This is a partial preview of the document found here: https://flevy.com/browse/business-document/pricing-a-consulting-project-94 Description: This presentation discusses the basic principles behind designing and pricing a management consulting type project.

1. Pricing a Consulting Project

2. Agenda
Overall Proposal and Project Design Flow
Assess the Client Willingness to Pay
Shape Project Objectives and Scope
Define Project Structure and Resource Use
Price the Project
Project Structuring and Pricing Exercise
Conclusions
3

3. Projects are designed in the context of the client’s ability to pay and our
cost to deliver
Project Design Context
• Budget for the project: Ask the client!
Willing-
ness • What does the client expect
To – Importance of the issue
Pay – Degree of depth and completion of deliverables
• Scope the project
– Resource level and qualification
Project Design – Time needed
– Client team involvement
• Targeted contribution margin (64% or more)
• Cost of resources
Cost
To • Use the internal resource pricing/costing tool (if
Deliver available)
– Calculation of performance indicators
– Basis for financial and risk review
Ultimately the pricing decision is based on the client’s budget
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4. Agenda
Overall Proposal and Project Design Flow
Assess the Client Willingness to Pay
Shape Project Objectives and Scope
Define Project Structure and Resource Use
Price the Project
Project Structuring and Pricing Exercise
Conclusions
7

5. The account manager or sales manager is usually in the best position to
help you assess the willingness to pay
Thoughts on Willingness to Pay
 Put yourself into the client’s shoes
– How important is the topic to him and to the organization?
– What is important about solving the issue?
 Assess the rational / political / emotional landscape
 Don’t be afraid to ask the client for his budget
 Know who you are up against
 Assess our own brand power for the client
 Compare topic with other projects delivered to the same client
 Work closely with your account manager / sales manager
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6. Client sources should be supplemented with internal thoughts when
defining Objectives and Scope
Sources for Information on Objectives and Scope
RFP Client Conversations Internal Expertise
• Client RFP should list both • Face to face interviews and • Often, the client does not
scope and objective conversation offer a great have the best understanding
way to explore objectives of the topic or only a loosely
– Better structured
and scope thought through assessment
thoughts
• Danger of client changing
– Higher potential for
his/her mind from meeting
misunderstanding
to meeting
• Use every opportunity to
clarify objectives and scope
through the RFP process
Not thoroughly understanding the objectives is a sure way to make the
proposal fail
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7. Agenda
Overall Proposal and Project Design Flow
Assess the Client Willingness to Pay
Shape Project Objectives and Scope
Define Project Structure and Resource Use
Price the Project
Project Structuring and Pricing Exercise
Conclusions
13

8. The standard initial phase project design gives a good example of a
project structure
8 weeks
As-Is To-Be
Focus
Assessment Design
Way Forward €
SC 1 SC 2 SC 3 SC 4
• Team kick-off / • Strategy check • Formulation of • Drafting a roadmap
core team training • Customer and to-be concepts for the next 2-3 years
(“target images”) Phase 2
• Focus Interviews market analysis • Drafting detailed
• Review of existing • Analysis of as-is • Target image IT implementation
initiatives and pre- processes & orga system landscape1 plans through Smooth
xx / 200x transition
work • Detailed quantitative • Quantification of
• Set-up of process analyses / drilldowns benefits ($ net) • Determining KPIs to
map • Prioritisation measure success
• IT assessment
• Detailed analysis (strategy • Requirements from
• Review of best workshop) change management Quick Wins
planning practice approaches (―Just Do It‖)
• Identification of during implementation
• Identification of quick wins
optimisation levers
Top-down financial analysis Bottom-up business case
Change Management (focus: communication & mobilisation of employees)
1) Limited to Application View SC = Steering Committee
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9. Several options can be considered to set up the project organization
Project Organization
Client Side Project Organization Consulting Project Organization
• Project Sponsor • Engagement Manager or Account
– Buyer of the project Executive
– Can provide resources and eliminate – Provide oversight
roadblocks – Senior client interaction
• Steering Committee – Exploiting identified new opportunities
• One Project Manager • Project Lead
– Face-off for Consulting Project • Project Team
Manager
• Subject Matter Experts
– Enough time to discuss project flow
and contribute to / validate content • Market Research Arm
• Core Team • Project Management Office
– Joint team approach
– “Responsible” for the project
• Extended Team
– “Consulted” or “Informed” for the
project
• Other Client Stakeholders
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10. Think about client satisfaction and overdelivery already when planning the
project
Thoughts on Structuring the Project
 Ensure that the person designing the project is close to the problem of the client
 Ensure enough time for the deliverables
– Consider lengthening the project timeline and lowering the resource levels to accommodate for
information gathering or scheduling wait time
 Frontload deliverables to have enough time towards the end
– Major value add can often be provided once the major deliverables are available (developing and
communicating the “so what’s”, mobilization for initiatives, upselling)
 Build in contingency for the unforeseen
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11. Most management consulting type deals are sold as fixed price
Fixed Price Projects Time and Material Projects
 Use for projects with  Use for projects with
– Clear deliverables – Variable scope
– Limited risk – Scope chance or significantly clarified during
the project
– Initial scoping projects
– Staff augmentation
 Clients appreciate fixed price projects
 Clients prefer T&M projects when
– Pays for deliverables, not time
– They need flexibility on deliverables
– Gives planning security
– They understand the variability in scope
– Eliminates need for time management for client
 Considerations
 Considerations
– Sometimes we prefer not to disclose daily rates
– Plan for contingency buffer (usually 10%)
– If you can apply high enough rates, you can
• Usable for unforeseen events
still apply a risk buffer to use for unbillable time
• Usable for overdelivery
• Overdelivery
– Validate project plan with experts
• Correcting delivery mistakes
– Be clear in your proposal what is in and out of
scope
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12. Agenda
Overall Proposal and Project Design Flow
Assess the Client Willingness to Pay
Shape Project Objectives and Scope
Define Project Structure and Resource Use
Price the Project
Project Structuring and Pricing Exercise
Conclusions
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13. With a new device, Client’s drug has the opportunity to significantly
expand its market presence
 Client' drug operates in a highly competitive and crowded market
– There are 9 brands approved by the FDA in the US, with limited product differentiation
– Market is fragmented with the top 2 drugs having 20 – 25% market share and the rest of the
market divided among the remaining 7 players
– The client’s drug currently holds between 4.8 - 5.0% market share and is experiencing flat
growth
 In the absence of product differentiation, acquiring new patients, easy administration of the
drug and patient support services are key drivers to gaining and maintaining market share
– Since Healthcare Professionals typically don’t switch patients (unless mandated by insurance),
acquiring new patients and keeping them on the therapy for the recommended duration is
critical for product success
 Prior to the new device, the drug was a niche player facing brand specific issues such as:
– Higher than competition patient discontinuation rate,
– Level of quality in customer service, and
– Tier-position with payers versus competition
 The recent launch of the new device creates an opportunity to reassess the drug’s potential
and significantly grow sales.
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14. Agenda
Overall Proposal and Project Design Flow
Assess the Client Willingness to Pay
Shape Project Objectives and Scope
Define Project Structure and Resource Use
Price the Project
Project Structuring and Pricing Exercise
Conclusions
27

15. Final Comments
 Always start with the (potential) budget of the client
– Project Scoping is largely dependent on the clients ability to pay
 Pay attention to objectives of the client – what is the real problem?
 Define the project as if you would be on the delivery team
– Plan for the unexpected
– For complex projects, plan in contingency time or resources
 Ensure a collaborative project approach
– Through project organization design
– Through project planning
 Staff the project with the right capabilities
– Functional expertise
– Level – not to high, not to low
 Don’t price bottom up – price market oriented with the clients budget in mind
– Consider our differentiation in the client’s eyes
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