Control your consulting costs: Buy better!

When it comes to optimizing the ROI of your consulting investments, the amount of money you invest in the project is not directly proportionate to the impact it creates.

If you want to maximize the value of your consulting investment, you have to invest wisely and not pour loads of cash into a project expecting results.  And that means investing in the right projects, setting up the right delivery model, securing the impact of your projects, and yes, also, keeping your consulting costs under control.

How do you do that? How to identify the areas that can be the source of significant savings? In this episode of our 6 Levers series, Helene discusses how you can refocus your consulting costs on the must-haves, work with existing resources in new ways, trim your budgets, anticipate your expenses and control your projects to keep them on track. Tune in.

Key Takeaways

Companies should invest wisely in consulting projects to maximize return on investment.

Indirect spend (legal, HR, business and marketing services) can be a source of significant savings if managed professionally.

Flawed RFPs and lack of procurement involvement can result in expensive hires without diversity or the right expertise.

Value sharing and performance-based fee structures are becoming popular as they reward performance with benefits or payment while encouraging clients to set achievable objectives that drive growth by motivating their consultants.

Negotiations require knowledge which is a key bargaining chip; the right consultant for the job must also be chosen at an appropriate price point to control costs effectively throughout the project’s duration.

Transcript

Those who have been following our 6-Levers Podcast Series already know that we discussed how important it is for procurement leaders to listen to their key stakeholders.  We explained the reasons in our previous episodes – when it comes to securing the impact of a consulting project, the ball is mostly in court of the business lines. Because they are the ones who define the need for hiring the consulting firm that would help with the consulting project.

However, procurement’s role is important too. On the one hand, procurement should help business lines and stake holders, challenge their needs to make sure that they do indeed focus on the must-haves. Procurement can also bring in new consulting firms to open their horizon to new players and new methodologies.

Regular meetings can be arranged with the project teams on large projects to get feedback on the consulting firm, to make sure that the project and the change are traced and offer their help in case of problem.

In fact, they should not wait for the other party to give them the opportunity. They should go to the business lines and propose their help, while listening to what they have to say. As such they become the facilitator, the problem solver.

And at some point, procurement won’t have to ask any more.

So, you can see, there has to be a collaboration between procurement and stake holders to secure the impact. Now cost and impact are like two overbearing parents – always hovering in the background. In today’s episode, we will focus on the topic, “Control your consulting costs & Buy better!”

How To Keep Your Consulting Costs Under Control?

Cost has always been a tricky situation when it comes to consulting projects, sure you can pour loads of cash into a project expecting results, yet too often we find that money alone won’t get us far. Why? Because impact and value are not necessarily linked to how much money you spend.

A smarter approach involves investing your consulting budget wisely if you’re aiming for maximum return on investment. And it means investing in the right projects, setting up the right delivery model, securing the impact of your projects, and yes, also, keeping your consulting costs under control.

The question is how to do that? Well, let us explain.

Turn Your Company’s “Indirect Spend” Into a Source of Savings

When it comes to keeping your consulting costs under control, companies should start by taking a look at their ‘indirect spend’ which may include a variety of consulting services for legal, HR, business, marketing, and more. And all these types of “indirect spend” as a whole can be the source of significant savings.

However, this area is often decentralized and scattered among different department heads or teams. That is why it rarely gets managed professionally, which means having control over costs can be a challenge.

Imagine all the times someone or the other popping their heads into your office, asking for help. That’s usually what happens with consulting projects. When you don’t manage your consulting spend, you are literally working on the first come, first served basis. But is it the right way to do it? Well, you know that answer.

Dig Into Consulting costs When the Board Sets an Ambitious Reduction Target

Now, if your top management somehow gets on board in setting up ambitious reduction or value targets, why not make them look at the consulting spend? Because many large companies have a budget fixed for consulting projects.

Suppose an organization has 3 million to spend on consulting but little supervision or incentive to focus on value. We have seen from our experience that in such situations, business lines spend up all of their budget.

However, in a similar situation, you can still save big on consulting spend and deliver the expected value. All you have to do is refocus your spend on the must-haves, work with existing resources in new ways, trim your budgets, anticipate expenses and control your projects by keep tracking them.

Explore New Reliable Consulting Firms

Trying to control your consulting costs in the current landscape feels like walking on a tight rope. As pressure to identify new reliable consulting firms continues to mount, companies have been forced to scramble and push up their budgets for securing the services of consultants.

What’s worse is that historical relationships between organizations and consultants have become difficult to manage, further exacerbating the complexity of the situation. So, it’s no wonder we’re seeing an “explosion” in consulting costs–even though nobody enjoys it, apart from the consultants, of course!

There Are More Areas in Consulting Procurement Beyond Consultants’ Fee That Add to the consulting cost.

The “leaks” in consulting procurement can come from several other sources, not only the daily rates of the consultants.

Flawed RFPs

One major source is definitely flawed RFPs. And crafting flawed RFPs seems to be a common mistake amongst project managers. And the trick is that it will not only impact the project itself, but also the type of consulting firm you need.

Sometimes the details are scarce, other times the context leaves something to be desired things like key requirements missing, ambiguous language, no pricing framework given, or not enough time for candidate consultants to respond.

It sounds tough, but unfortunately this flawed approach is all too familiar when business problems arise, often leaving newcomers with no chance of sending in a solid proposal.

And talking about the flawed RFPs, have you ever bought something without involving procurement? This can cause some pretty root-rotting problems, with no control or visibility on costs – making it downright impossible to control your consulting costs and bend the curve.

Absence of Procurement

Now if you don’t work with procurement, there is a good chance that you will cut some corners on the procurement process. And unfortunately, flawed procurement processes can prove costly, with consequences ranging from an increased risk profile and higher costs to subjective selection.

Finding a cost-effective solution is important to any business, even on the consulting category, and it is especially true when there are budget restrictions or ambitious growth objectives.

Involving procurement early can help ensure that you work with the right consulting firms, at the right price while also mitigating risks. As companies look to stay ahead in increasingly competitive markets, they can’t afford not to have a reliable procurement function that’s ready to bring its extensive knowledge and resources to the table!

Bottom line: having a knowledgeable procurement that works hand in hand with your business lines is not only great for efficiency and cost savings, but also absolutely vital if you want your consulting projects to succeed!

Working With the Wrong Consulting Firms

While working with the right consulting firms is essential, the so called ‘best’ consulting firms may not always the right ones for your consulting project. Well, first, the term “best” is very subjective.

Second, you’ll need consultants who fit the bill. If the best consultant is a strategy man and you need 6-sigma, he’s not the one you’re looking for, right?

Finding the right consultants is only one part of the problem. You also need to analyze the proposals properly and leave as little room as possible to subjectivity. Choosing service-providers at the project level is a tricky affair – often subjective and unstructured, meaning less control of cost efficiency.

But more broadly, you need to open your horizons to new potential comers, refine your taxonomy and consider boutique consulting firms and anticipate the needs of your internal clients.

If not, you will end up with inadequate supplier lists with a lack of diversity, or skills gaps. Indeed, a lack of knowledge of the market can result in expensive consultants who may lack diversity or in-depth expertise. And you could find yourself knee-deep in unexpected costs.

So, the moral of that story? Maybe you’re working with the wrong people for way too much money. To control your consulting costs and ensure great results for the business, there needs to be an increased level of control over how hiring decisions are made throughout your organization.

And this means that taking control of your consulting procurement is no longer as hard as it sounds; with some careful consideration and regular market research, you’ll be able to steer clear of unnecessary surprises, both on the impact and the cost sides.

Not Paying the Right Price

It’s a sad truth that client don’t always pay the right price when it comes to consultants. Unfortunately, not everyone has up-to-date knowledge of consulting fees and many times, your teams will end up choosing the wrong consulting firm. For instance, they will take a premium strategy firm for operational work. They might do a good job, but they are sure to be very expensive.

Value sharing and performance-based fee structures are quickly becoming a preferred fee option for companies of all sizes.

But why? For one, it adds an extra layer of incentive to both parties in the contractual agreement as it rewards performance with benefits or payment. It also encourages clients to set objectives that are achievable but also drive growth by pushing their consultants forward through reward-based motivation.

The trick here is to define the baseline finely and be able to calculate how much the consulting firm has contributed to the results.

So, the setup for these fee structures does require more work ahead of time as the entire fee structure needs to be thought out and agreed upon ahead of any work beginning.

And while procurement cannot decide the objectives and the rewards, they can help drum the beat to make sure the project leader and the consulting firm are playing along.

Not Negotiate Enough to Keep Consulting Costs Under Control

Now there is another aspect of buying consulting services when consultants can really bring value and that is negotiations.

As in many intangible services, almost everything in a consulting proposal is on the table for negotiation. Of course, you don’t need to negotiate everything. When you decided what proposal had the best fit with your needs, you have identified parts that were good or excellent. You probably want to keep them that way.

When it comes to negotiation, there are a few elements that can sky-rocket your success… or tank it. Having more bargaining power is always a plus — and in consulting, this bargaining power comes with a deep knowledge of the consulting industry and the consulting work. Knowledge is a key bargaining chip in the negotiation world.

Because a knowledgeable person will have a better idea of where the negotiation should go and how much can be expected out of it. And this guy could very much be one of your consulting procurement experts.

One thing is sure though, negotiating is tough. And negotiating a $500k contract is not the same as negotiating in a shop. It requires skills and experience. And guess who is negotiating day in day out in your organization?

Because they are the ones that can nudge things in your favor; work around the use of price points that feel too restrictive, search for a framework agreement offering discounts on volumes and find economies of scale by grouping projects.

So, the bottom line is, having a strong procurement team is essential for a project’s success. But that mean that procurement is the only answer to managing costs.

Inefficient Project Management

In reality, there’s never really one silver bullet in this game of keeping your consulting cost under control. The real key to keeping your budgets down and your projects on track is effective management of the contract from start to finish–and that responsibility doesn’t just fall on procurement alone.

You need to make sure everyone involved in executing the contract recognizes their role in controlling costs.

If you don’t take ownership of the procurement process and stay on top of it throughout all changes, you could easily find yourself blindsided by runaway expenses at the end of the day.

It’s not that Procurement can’t handle it; it’s just that any project should be managed closely if you want to keep it within budget!

Forgetting the Tail Spend

A scattered supplier base decentralized purchasing behaviors with minimal supplier qualification and no performance evaluations, if you’re not careful, it’s easy to let tail spend control your consulting costs.

An excellent way to keep control of the tail without spending too much time on the management is to have at hand a list of additional providers.

By exploring the local Consulting Market, you will be able to identify potential suppliers and develop relationships. That will allow you to be reactive when one of your business lines wants to launch a one-time project on a given sub-category.

You also need to maintain your tail spend reasonable, and make sure you are not building up another false tail, you need to set up workflows with the right agile check and balance and chase the false tail. And to know more about how to manage your consulting tail spend, I have dedicated a podcast to that topic, so don’t hesitate to listen to it.

If maximum return on investment is desired, it is critical to keep managing consulting as an investment at all phases of consulting projects.

When managed correctly, indirect cost (consulting services such as legal, HR, business, and marketing) can be a substantial source of savings and value creation.

Because consulting prices are variable and closely linked to the scope of the work to be done, they are generally viewed as an easy target for cost-cutting strategies. Determining whether you’re paying too much for consulting services can improve your bottom line and get you closer to ambitious financial or value creation targets.

One of our clients once said, “it is ok. We have enough budget for consulting. We know it is strategic, so we don’t really care about how much we spend.”

Really?

When you’re buying a car, are you ok with buying whatever fancy car and pay 50% more than you should, just because you have a good salary? Of course, you aren’t. Because, unless you’re really in need of a fancy car, you’d probably not have one.

Even if you are focused on value, you should keep an eye on the costs. And bonus effect? It will help you improve your ROI, Isn’t it marvelous?

Well, we hope that explains it all why you should control your consulting costs and how to get started. Or you can just come and ask us, at Consulting Quest.

Keep an eye up for the next topic of our 6-Leveres Series.

Till then, stay safe and stay connected with us through our community on LinkedIn and follow our Twitter handle @ConsQuest.

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Happy Sourcing!

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Helene Laffitte

Hélène Laffitte is the CEO of Consulting Quest, a Global Performance-Driven Consulting Platform. With a blend of experience in Procurement and Consulting, Hélène is passionate about helping Companies create more value through Consulting. To find out more, visit the blog or contact her directly.

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