How to effectively use and derive best value
Most businesses use consulting services at some stage in their lifecycles. This article begins to look at the process of working with consultants, and how best to use their expertise, time and availability to create the desired results.
Consultants vs. Contractors
First, let us differentiate between consultants and contractors. Generally speaking:
- Contractors are engaged to perform predetermined tasks for which they have specific expertise, such as HTML programming or instructional design. They typically execute defined tasks and require close supervision, whether working on a team or individually.
- Consultants are engaged to perform feasibility studies; research, define and recommend solutions; develop action plans for problems; or make active ongoing team and management contributions. They typically work closely with their client to shape the project they are working on, influence the project’s direction based on findings, and deliver results designed to meet their client’s objectives.
Since contractors are more like employees than consultants, most clients easily make the transition to working with and managing contractors. Some additional knowledge, understanding and techniques are needed to work most effectively with consultants.
Working with Consultants
Use these seven questions and the related thoughts to help establish how you want to work with a consultant, and set your expectations appropriately:
- What do you want to achieve?
- If you're not sure where to begin or who to look to for implementing a project, a consultant can be effective in assisting in the development of a strategy or approach before the project is implemented. This is often referred to as a "Phase 0" project.
- It is common for consultants on a long or broad project to be asked to perform tasks outside the original brief. "While you're here, can you . . . ". Boundaries need to be set by you and the consultant.
- How will you assess the project’s success?
- Success needs to be defined in objective terms so all that are involved know how they and the project are being measured.
- Sometimes success is a movable target based on discoveries found during the project. If a project’s success is redefined during the project, be sure to re-assess your consultant and team members for appropriateness to the "new" definition of success.
- What value and cost do you attach to this project?
- Highly specialized consultants can be expensive. Recognize their value and support them in the performance of their specialized work so that they can deliver their best.
- Asking for a reduced rate on a consultant’s services sends a message that you see their value as less. Seek other ways the consultant can add value.
- What role is the consultant fulfilling?
- There are times when you need a consultant who will challenge your ideas and question you, and there are times you need to clone yourself with a person who thinks just like you. The trick is to know which is best to use when.
- When a consultant is handling project logistics, don't try to cut minor costs on materials if it risks using additional, expensive consultant time to fix service issues with "bargain" suppliers.
- How much support, assistance and direction will you provide this consultant?
- Some people take the approach that the consultant is being paid to do the job and the client should not provide any support or assistance for the consultant to perform the work. An approach that delivers greater value is for you to do all you can to bring the consultant up to speed, to direct them to the sources of information and resources they will need, and to work with them to remove any obstacles to their effectiveness.
- How will the project and consultant integrate with your work, department or team, and company?
- If the consultant will be working exclusively for you, then the chemistry and synergy that you experience is critical to the selection and engagement of this consultant.
- If the consultant will be working with other members of the team or will be presenting to a committee or management as part of their charter, then their image and credibility are key factors in the selection of this consultant.
- How will you and the project benefit from using a consultant?
- Consultants who work directly with you get to see you at work as others don't. Invite their comments on how you work; listen and learn form their observations.
- The value of ongoing consulting relationships is that their understanding and knowledge of your organization enable greater returns for their consulting time.
Understanding Employee and Consultant Costs
When you evaluate using a consultant versus an employee on a project, look at the true cost of an employee to ensure a fair comparison. Employee cost calculations should include benefits (up to 25% on top of salary and bonuses), and costs for equipment, facilities and administrative support. Also, reduce employee’s time available to work by the time taken for vacation, sick leave, travel, company functions, training, etc. (usually around 30%). The result is the time left to work on your project.
Based on our experience, we created a detailed spreadsheet (click to view) that assists in determining comparable costs between employees and consultants. From this analysis we have developed a quick way to estimate the hourly cost of an independent contractor or consultant:
Useful Rule of Thumb (good place to start):
1. Begin with the annual salary of similar role or level of expertise in your company
2. Drop the last 3 zeroes
3. Multiply by 2 (or double the resulting number)
Exception: When a consultant works onsite for an extended period of time, the hourly rate equivalent is naturally reduced since the company provides the facilities, equipment and some administrative support.
However, extended engagments also increase the chance that a contractor will be deemed by the IRS as an employee.
Refer to Think180 article on Independent Contractor Definition.
Consultants can bring tremendous value and expertise to an organization when selected, utilized and managed effectively. The key is determining what value you want to derive from using a consultant, then finding the right one to deliver that value.
© 2001 Endeavour Business Learning , 2009 Think180
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