Flevy.com - Pricing a Consulting Project

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This presentation discusses the basic principles behind designing and pricing a management consulting type project.

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Flevy.com - Pricing a Consulting Project

  1. 1. Pricing a Consulting Project
  2. 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. 3. Projects are designed in the context of the client’s ability to pay and ourcost to deliverProject 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 5
  4. 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. 5. The account manager or sales manager is usually in the best position tohelp you assess the willingness to payThoughts 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 9
  6. 6. Client sources should be supplemented with internal thoughts whendefining Objectives and ScopeSources 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 11
  7. 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. 8. The standard initial phase project design gives a good example of aproject 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 15
  9. 9. Several options can be considered to set up the project organizationProject 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 17
  10. 10. Think about client satisfaction and overdelivery already when planning theproject 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 19
  11. 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 21
  12. 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 23
  13. 13. With a new device, Client’s drug has the opportunity to significantlyexpand 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. 25
  14. 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. 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 29

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