More on Value versus Price
I received this email earlier today:
Hi Alan,
Thought you would like to know that you have been quoted in a response by
Michael Wyland on an ASAE list serve (posted below if you are interested).
Michael did an excellent job about why comparing proposals based on hourly
rates isn’t the right way to evaluate a proposal.
Cheryl L. Wild, Ph.D.
Wild & Associates, Inc.
218 Garfield Ave.
Avon-by-the-Sea, NJ 07717
Sent: Thursday, June 10, 2010 12:00 AM
To: consultantmembers digest recipients
Subject: consultantmembers digest: June 09, 2010
CONSULTANTMEMBERS Digest for Wednesday, June 09, 2010.
1. Consulting thread on ASAE’s EXECSEC
2. Re: Consulting thread on ASAE’s EXECSEC
———————————————————————-
Subject: Consulting thread on ASAE’s EXECSEC
From: “Michael L. Wyland”
Date: Wed, 09 Jun 2010 15:39:15 -0500
X-Message-Number: 1
To all:
The following thread appeared on EXECSEC today. Thought it might be
of interest here. I have reproduced it in chronological order,
beginning with the initial post.
Michael
===============================
Would any of you be willing to share thoughts on how you evaluate
fixed-price cost proposals from consultants? One approach I take is to
estimate the hours I think a project will take and apply what I think is
a reasonable hourly rate, but this is very subjective and has not worked
well for us. I’d welcome any thoughts on how you approach negotiating a
fair price.
Thanks
Bob Thomson, CAE
AUVSI Director of Operations
=================================
Hi Bob –
One good way to create the transparency you need is to ask the
consultant themselves to provide the basis for the amount they are
proposing. In short, imagine a short chart or spreadsheet, driven
either by the names of the participating individuals at the consultancy,
or the project phases. There should be an estimated time amount in
hours or days for each, along with a charge out rate. In this fashion
you are not shooting in the dark trying to presume resource allocations.
This is good for the sake of comparisons – gives you an apples-to-apples
basis for evaluation in terms of pricing, which in and of itself is
valuable, as well as the time commitment, which is useful to see more
deeply into expectations.
While you may have some consultants resist this, that would also tell
you something.
Good luck,
Bill Murray, CAE
President and Chief Operating Officer
Public Relations Society of America
33 Maiden Lane, 11th Floor
New York, NY 10038-5150
======================================
Bob, Bill, and all:
I am an association ED as well as a consultant. My “take” on this is
probably not what you want to hear, but here goes!
I understand the desire to spend as little as possible for any
contracted services, including consulting services. However, trying
to reduce a fixed-price quote to an hourly fee does little to guide
the decision-making process. That may be why such efforts in your
past have not been very successful.
With a nod to Alan Weiss (“Million Dollar Consulting,” et. al.),
let’s assume that we’re talking about consulting – adding value to a
client’s organization, rather than contracting – providing alternate
labor resources to a client’s organization. Contracting for labor is
much more quantifiable and measurable in terms of “deliverables,”
hours, and other inputs. It’s a commodity that can be selected,
generally, based on price with little effect on quality and,
therefore, client mission.
Let’s also assume that the client’s goal is to maximize value – get
the most “bang for the buck” from engaging a consultant. If the
client’s interest is in minimizing expense without significant regard
to outcomes, then quality becomes irrelevant and we’re back to a
contracting/commodity scenario. [BTW, many consultants, including my
firm, have walked away from prospective clients *willing to engage
us* when this inattention to outcomes becomes apparent. More on this
in a moment.]
A consultant’s “stock in trade” is their expertise, their experience,
and, often, their ability to extrapolate and see connections (leading
to solutions) where others do not. Their value in the marketplace is
their ability to use these gifts, among others, to add value to their
clients’ organizations.
Since the barrier to entry for consulting is very low, there are
consultants of all quality and effectiveness levels in
practice. Some work for large firms, some work alone; some have been
in practice a long time as a full-time occupation, while others
“moonlight” from full-time paid employment or as “fill-in work”
between employment opportunities.
There’s a John Ruskin quote that used to hang in every Baskin-Robbins
ice cream parlor: “There is hardly anything in the world that some
man cannot make a little worse and sell a little cheaper, and the
people who consider price only are this man’s lawful prey.”
Unit price is a very poor indicator of quality or effectiveness,
especially in a largely unregulated, difficult to measure
(qualitative, not quantitative) market. So how does one assess
successful negotiation?
Focus on value rather than on price. Select consultants based on
their reputation and body of work. Assess their willingness to work
*with* you rather than either for you or above you – neither high
priests nor sycophants make effective partners. Do they understand
and identify with your organization, its challenges and
opportunities? Do they seem able to deal with the people – not just
the issues – involved in the process and solution? Do they represent
fair value for the money, time, and personnel you can afford to
devote to the project? Do you have a sufficiently high comfort level
to believe the consultant can deliver value to your organization —
in other words, is there a good “fit” between you?
As I said earlier, a consultant’s “stock in trade” is intimately
involved in their “body of work” and resulting reputation in the
marketplace. Successful consultants know better than to risk their
reputation for quality work in order to secure a fee from a client
who does not share that priority.
In my firm, we seek to be neither the low-price resource now the
high-price resource. We seek to be the high-value resource for our
clients, and we seek only clients who share that goal. After twenty
years, we have almost never had a client engagement where cost was as
major concern, either to the client or to our firm. Where cost was a
concern, we either worked on the value proposition or adjusted the
scope of work to meet the client’s limitations. In a very few cases,
we recommended they seek help elsewhere and wished them the best of success.
Michael L. Wyland
Sumption & Wyland
818 South Hawthorne Avenue
Sioux Falls, SD 57104-4537
Michael Wyland
My humble thanks to both Cheryl and Alan for reprinting the discussion thread. Here’s the next installment, more specifically targeted to the RFP process:
===============
Hi Michael –
I think you’ve made some excellent points. Perhaps putting it another
way, running to the low cost vendor is not always the most cost
effective in the long run – and sometimes, not even in the short run. I
learned this years ago when I outsourced an IT project to India. Low
cost, yes – but the communication problems doomed the project
completely, and the aggravation added to the burden of the project.
At the same time, though, I interpreted the original question to be one
that was asking about better understanding, or interpreting, fixed price
bids. I think the value to which you refer is certainly a factor in
evaluating the bids, but in order to conduct that evaluation, one needs
a good understanding of the thinking behind the bid – including the
resources. And, that process of understanding the basis for costing can
be especially helpful in identifying miscommunications: If I have two
suppliers who have bid in a similar financial range – but one envisions
the project as requiring twice as many hours as the first – I can not
only understand part of the value equation, but perhaps dig more deeply
into the work being done – before the project starts. Or, if I have one
supplier imputing a much higher hourly rate to his work, again, the door
is opened for a discussion about his experience and qualifications.
So in sum, I think we agree that the challenge is how best to determine
value, and look beyond simply the sticker price. By trying to create a
level assessment – hours required, hourly rates – one has a basis for
discussion – rather than a hard ruler for decision making.
Kind regards,
Bill Murray
=========================
Bill:
Thanks for the clarification. It helps me understand, and gives me the opportunity to make another point or two.
My firm avoids RFP or other competitive bid situations. There are three basic reasons.
First, as mentioned in my earlier post, consulting services are inherently qualitative and difficult to assess quantitatively. Even when results can be quantitatively compared (e.g., strategic plan, audit report, HR policies & procedures manual), the inputs may not be indicative of the quality or applicability of the results. [Even where RFPs are usually required due diligence, most corporations and governments have an exception for single-sourcing professional services.]
Second, many RFPs are poorly written and difficult to respond to. The most common difficulty is that organizations write RFPs designed to address problems they themselves have diagnosed and use processes they themselves believe to be the least costly and/or most effective. The problem is that, sometimes, the “patient” (organization) doesn’t always self-diagnose properly. Further, even if they do diagnose properly, the remedy envisioned in the RFP may or may not be the best way to address the issue.
As a corollary to the second reason, the RFP process sets up a barrier between the consultant and the client which actually makes it more difficult for each to assess the other and determine the appropriateness of a business relationship.
Third, there are times when an organization uses an RFP process to provide documented cover for a contracting decision already made. It’s often difficult to assess from the outside whether an RFP process is truly “open,” or whether there is a “preferred vendor” awaiting a final decision. Again, since consulting services are not commodities, even if a consultant were tempted to become the low-cost bidder, there would be no guarantee that that strategy would secure a contract.
I’m not addressing sham RFPs in the three reasons, because they aren’t worth serious discussion. Some organizations try putting out an RFP to sample consultants’ problem-solving approaches with no intention (and sometimes no capacity) to sign an agreement for services. They believe they can harvest good ideas without paying for them and implement them without assistance of the experts who developed the ideas. Good consultants are better off without such organizations, and are well-advised not to waste time on them.
When we work with a prospective client, we discuss – not propose – various strategies and approaches to address the agreed-upon issues and goals. Our agreements often specify quantifiable project phases. For strategic planning, for example, interviewing all board members and selected stakeholders, reviewing relevant written materials, conducting a board retreat, producing a draft report, revising comments into a final report, working with staff to develop implementation strategies and work plans, and follow-up meetings with the board chair and CEO/ED.
Since we’ve discussed the processes (and their rationale) with the prospective client first, the agreement provisions are no surprise when seen by the client. However, it’s still about the activities and how they contribute to project success – it’s not about number of hours worked or number of miles travelled. The consultant-client conversation should be focused on outcomes and processes rather than on inputs – it’s far more productive, even when it’s more difficult to measure.
=========================
Jeffrey Summers
“The consultant-client conversation should be focused on outcomes and processes rather than on inputs – it’s far more productive, even when it’s more difficult to measure.”
The measure is a dollar value of costs reduced or sales increased. I’ve never had a problem with calculating a dollar benefit for a client – unless they were unwilling to share enough information about their business to make it. Then that’s a red flag of it’s own.
Jeffrey Summers
Thanks to both Michael and Alan for posting this. Outstanding example of getting it!
Gareth Kane
All of that “work out the hourly rate” discussion seems to be predicated on “cheap = good”…
Jeffrey Summers
I think it’s predicated more on “I don’t understand real value.”
Alan Weiss
The buyer is uneducated, and believes lowest prices is best because he sees undifferentiated benefits. The consultant fails to demonstrate unique value. This is all controllable, not in anyone’s DNA.
Ian Brodie
Alan and Michael:
Are there any circumstances when you would respond to an RFP.
It’s a flash of the blindingly obvious (but one that hadn’t hit me before): if a client is running an RFP process it means they think they know what’s needed to solve their problem.
If they really do – it’s a contracting situation – so I don’t want to get involved.
If they don’t (but just think they do) then it’s going to be an awful uphill struggle to convince them otherwise.
Ian
Alan Weiss
Try to go sole source, or have the client create an RFP that only you can meet. An RFP IS an arbitrary alternative created by the client, which is one of the reasons it’s so dumb.
They are generally not worth pursuing.
Amanda Bucklow
This story really speaks to my experience. For years, I have avoided RPF or tender processes and would rather let the business go than participate in something which is bound to fail on all counts. I haven’t experienced one in nearly 20 years that hasn’t resulted in a bad outcome.
It surprises me that no one has really ever observed that the point of a RFP is apparently to provide transparency and yet it is full of secrecy and, bizarrely, prohibition of private communication with the client during the process. Why would I wants to share every question or insight I needed to explore with the client or about project with my competitors?
There is a saying I like which fits this well: buy cheap, pay twice.
Great post, Alan. Thank you.
Alan Weiss
They are also created and evaluated by low-level people who couldn’t evaluate a candy bar without a dog nearby.
Michael Wyland
Ian Brody asked about circumstances under which it is appropriate to respond to an RFP. There are a couple.
One, where the proposal is solicited from you and you’ve had the opportunity to ascertain the prospect’s true interest level in retaining you for the work. We have experienced this a few times, such as when we were invited to propose a process for merging six Girl Scout Councils.
Two, where the proposal process gives you an opportunity to try out a collaboration with a new colleague. We did this when we co-responeded with a university on a national organization’s strategic planning process. The proposal was unsuccessful, but it was a great way for us to experience how working with the university would “feel” without the specific pressure of an engagement underway.
In both cases – in any case – I would not respond to RFPs when I had a full pipeline of paying clients claiming my time and resources. Paying work comes first!
Alan Weiss
I’d advise you not to pursue these at all, but rather be a sole source. You’re better off marketing for new business than accepting this low-paying work for low level people.
Michael Wyland
Alan:
I appreciate your comments. However, in the first case, we secured one of the largest single contracts we ever secured. The contracting agents were the CEOs and the board chairs for the six corporations (Girl Scout Councils) that were merging. They chained themselves to an RFP process partially due to (dis)trust issues. We were recruited to respond to the RFP and had a champion in the room. In addition to the fees, the work was very exciting and rewarding. Definitely an exception to the rule, of course.
Alan Weiss
Right, but you don’t run your business on exceptions.
Michael Wyland
True, but all businesses have exceptions, and some turn out ot be very profitable. That’s where the freedom of entrepreneurs to choose which exceptions to pursue and which to pass up makes running a business so exciting.
Alan Weiss
You seem to want to argue this point for some reason. When giving advice to others, the advice is to do what usually works, not rely on the long shot. You’re not going to make a living responding to RFPs, perIod.
Michael Wyland
Alan, I’m sorry if you’ve taken offense. As I stated in previous posts here – and in countless presentations elswewhere – I’m opposed to the practice of consultants responding to RFPs. In fact, I cite you as an authority on the opinion.
My point was that there are exceptions to every rule that are sometimes justified to be exercised. It’s certainly true that one can’t run a business on exceptions, and I never argued that one could, much less should, do so. Exceptions are just that – exceptional. As you said, one exception to the “no RFP” rule is to approach the prospect and influence the process in your favor. I added two exceptions in a previous post, and noted that the exceptions turned out well for my practice.
In my twenty years of practice, I’ve made very few exceptions to the “no RFP” rule, and they haven’t always been successful. But most of those rare exceptions have been successful for my firm and for the clients.
In my case, we’re talking about less than 1% of my firm’s engagements, and we refuse 99% of RFP “opportunties” presnted to us.
So, my advice is always “no RFPs”, but I acknowledge there are rare exceptions where RFP-generated work can be beneficial for consultants. The magic is in knowing which exceptions to allow and which to deny.
Daniel
Hi,
I had an issue at a customer that I would like to share with you.
After meeting with at that time, a potential customer, I took all the information required from the owners. We made de agreement following Mr. Weiss methodology and the project started.
At the customer site, I found that the team that had to work with me, dispite being motivated and well intentioned, had an absurd lack of knowledge.
I was thinking how not to find my self in this problem in the future again. Having meeting with the team, but it didn’t take me a conversation to know the lack of knowledge, it was really through the job that it was clear that basic concepts were missing.
And if I knew that they lack knowledge. Well, communicating that to the customer is not easy. It could easily be interpreted as “ego” talking, etc.
Once, I told the owner that an individual had lack of knowledge. The idea was getting his approval to support him, coach him. Instead he was fired.
Out of my control, but didn’t make me positive, to say the least.
Thanks,
Daniel
Alan Weiss
I think you need to be more careful, less judgmental. You could have explained this better to the client. How can they be employed and have “an absurd lack of knowledge”?