Hello and welcome back to Smart Consulting Sourcing, your definitive guide to mastering how to utilize, buy, and manage consulting services. I’m Helene, your host, and I’m thrilled to have you with us today. We’re excited to announce that we’ve changed our format to a bi-weekly schedule, alternating between deep-dive content episodes and engaging Q&As to keep our discussions both thought-provoking and interactive. If you’re passionate about transforming your consulting engagements into strategic assets, you’re in the right place!
Before we dive in, I want to encourage you to check out our previous episodes if you haven’t already. You can find them on all major podcast platforms and YouTube. They’re also available in our Thought Leadership section at consultingquest.com. These episodes cover a wide range of topics that can help you elevate your consulting game.
We love hearing from our listeners, so if you have any questions or topics you’d like us to cover in future episodes, please reach out to us via email at hcl@consultingquest.com. Your feedback and inquiries are what make this podcast truly engaging and valuable.
Scoping and Pricing: Two Different Worlds, Really?
For anyone involved in procuring consulting services—whether you’re a Strategy, Finance, or Procurement Executive—grasping this overlap is crucial. It can be the difference between a project that delivers significant value and one that falls short of expectations.
When we talk about optimizing the ROI of your consulting projects, we’re essentially discussing how to achieve the best value for your money. This involves a delicate balance between two key levers: scoping and pricing.
Scoping: Defining Value
Scoping refers to the detailed outline of what you expect from the consulting engagement. It includes defining the project’s objectives, deliverables, timelines, and the specific expertise required. Essentially, scoping is about determining the value you expect to receive. A well-defined scope ensures that everyone involved has a clear understanding of the project’s goals and the desired outcomes.
- Project Objectives: Clearly articulated goals that the project aims to achieve.
- Deliverables: Specific outputs that the consulting firm will provide.
- Timelines: The time frame within which the project will be completed.
- Expertise Required: The specific skills and knowledge needed to achieve the project’s objectives.
A thorough and precise scope prevents misunderstandings, scope creep, and misalignment between your organization and the consulting firm. It sets a solid foundation for what you expect to gain from the engagement. This part is usually done by the users, aka the internal stakeholders.
Pricing: Determining Cost
Pricing involves setting the amount you are willing to pay for the consulting services. This isn’t just about finding the lowest cost; it’s about ensuring that the price reflects the value being delivered. Effective pricing strategies include:
- Market Benchmarks: Using data and comparisons to understand the standard pricing for similar services.
- Negotiation Tactics: Employing strategies to ensure you get the best possible deal without compromising on quality.
- Creative Fee Structures: Implementing performance-based fees or volume rebates that align costs with the success and duration of the project.
Pricing is how much you are ready to pay for the defined value. It’s crucial to align the price with the value outlined in the scope to ensure you are not overpaying for under-delivered services or compromising on quality to save costs. This is procurement’s turf, right?
Bridging the Gap: Working Together for Maximum Savings
Now, here’s the kicker. Obviously, these two aren’t working together: on one side, you have the internal clients defining what they want from the project, and on the other side, the procurement folks who negotiate the price. And that’s why procurement is often only involved at the very last minute, to negotiate on a scope already set.
But let me tell you something. You won’t negotiate much if you don’t work on the scope. The best you can do with a last-minute negotiation on a fixed scope and an already selected supplier is, at most, 15%. Anything above that will include some de-scoping or de-staffing, whether you realize it or not.
Mark my words: the only way to get 30-40% in savings, which is pretty regular in our projects at Consulting Quest, is to work on both scope and price at the same time. That’s the secret sauce. You need to collaborate from the get-go, involving procurement early in the process to ensure both the scope and pricing strategies are aligned. Only then can you achieve significant savings and optimal project outcomes.
The Interplay between Scoping and Pricing
Now, let’s dive deeper into the interplay between scoping and pricing. To truly understand how these levers are intertwined, we need to break down the sourcing process into three main phases: before the RFP, during the RFP process, and during the negotiation phase.
Before the RFP:
Before the RFP process, the project is still an idea, not yet fully described in terms of deliverables and objectives. This is the stage where you make critical foundational decisions that will shape the entire project. One of the fundamental decisions you’ll face is the ‘make or buy’ consideration. Should you insource the solution, leveraging internal resources and expertise, or should you seek external expertise through consultants?
For instance, if your organization lacks the necessary expertise or bandwidth to tackle the project internally, bringing in external consultants might be the better option. This critical decision ensures that your project is set up for success from the very beginning. At this stage, there are no consultants involved, no RFP, and no proposals yet—just the initial idea and strategic considerations.
But funny enough, this is the first step of scoping. Do I need this project as a whole? Or do I need parts of it? Should I do some parts internally? These questions help define the initial scope of the project and set the stage for the detailed scoping that will follow.
During this phase, strategies like pooling and unbundling are employed. Pooling combines related needs into a single RFP for comprehensive solutions, while unbundling breaks down larger projects into smaller, more manageable parts. This flexibility offers more options and opportunities for both the client and consulting firms.
The RFP Process:
Next, we move into the RFP process, where the bulk of the project’s shape and structure are defined. This is the stage where scoping really comes into play. You’ll be determining the exact nature, extent, and details of what you’re seeking from the consultants. The clarity you achieve here directly influences the quality and relevance of the proposals you receive.
The RFP process starts with writing the RFP, inviting suppliers to bid, evaluating the proposals, and selecting the winner. This traditional sourcing process is crucial because it doesn’t just involve scoping but also deciding which consulting firms you want to work with. You define your detailed requirements and create relevant competition among consulting firms. When multiple firms vie for the project, they are more likely to sharpen their proposals and offer competitive pricing. This sets a strong foundation for the negotiation phase.
Most of these decisions will impact the price bracket in which you are going to negotiate. It’s all about creating a competitive environment that ensures you get the best proposals, both in terms of quality and cost.
The Negotiation Phase:
Finally, we enter the negotiation phase, where discussions and decisions become more nuanced. This phase involves negotiating both the Scope of Work (SOW), the terms and conditions, and other provisions. While price is a significant factor, the focus here is more holistic. The approach and staffing lever ensures that the proposed team and methodology align well with your project’s needs.
This phase also involves delving into creative fee structures, allowing room for innovative payment terms linked to performance, results, or other metrics. Additionally, the negotiation phase addresses rebates and discounts to ensure the final agreed price is not only competitive but also offers value. For instance, negotiating volume rebates for longer engagements can lead to significant cost savings.
Throughout these phases, you can see the fluid movement between scoping decisions and negotiation tactics. They don’t operate in isolation; decisions in one phase often echo in the next. For example, a well-scoped RFP might result in more competitive proposals, influencing the negotiation phase. Conversely, anticipation of a particular negotiation strategy might influence the RFP’s structure.
Strategies for Using the Levers Effectively
To really make the most of scoping and pricing levers, you need a solid strategy. So, how do you do that? Let’s chat about some key principles.
Get Scoping Right
First up, let’s talk about scoping. You absolutely need a well-defined scope for every project. Think of it like building a house – you wouldn’t start without blueprints, right? If you don’t clearly understand what your project’s objectives are, what you need, and what you want to achieve, you’re setting yourself up for a mess.
Spend some quality time early on to nail down the scope. Get everyone together for workshops, brainstorming sessions, or consult with experts. This initial investment can save you a ton of headaches later. A clear scope helps prevent scope creep – you know, when a project starts to grow and grow, leading to budget overruns and delays.
Align Stakeholders
Now, let’s talk about getting everyone on the same page. From senior executives to project managers, all key players need to share the same vision. If different people have different goals, it’s going to cause chaos and mixed signals for the consulting firms.
Organize sessions where everyone can speak up, raise concerns, and agree on a unified vision for the project. These meetings help clarify roles, set expectations, and keep everyone in harmony throughout the project. Regular check-ins can also catch potential conflicts early.
Agree on Targets (Scope and Price)
Next, you need to agree on your targets – what you want to achieve (the scope) and how much you’re willing to spend (the price). If there’s no consensus here, you risk scope creep, budget overruns, and miscommunication.
Use data and market benchmarks to set realistic and informed targets. Make sure everyone understands why these targets are set the way they are. This understanding makes negotiations with consulting firms smoother. Market benchmarks give you a reference point for what’s acceptable, making pricing discussions easier.
Keep Communication Open
Finally, keep the lines of communication open between the procurement team and stakeholders. This is crucial to ensure any changes in scope, budget, or project parameters are promptly communicated and addressed, minimizing surprises.
Regular check-in meetings between procurement and stakeholders are a must. Use these sessions not just for updates, but also for brainstorming, problem-solving, and refining your approach as the project progresses. Real-time feedback and adjustments based on evolving requirements are key.
When to Use What: Decision-making Guide
Navigating the process of sourcing consulting services isn’t just about understanding the tools and levers at your disposal – it’s about knowing when to use them. So, when should you focus on scope and when on price? Let’s break it down with some key principles.
Make or Buy Decision
First up, before you even start sourcing, you need to decide whether to execute the project internally (make) or bring in external consultants (buy). This decision hinges on your internal capabilities, expertise, bandwidth, cost implications, and the strategic importance of the project. Think of this as the initial scoping stage. Yes, cost is involved here, but it’s more about budgeting than negotiating price.
Defining the Scope (The “What”)
Once you’ve decided to ‘buy,’ the next step is to define the scope of work meticulously. This means outlining the breadth and depth of the project, specific objectives, desired outcomes, key deliverables, and any other relevant details. A clear and comprehensive scope at this stage prevents misunderstandings and the need for re-negotiations later. This is primarily a scoping phase – unless you’re working with a tight budget, where you’ll need to consider price a bit, but again, more from a budgeting perspective than actual price negotiation.
Negotiating the Approach & Price (The “How”)
With a well-defined scope in hand, you now focus on determining the best approach to executing the project and negotiating the price. This phase involves discussions around staffing, methodology, timeline, and, of course, cost. Here’s where you leverage negotiation levers like competition, creative fee structures, rebates, and discounts to get a favorable outcome.
For instance, you might negotiate a performance-based fee structure where consultants are incentivized to deliver exceptional results. This aligns their interests with yours and ensures you get the best value for your investment. But here’s the kicker – this isn’t just a price phase. Many procurement leaders think it is, but that’s where value can be lost. The secret sauce is to work on both scope and price together at this stage.
Go/No Go Decision
After negotiations, you assess the combined scope and proposed price to decide the next step:
- Go: If stakeholders are happy with the scope and negotiated price, you move forward with the consulting firm.
- No Go: If there are reservations about the scope or price, it’s back to the drawing board. This might involve revisiting the scope, further price negotiations, or even re-engaging different consulting firms.
This cyclical process might require several iterations, especially for complex projects. It’s essential to remain patient and persistent, ensuring the final decision aligns with your organization’s best interests in terms of scope and budget. Remember, the goal is not just to secure the best price but to ensure the engagement delivers value and meets the intended objectives, often solving a broader problem.
When you’re experienced, you can manage this whole process in 2 to 3 weeks, from the beginning of the RFP process to the end of negotiations – that is, if both legal teams cooperate. We all know they can be a bit… complicated sometimes, right?
Conclusion: Consulting Cost Efficiency
This framework we’ve discussed is incredibly efficient. It has enabled us to help our clients negotiate 30 to 40% savings on projects, even with large consulting firms. And the best part? There’s no conflict with the consultants. In fact, the process is collaborative and interactive, involving short sequences of scoping and pricing negotiations. The key is to view the process as an ongoing dialogue rather than a one-time event. If you start with a clear scope and a defined budget, the back and forth can be limited. But the essence of these negotiations lies in their collaborative nature. The beauty is in working with the consultants, not against them.
Remember, negotiating against a consultant implies a lack of trust. If you don’t trust them, why work with them in the first place?
Additional Resources
Before I let you go, I’d like to leave you with a few resources. You can check out our insight titled “Efficiently Negotiating Consulting Agreements: 3 Key Areas to Focus On”. Through this insight, we reveal the secrets to successful consulting agreement negotiations that can make or break your deals.
Next, I’d like you to read our insight titled “6 Key Reasons an RFP for Consulting Is Absolutely Indispensable for Your Consulting Project”. In this piece, we uncover the pivotal role of an RFP in the success of your consulting project and explore as many as 6 key reasons why an RFP is an indispensable tool.
Last but not least, my final resource that I’d like to share with you all is titled “Nailing the Scope of a Project in Consulting: 7 Kickass Tips”. Through this insight, you’ll explore the essential strategies for effectively defining and managing project scope in consulting and how it can help you elevate your consultancy prowess and establish a framework for success!
Thank you for tuning in today. Don’t forget to hit the subscribe button for the latest episodes and updates. I’m always keen to hear your feedback, so reach out on LinkedIn or via email at hcl@consultingquest.com. If there are any topics you’d love to hear about in future episodes, let me know.
Until next time, stay safe and keep up the smart consulting sourcing game. Au revoir for now, and happy sourcing!
FAQs
- What is the main benefit of using a collaborative approach in consulting negotiations?
Using a collaborative approach ensures that both parties—your organisation and the consulting firm—are aligned and working towards the same goals. It builds trust, reduces conflicts, and often results in better, more innovative solutions. This approach can lead to significant cost savings and higher value outcomes without compromising the relationship with the consultants.
- How can inviting both established and new consulting firms to the RFP process help in negotiations?
Inviting a mix of established and new firms fosters a competitive environment. Established firms bring experience and reliability, while new firms can offer innovative solutions and competitive pricing. This diversity encourages all participants to sharpen their proposals and deliver their best value.
- Why is it important to define the scope clearly at the beginning of a project?
A clearly defined scope sets the foundation for the entire project. It ensures that everyone understands the project’s objectives, requirements, and desired outcomes. This clarity helps avoid misunderstandings, prevents scope creep, and facilitates smoother negotiations, ultimately leading to better project outcomes.
- What are performance-based fees, and how do they work?
Performance-based fees link the consultant’s payment to specific, measurable outcomes. For example, a consultant might earn more if they achieve or exceed certain performance targets. This structure aligns the consultant’s incentives with the project’s success, ensuring that both parties are motivated to achieve the best results.
- What should I do if there is a disagreement on scope or price during negotiations?
If there is a disagreement, revisit the defined scope and budget. Engage in open discussions to understand the concerns of all parties. Consider seeking further negotiations or, if necessary, re-engage different consulting firms. The goal is to reach a consensus that aligns with your organisation’s best interests.
- How does leveraging competition among consulting firms benefit my organisation?
Leveraging competition encourages consulting firms to offer their best proposals and pricing. It keeps them motivated to deliver high-quality solutions and competitive rates. This approach ensures that your organisation receives the best possible value for its investment.
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