May 2006

Get Your Money’s Worth from Consultants
By Karen Janowski, KJ & Co.

Getting your money's worth from consultants is not only about negotiating the best price, it's also about getting the best work. Here are a few tips to get the most for your money.

• Hire the Right Expertise
• Find Someone You Can Talk To
• Determine the Type of Relationship
• Get a Clear Statement of Work
• Negotiate a Fair Price
• Manage the Relationship
• Provide the Access and Resources Required
• Be Demanding
• Follow Through

Hire the Right Expertise

When hiring a consultant, you need to consider what subject matter or industry expertise is needed, what level of experience is required, and how specific that experience should be.

Suppose a small enterprise software company needs a pricing strategy. The company specifies the candidates "must have 5+ years marketing experience with Oracle, SAP or other enterprise software company." Someone may fit this description yet know nothing about pricing. On the other hand, someone with 15 years experience in several industries might be just right, even though that person's background doesn't match the description.

Make sure the candidates fit your needs. And remember: the person selling you the project might not actually be the one doing the work.

Find Someone You Can Talk To

A consultant should be your partner. Find someone you can trust, confide in, and communicate with frankly and easily.

Making this determination is partly a matter of intuition. The statement of work is a good test of whether the consultant understands your situation. Did the consultant "get it?"

Determine the Type of Relationship

Do you want someone who will function as an interim employee or who will focus on a specific project and produce deliverables?

The interim employee must be well-integrated into your organization, must have a defined role and responsibilities, may manage other employees, and may set objectives. The scope of work and deliverables can be defined more loosely than with a consulting project. (Additionally, your company may place more restrictions on hiring interim employees than on hiring more project-focused consultants.)

A consulting project, on the other hand, should have a well-defined scope of work with milestones and specific deliverables. Don't hire the consultant as an interim employee simply because defining the scope of work is daunting. Instead, define a short "discovery" phase during which the issues are explored and the statement of work is defined.

Get a Clear Statement of Work

This document should define the project objectives, methodology or process, deliverables, milestones, cost and billing. Ask the consultant to spell out any additional resource requirements she may have including such things as access to specific data or personnel, periodic reviews, or introductions to company partners. The statement of work should include a section on project termination, unless this is covered in your corporate consulting agreement.

Negotiate a Fair Price

As with any other purchase, the cheapest alternative is not always the best. (You wouldn't necessarily hire the least expensive neurosurgeon!)

Beware of low-ball bids with potential cost overruns. Suppose you are considering two competing consulting bids. Consultant A has given a fixed project estimate of $42,000. Consultant B will do the project for $100/hour and estimates it will take about 350 hours to complete the project. Consultant B seems less expensive at an estimated cost of $35,000.

However, when you consider all the variables, you realize that: 1) Consultant A is more experienced, 2) her statement of work reflects a clearer understanding of your situation, and 3) you have more confidence in her. These factors may very well outweigh the 20% difference in cost. On top of that, with Consultant B you bear the risk of cost overruns since the billing is based on her input of time, not on output. Consultant A may be the better choice.

If $42,000 is just too steep for your budget, consider a price reduction or try one of the following approaches.

Offer non-cash value in exchange for a reduced price.
Intangibles are often valuable to a consultant, such as the possibility of additional work in the future, the chance to work in a new industry, or the opportunity to work with you personally.

You could offer some other "currency" in exchange for a reduced price, such as more favorable payment terms, a more relaxed deadline, or some form of equity. Or you might even offer a creative business development opportunity, e.g., a speaking slot at your annual meeting of strategic partners.

Reduce the scope of work.
Tell the consultant you'd like to work with her but you have a budget of only $X. Let her come up with some ideas for how to reduce the scope. Perhaps a lower-cost methodology can be used. Maybe a final report is not necessary. Or perhaps you can reduce the consultant's workload by providing specific support from company employees.

There are usually tradeoffs involved in reducing the scope of work. A change in methodology might produce less reliable results. Other changes might mean that you or your staff must complete certain aspects of the project.

Also, there are limits to how far a project can be cut. Most good consultants will withdraw a bid completely rather than sacrifice quality.

Remember, after the project is complete, you will not remember that you saved 20%. You will remember if the project reflects poorly on you.

Manage the Relationship

Successful consulting projects require an active client partner. Demand and get a list of key milestones (e.g., deliverables and deadlines). Have periodic reviews to assess progress and to ensure that the inevitable obstacles are being cleared. It may be necessary to modify timelines or deliverables. Changes in your business may necessitate a change in project priorities.

If you designate a subordinate as the day-to-day contact, make sure the person knows why the project is important. Don't foist the project on an unwilling employee who cannot manage the relationship. Some employees may resent the consultant, feel she is overpaid, and lament her access to people and information. Subtle roadblocks can be thrown in her path. It can all add up to a project that does not meet its objectives.

Provide the Access and Resources Required

Most consulting projects require resources from the client, such as information or introductions. If resource requirements are not spelled out in the statement of work, ask for them. During your periodic check-ins, ask the consultant if she is getting what she needs.

Be Demanding

Most good consultants do their best work for clients who challenge them.

Be demanding. If the statement of work does not clearly describe your situation, indicate where it falls short. If the proposed methodology doesn't make sense to you, bring that up right at the start. Get your questions and concerns on the table and make sure the consultant addresses them.

Throughout the project, be sure the consultant knows that you want the very best work possible. Question findings. Understand the rationale behind recommendations. Don't accept superficial analysis.

This isn't a license to make unreasonable demands. But if you demand first-rate work, consultants will give their best. And the best consultants will compete to work for you.

Follow Through

To paraphrase a famous adage, "the road to hell is paved with good recommendations." Determine which recommendations you are willing to implement and move ahead with them. Otherwise, the money and effort you've invested in a consultant may be wasted.

©2006 KJ & Co. All rights reserved.

About the Author: Karen Janowski has more than 25 years experience as both a client and a consultant. Her consulting firm, KJ & Co. (www.kjco.com), helps technology clients expand their businesses by defining products that address real market needs and by going after markets that really need their products. For more information about services, including market assessment, product concept validation, pricing strategy and success measurement, contact Karen at kjanowski@kjco.com or 650-947-9800.