Sunday, May 29, 2011

Best Practices In Utilizing Management Consultants



When it comes to engaging a consulting firm for help, client expectations are all over the map.  Some see the consultant as a great change agent who will bring new insights and dramatic results.  Others see a consultant as a threat.  Still others see a consultant as a tool to leverage their agenda, even if that agenda does not align with the companies goals.

Engaging a consultant to help change your organization or solve a business problem, if done right, should bring results faster and ultimately cheaper than if done internally.  Below are some best practices when engaging a consulting firm.

When To Engage A Consultant

There are three board categories of needs to engage a consultant: when you need technical skills, when you need additional manpower, and when you need management skills.  

Technical Skills

Whether it is information technology skills with your SAP implementation or technical accounting skills with the latest FASB pronouncement, consultants are often brought in to fill a specific technical need that your staff doesn’t currently have.  The best scenario is to utilize a consultant for technical knowledge that is needed now but won’t be needed long term or, if needed long term, to help your train your team.  

Additional Manpower

The second instance of bringing in help is when an organization just needs additional manpower.  This model works best for companies that have a short-term need and need to ramp up staffing quickly.  By bringing in temporary help, the company can avoid the overhead associated with bringing new resources on-board and the political baggage that may result from letting those people go when the job is finished.

Management Skills

The third model for bringing on talent is when additional management skills are needed.  This can be in the form of management consultants to help you complete your post-merger integration work or can be to vertically integrate into your organization and to serve as leadership to staff in areas of the organization where you are weak.  Like hiring consulting talent for technical skills and additional manpower, this should be seen as a time-boxed exercise with an end date in mind.

Fee Structures

Several purchasing models are used; which one you pick should depend on the type of assistance you need and the value that the consulting firm will add to your organization.  

Time and Materials

This fee structure is an hourly rate or a daily rate with potential provisions for minimum and maximum number of hours per day.  This works best in a model where there are multiple deliverables, the deliverables are undefined, or you are augmenting existing staff.

Fixed Fee

This fee structure is typically aligned with a well crafted scope for a known deliverable.  The advantage of this fee model is that the buyer knows the costs upfront.  The disadvantage to this model is that without scope modifications, you are locked in to a specific time and deliverable.  This may not be ideal if you want flexibility.  Fixed fee arrangements also work in scenarios where you need the consulting firm to accept a part of the delivery risk. 

Success Fees

This fee structure ties payment for services to financial or other measurable results.  The fees are typically structured as a percentage of cost savings.  This type of fee structure can be a double edged sword; if the cost savings are large, clients can feel that they are being taken advantage of.  Choose a success fee arrangement with caution.  A best practice is to include a success fee as part of the overall fee structure with the rest of the fee structure coming from either fixed fee or T&M.

Other Best Practices

Overcoming Resistance From Staff

Often when bringing in help from the outside, your staff may feel that the consultants are a threat.  Make it clear to your staff why the consultants are there, what their role is and how they will interact with your team.  Assigning a team member to work directly and full-time with the consultant or consulting team helps to overcome any fear your staff might have.  

Agree On Objectives

As you work through the consultant procurement process, it is critical that you, as buyer, and your stakeholders are clear on what objectives you hope to achieve.  Often this is described in the contract with the consulting organization.  Make sure the following are included:
·        The scope of the assignment: what is included and (more importantly) what is not included
·        The benefit you hope to achieve
·        The timing, effort, duration and any other assumption you have
·        Roles and responsibilities, which key staff will be involved and how much of their time will be needed

Set Routine Progress Meetings

Remember that hiring consultants is as much risk and reward to you as it is to them.  You must be engaged throughout the process.  Make sure there are regular progress meetings and that you are fully briefed on the progress against the scope, milestones and deliverables.  As the consultants work toward final deliverables, use progress meetings to ensure that there are no surprises in the final report. 

Summary

Hiring a consultant need not be a painful process for your organization.  If structured in the right way, this can help your company increase shareholder value in a shorter timeframe.  

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