire great consultants, but timing and availability affect the consulting partner’s ability to commit specific resources. This along with the possibility that some or all the client’s work will be executed off-site, or even in another country, can lead to issues with work quality or communication to rectify any problems. This is often why clients will keep specific consultants on board for multiple projects when they find someone they like.

Expertise leaves when project completes

While we point out consulting needs are usually temporary, the downside to this is the fact that the consulting expertise and knowledge leave when they are no longer contracted. It is imperative that internal stakeholders who will be leveraging or taking over work completed by the management consultants become the experts and understand the methods, reasons, work, and continuity plan from the partners. This sustainability / hand-off phase is very important and should not be overlooked when scoping a project.

Limited control

Within external contractors lies a certain trust that these parties know how to get the work done. Technically, too, those clients who leverage independent contractors and consultants are not permitted to dictate HOW the work is to be done (see some information on IRS misclassification risk here). The idea is a client can only explain WHAT they would like done and dictating how work is to be done would classify that relationship as “employer-employee.” Why does the IRS care? Increasing the use of independent contractors decreases the amount of taxes the IRS receives and increases administrative burden versus an employer reserving those resources as traditional W-2 employees. If both parties agree on outcomes, set the right expectations, and agree on methods for measuring progress, these concerns should be alleviated.

No guarantees

This is true with any resource(s), but with management consulting partners, there are no guarantees into the quality of work or team members. There are ways to mitigate risk of failure, such as checking reviews here on Consensus and proper project scoping. Partnering with an external firm requires some level of comfortability with uncertainty and finding partners you can work with on a regular basis helps alleviate some risk exposure.

We have laid out some mitigation techniques for each of the potential issues, and the benefits of using the right partner and being prepared will offset the potential negative impacts of the common issues. There are many actions clients can take to ensure preparedness and conduct diligence on partner options, including leveraging our Consensus consulting review / feedback platform. We are working to build a database of honest and valuable feedback from those who have worked with specific partners to make we bring more transparency and accountability to the management consulting industry.

 

Clients, share the pros and cons of your current and past consulting partners by signing up and leaving a testimonial.

Are you a consultant? Make sure you or your firm is listed in our directory, so you are visible to the highest propensity clients.

Consensus is a directory and review database of management consulting firms and their services. At Consensus, we believe there is lack of information pertaining to the quality of work executed by consultants in the eyes of the client stakeholders. We are working to build the largest database of genuine, accurate, and helpful testimonials from  consulting clients.

 

Sources

  1. Hofherr, Justine (2015, May). Why all those Harvard kids are consultants, even when they don’t really want to be. The Boston Globe. Retrieved from: https://www.boston.com/jobs/jobs-news/2015/05/29/why-all-those-harvard-kids-are-consultants-even-when-they-dont-really-want-to-be.
  2. Forbes Insights (2015, February). Perception Versus Reality: Are You Getting Enough Value from Your Consultants? Forbes Insights and North Highland. Retrieved from: http://www.northhighland.com/en/insights/thought-leadership/perception-versus-reality-are-you-getting-enough-value-from-your-consultants.
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The 3 Consulting Fee Structures

There are three basic types of consulting fee structures. Each one comes with certain risks and potential rewards (or benefits). We emphasize “potential” because nothing is certain when it comes to project outcomes.
It is important for both the consultant and the client to understand how each fee structure works, and the risks and rewards for each type to determine which one is the best option depending on the circumstances. The three types are: 1) Bill rate; 2) Project-based / fixed fee; and 3) Value-based. Each one has its place, but, generally, the structures go in order of the lowest risk and potential reward to the highest risk and potential reward.

Bill Rate

With a set bill rate, the client pays a set rate per hour, day, week, or month for each consulting resource for a set amount of time. In other words, the consultant bills the client based on the amount of time spent at an agreed upon rate.

The bill rate will vary depending on the seniority of the resource and the reputation / expertise of the consulting firm. While this structure still involves scoping and anticipating outcomes, it is best applied when outcomes are unknown, specified as a range, or are more qualitative.

For advisory or staff-augmentation type roles, a retainer model may also be used, where the consultant and client agree to a prepaid time and rate for the consultant to be available based on the client’s needs, similar to the way attorney fees are often paid. This is more common when the consultant acts in an advisory role at the strategy level.

Potential Rewards / Benefits:

  • Cost transparency is high as rates are known
  • Project scope can be more flexible, as relationship can be focused around tactics rather than results
  • ROI potential for the client is lower, as outcomes are less defined
  • ROI for the consultant or consulting firm is the predictable margin on asset-overhead, such as salary or hourly pay.

Risks:

  • The client and consultant are incentivized differently. The client wants the work done quickly, but the consultant has a greater reward if additional time is added to the project.
  • Risk to the client is that the consultant may spend a notable amount of time looking for additional ways to help the client, which generates more billable hours.
  • Risk to consultants is low, since they are compensated directly for the time they spend on the engagement.

Although the bill rate is the traditional model for consulting fees, it is now losing ground to the project based/fixed fee service. A 2018 consulting fee study by Consulting Success found approximately 41% or respondents used either hourly or daily rate billing, while 31% used a project based/fixed fee structure. (1)

Project Based / Fixed Fee

In this model, the consultant determines a fixed fee for accomplishing a specific project goal. The fee is usually determined by estimating the amount of time the task is expected to take and multiplying that by the hourly billing rate unless the consultant has “productized” their project offering. Investopedia give a great breakdown of this method here. In this model, deadlines are established for the completion of the project and the milestones to ensure progress.

Although it is similar to the rate-based fee structure, it offers more concrete targets and milestones than the bill-rate model. Many clients prefer this structure because it clearly establishes the targets set forth in the contract. However, targets may change as new information becomes available, or if unexpected events occur.

Potential Rewards / Benefits:

  • The project outcomes and ROI are known by both sides
  • Clients are typically getting higher quality work from experienced consultants
  • The consultant can theoretically get the job done quicker and thus enjoy higher margins on time (assuming limited unforeseen circumstances)

Risks:

  • Scope creep has a higher negative impact to both parties
  • The risk is not eliminated for clients, but it is low since they are contracting for a specific outcome of the project. Risk is highly mitigated since the consultant and client have an agreed upon the result / benefit.
  • The consultant should be an expert in the project and outcomes (thus lowering risk), but there is an inherent amount of risk which cannot be planned for until integration into the organization

Value-Based Fees

Lastly, with value-based fees, the consultant fees are based on the results of the project. The greater the benefit generated for the client, the greater the benefit to the consultant or the consulting firm.

This type of consulting fee is generally reserved for niche or specialty work when the consultant or firm is highly experienced in generating the most value to the client in a specific practice area and the consultant has enough experience to bet on the results. There must be tangible and measurable results in order for the consultant to be properly compensated.

The down side is that it can be difficult to attribute the benefits to the work performed and to measure the metrics which the project must meet. A lot of definition is required up front to eliminate contention when results are met, and particularly if they are not met. The realization can also be longer as results take time to materialize from a project.

Potential Rewards / Benefits:

  • The ROI for the client is variable because if the end value created is low, then the investment should be proportionately low.
  • There is a high incentive for the consultant to deliver and participate in the upside of the value created. The greater the reward for the client, the greater the reward for the consultant.

Risks:

  • Risk is low to the client, as the bulk of the consulting fee will be taken from the benefit received by the client. However, risk may be higher to the client if time and resource allocation is wasted on something that has little benefit.
  • There is a high risk to the consultant since the fee is tied to the results delivered to the client. However, the consulting firm has a base fee lower than the normal rate to cover at least a portion of its fixed costs in addition to the upside.
  • The impact of scope creep is high, but the impact of the outcomes should keep everyone on the path.

Risk Versus Reward Graph

The figure below indicates the different fee structures and the level or risk and potential reward (ROI) associated with each one.

The potential ROI refers to the positive impact to the client and the fees to the consultant.

When to Use Each Fee Structure

Each fee structure works for different purposes. In general, the one with the lowest risk is also the one that has the lowest potential ROI, with the highest risk structure having potential for the highest ROI.

Bill rate is best used when:

  • Ongoing work is needed
  • The scope is not clear or is expected to evolve substantially
  • Tasks are not defined
  • Advisory work is the focus, i.e. providing guidance at a strategy level
  • Commoditized services are provided, and client is price sensitive

Project-based/fixed fee is best used when:

  • The scope is defined, and the objectives are agreed to
  • A project outcome is required, but tangible results are difficult to measure
  • A new client seeks to prove fit of the partner
  • More comfort is needed than just a typical bill-rate structure. I.e. the consultant specializes in topic at hand
  • A client wants a project completed by a certain date
  • A hybrid approach of fixed fee with an hourly rate addendum is needed for additional work that not included in the original scope

Value-based fees are best used when:

  • Metrics are measurable and attainable
  • Metrics can be set up front to understand what is being measured as success
  • Attribution methods for client benefits are agreed to
  • The parties trust each other and have good communication
  • Provider is a very niche consultant with proven results

There are many factors unique to each type of consulting fee structure. The more niche a consulting project is, the more often it will lend itself to a value-based fees project. Value-based fee consulting projects also work well when the scope and outcomes of the project are clearly defined, whereas bill rate structures provide a bit more flexibility. There is a time and place for every type, and a hybrid can be used for added comfort for both client and consultant.

 

Clients, let us know how your partners perform on your projects by signing up and leaving a testimonial.

Are you a consultant? Make sure you or your firm is listed in our directory, so you are visible to the highest propensity clients.

Consensus is a directory and review database of management consulting firms and their services. At Consensus, we believe there is lack of information pertaining to the quality of work executed by consultants in the eyes of the client stakeholders. We are working to build the largest database of genuine, accurate, and helpful testimonials from  consulting clients.

 

Sources

  1. Zipursky, Michael. Retrieved from: https://www.consultingsuccess.com/2018-consulting-fees-study.
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The Client-Consultant Relationship

The consulting process is interesting and dynamic, and anyone who has been involved on either the delivery or buying side can agree there is an art to the entire process. Both parties wish to believe everything will run smoothly and the entire process will be relatively painless, but there are many steps to a successful relationship and each of them can take a lot of time and energy. In this article, we cover how the consulting process should generally run between the client and each consulting firm they are in contact with from getting to know each other to the project closeout to, hopefully, additional work…

Getting to know each other

The lead up to this phase will be different depending on how the introduction was made. If the client is reaching out to find a consulting firm to partner with, this phase has a function: to build trust with the firm and identify if they will be a good partner. If the consultant or firm is reaching out to the client, this phase is to build trust exclusively, and the consultant should not expect much content from the client yet. If this is the case, the client may not have a high propensity to buy or even know they need a consulting partner.

This period is not just identifying specific relationships between organizations but is also a way to expand networks. The most sophisticated consulting clients should have a Rolodex (old school consulting buzzword – of which there are many) of third party partners. The sophisticated consultants know that networking and relationship building are an endless part of the consulting business. This phase can be paramount for consultants and leaving a good impression can lead to projects from other businesses as the potential client becomes a referral channel.
Clients want to know the people they are exploring are experts or at least smart enough to get the job done. Much of the work management consultants do is not “rocket surgery,” but the solutions are developed through knowing how to approach the problem. During this introductory phase, the consultant or consulting firm is tasked with persuading clients they are logical, process-minded thinkers who will take accountability for the work to be done.

A note: this phase can last a very long time; some relationships never leave this phase. It pays for both parties to be honest about the future of a potential partnership (or lack thereof) and make sure each is not wasting time nurturing a lead which will never prove fruitful.

Need / opportunities discussions

By this point hopefully both parties feel there is a potential to partner in the future, and both should know whether or not there is a good enough fit to begin discussing specific opportunities. This phase may start with a broad discussion such as problematic operational symptoms only or hunches about future disruptions to the client’s business. However, it may begin with a specific opportunity or problem to address with clear goals and steps for achieving those goals, such as the need to cut back production cycle time by 10% through the implementation of a new workflow process. Again, this will be a direct result of how the relationship began (push vs. pull).

Consulting firms can really help clients nail down the problems. As mentioned in our 5 Occasions to Use Management Consultants, occasionally having smart folks with an external perspective in the room will help organizations identify the cause(s) of a problem and thereby begin the process of addressing and fixing it.

In this stage, the consultant should really be listening and asking questions to understand what the client needs are. Too often we see consulting firms pushing solutions to a client without properly understanding what they are trying to accomplish and WHY. Greek philosopher Epictetus said “we have two ears and one mouth…” for a reason. Consultants should be asking questions that yield information valuable to understanding the company and its opportunities.

Consulting firms can often expect to be competing against other external and internal parties for the work, unless this is an extension or addition to an existing project or a sole-source project, which is rare. During this phase, firms will typically engage in a non-disclosure agreement (NDA) as well to share information and data about specific opportunities.

Engagement scope & pitch

As mentioned earlier, some consultants jump right into this phase. In our experience, that approach is ill-advised and can be perceived as pushy by potential clients. This direct approach does work for some firms, but only after you have verbally discussed the what and the why, should you then pitch the how, when, where, and who… This is the time to discuss pricing baselines / cost structure options, if not already discussed. There are three general pricing structures, which can help clients and consultants identify the best approach for the engagement.

This is also the time for the consultant(s) to reiterate the problem, convey the methods in which they will tackle the project and sell the expected benefits associated with the opportunity. For most projects, a successful pitch will include forecasted quantitative results as well as qualitative improvements. Again, the message must align to the client needs. An area where a lot of professionals miss the mark is assuming all qualitative data cannot be quantified – ratings, rankings, and surveys can be easily leveraged, and these will get the client excited and bought into the consultant pitch.

Consulting firms need to balance how much information they share on how they will accomplish the goals during this pitch phase, and there is some newly built trust which comes along with the scoping and pitch process. There are potential clients who take advantage of the consulting courtship process by having meetings to discuss how consultants will help them then taking notes and trying to implement on their own. In fact, when we surveyed close to 500 consulting buyers, 65% of respondents indicated they “will solicit multiple bids, even if we have a partner we intend to use.” This could be used as a price check, validation for keeping it internal, or a general knowledge solicitation process. Therefore, setting phased goals, optimizing time spent in the scoping process, and building trust (on both sides of the table) up front is imperative.

Note: Clients should expect quick turnaround for this, and if the decision is a “go,” both sides need to be prepared for the project. This means aligning resources and making sure access on the client side is ready to go on day-one. This process can also be iterative, and multiple iterations from a client is usually a good sign indicating they want to find an approach with the partner.

Project management / execution

Obviously, the project is the meat of consulting, and we will only cover some basics around this process. For a more detailed view of a typical consulting engagement, we recommend reading the project point of view from at Consensus. If the teams decide to partner, a statement of work (SOW) should be signed agreeing to all the objectives, assumptions, terms, milestones, and clauses. Some larger firms with procurement departments may have a master services agreement (MSA) which covers a lot of the general partnership verbiage, with the SOW being more project execution specific.

Onboarding

Introduce team members and ensure the data, meetings, and workspace are ready for project execution

Discovery

Uncover intel from data gathering and interviews to aid in decision-making

Analysis & Assessment

Analyze the items discovered to assess the meaning and relevance to the project

Solution Design (Roadmap)

Document and prioritize the recommended solutions for addressing the core opportunities or issues

Implementation

Execute the prioritized actions and initiatives

Measurement & Adjustment

Monitor the results and adjust as needed to drive success and improve outcomes

Knowledge transfer / closeout

Consulting relationships can “end” in three ways: extension, addendum, or termination. An extension is additional time from the current consulting project team (typically on the current project), whereas an addendum is additional scope for the partner. Termination is exactly that: the contact ends; although a successful project will almost always yield future work potential.

The final “readout” of an existing project will include a written report with presentation which will include all the key findings, recommendations, projections, risks, etc. There should be quantitative and qualitative information included with summaries in the front and exhaustive supporting details following or in separate files (such as spreadsheets). It is important to ensure this final document can stand alone, as the document can make its way around the client, and it should be able to tell the story without dictation from project team members.

The follow-up needs to go somewhere, and there should exist a continuity plan of the project, especially if the next step is implementation of a recommended action. It is in both parties’ best interests to keep communication open, as networking and referrals are great for staying updated on new opportunities.

Lastly, feedback is an underrated and under-utilized tool. Firms should always gather the opinions of their clients, and satisfaction surveys are a useful tool for consulting firms to solicit that feedback. Another valuable exercise for both parties to go through, whether together or individually, is a “lessons learned,” where key takeaways about the project process are surfaced with the intent of improving procedures of future projects and initiatives.

Lastly, consultants should always ask their clients to review their performance here on Consensus. We serve our community by facilitating open and honest reviews and publishing that information for future buyers. We also serve the consultants by offering a platform for them to build on successes and opportunities from past work.

As the relationship between a client and consulting partner matures, these steps will be less formal. Nevertheless, these are considered best practice for understanding a potential fit to project execution and measurement, and open communication and trust throughout the process are the primary success factors for positive project outcomes.

 

Clients, let us know how your partners perform on your projects by signing up and leaving a testimonial.

Are you a consultant? Make sure you or your firm is listed in our directory, so you are visible to the highest propensity clients.

Consensus is a directory and review database of management consulting firms and their services. At Consensus, we believe there is lack of information pertaining to the quality of work executed by consultants in the eyes of the client stakeholders. We are working to build the largest database of genuine, accurate, and helpful testimonials from  consulting clients.

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