As Procurement expands its influence across the organisation, many large expense categories come under a new commercial spotlight. ‘Consulting Services’, a spend category often covering an amalgam of services from strategic business consulting to IT consulting and even contract labour, poses new opportunities and challenges…
Few organisations have rarely if ever applied sound commercial principles, such as competitive tendering, to these sorts of services. Large consulting projects are agreed at senior management level, even over lunch or a round of golf.
Many consulting firms actually run training for their senior managers, to teach them techniques to avoid or bypass the clients’ purchasing functions. By the time Procurement gets to evaluate the deal it is a fait a compli that has to be rubberstamped.
One of the opportunities in this area lieas in “commoditising” the various levels of consultant that is being provided by the consultancy. By illustration, the following simple diagram illustrates the relationship between senior and junior consulting staff:
The most likely area for organizations to save money on large projects should be at the bottom end of the triangle, where junior staff are charged out at relatively high fees for the majority of the days worked by the Service Provider.
By understanding the various types and levels of consultants available (e.g. junior consultant, consultant, senior consultant, principal etc.) and developing a specification of what such a consultant should “comprise” (e.g. experience, skills, specific knowledge), the service can be “commoditised”. By commoditising the service it can then be compared to benchmarks and also tendered more effectively. Example: If the consultancy’s proposal states that person X will be playing a role as a “Consultant” at Y hourly rate, it would be possible to form the following two opinions.
a. Is the person actually at that level indicated?
There are specific ways in determining a consultant’s “level of specification”. Consultancies use these internally to determine the level of seniority of such a person. A good question to ask the consultancy would be: “Can we please have a look at your criteria for determining the level that a consultant is at”.
By getting this information from a few service providers you will be able to start developing a view of the various levels of consultant.
b. Is the rate being charged for the individual market related?
Once a “specification” is developed is possible, through benchmarking it is possible to understand if the rate being charged is competitive.
Also look out for: Will there be sufficient skills transfer? Is the client’s staff actively involved so that the benefit of the project will be reaped after the consultants have gone?
In order to assist procurement professionals in measuring the value provided by the service provider Purchasing Index has developed a Consulting and Professional Services Benchmarks service. If you would like to participate in this, please call Alan Low on 084-890-0005 (Reference Smart Procurement)