COSTING AND PRICING CONSULTANCIES: INTRODUCTION (FIRST SECTION)

FACILITATOR: TOBIAS S MWANYIKA DIRECTOR PACE ASSOCIATES LIMITED

1. LEARNING OBJECTIVES

Given relevant information about working days per week, leave, holidays, retooling/training and other time for attending meetings, you will be able to calculate correctly consultancy fee earning days in a year. Once you have calculated both available and chargeable time in a year, you will be able to work out the % utilisation of consultants time. You will be able to cost and price an assignment reasonably well when provided with a work-plan for the related assignment.
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2. CALCULATING FEE EARNING DAYS

Assuming a 5-day week: Total time is 52 weeks@ 5days = Less leave of 6 weeks @ 5 days = 30 Less holidays 2weeks @5 days = 10 Less illness : 2 weeks @ 5 days = 10 10weeks@5 days Days Available: 42wks @5days =

260 days

50 days 210 days ======

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2. Fee Earning Days..

Days available 42wks@5days) b/f =

Less retooling: 4 wks@5days = 20 Less meetings:2 wks@5 days = 10 Less: Total 6 wks @ 5 days = Chargeable Time :36wks@5 =

210 days

30 days 180 days ======

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3. % CONSULTANT TIME UTILISATION

Chargeable Time DIVIDED by days available pa gives you the Effective Staff Utilization % (ratio) : i.e 180 days = 69.23% 260 days It is often a useful figure to compare with actual and or potential competitors in determining effective consultant use.
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4. COSTING CHARGEABLE SERVICE

Assume that you have 22 consultants of whom 4 are largely in administration, but must spend 50% of their chargeable time doing consultancy work .
Assume also that the remaining 18 consultants must spend 100% of their chargeable time in consultancies.
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4. Costing chargeable services..

Then consultant fee per day would be worked thus , assuming a total consulting revenue budget of , say, $ 4.3 million in a year: 18 consultants @180days = 3,240 Con. Days Plus: 4 consultants90days) = 360 Con. Days Total = 3,600 Con. Days Consultant Fee per Day = $4,300,000/3,600 = $1,194.44 per day per Consultant. =============
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5. FEE SETTING METHODS

Many methods are used, but the following are more commonly encountered : (i) Fees per unit time, e. g, per day/hour/week/ month, etc. (ii) Lump-sum fee, usually a fixed amount payable to the consultant on assignment completion. (iii) Fees contingent on results; paid only when specific results are achieved. (iv) Retainer fees: usually fixed per period, whether or not service is rendered during that period.

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6. COSTING AN ASSIGNMENT The first step is determining the duration of the assignment. This will usually be determined by using the work-plan or Schedule of Activities for the assignment (Vide 2 LGFC Technical Proposal). Considerable experience is required for correctly assessing time for all operations and phases of the assignment as well as Tasks and Sub-Tasks.
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6. Costing an Assignment (coned)

The second step is to apply the appropriate consulting rate to the assignment this is the professional fee component of the cost.
The third step is to list all other direct expenses that the client will be expected to reimburse the consultant . These expenses are also referred to as reimbursables.
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6. Costing an Assignment (coned)

The number of consultants (NC) times the number of days required for the assignment (ND), times the chargeable Fee per Day per Consultant (FDC) will give you the Total Professional Fees (TPF) payable by the client, i.e.

TPF

NC X

ND X

FDC

The list of direct expenses (such as DSAs, travel, document reproduction, long distance calls, etc and the related total), tells the client what reimbursements that client will be paying .
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6. Costing an Assignment (coned)

Total Professional Fees (TPF) PLUS Total Reimbursable (TR) EQUALS Total Charge to Client (TCC). i. e. :
TCC

TPF

TR

Under normal circumstances if the assignment has been correctly costed there is no reason for granting any discounting on 12 21/02/2014 the consulting fees.

7. MARKETING-POLICY CONSIDERATIONS

Consulting fees are simultaneously an instrument of general, financial, and marketing management policy. Sometimes it is important to set different fees for the different segments of the market served. Lower fees may be charged to small enterprises, and higher ones for large clients.
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7. Marketing Policy Implications.(coned)

Promotional fees: May be used say , in launching a new type of service to stimulate client interest. Congruency of fees with consultants image: Consultants positioning themselves as higher level advisers will consistently charge higher fees than those in routine operations (The case of Most International consulting firms).

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8. DISCUSSION EXERCISES 8.1 Why is it important to consider the size of your client in deciding on the pricing strategy of an assignment? Illustrate. 8.2 Avoid submitting the proposal too early. Discuss the significance of the statement 8.3 (i) What key factors are needed in determining the consulting fee? (ii) What factors are necessary in determining assignment duration? Illustrate. 15 21/02/2014

8. Exercisescontd 8.4 You have just started a consultancy. Your projected expenditure for the year are $1,800,000. Considering Your local situation, compute fee earning days if there are seven of you, two of whom will spend half their time in administrative work. Calculate your consultancy charge per working week, day and hour. (A 10% return is considered appropriate).
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8. Discussions Concluded 8.5 For the consulting fee you have computed in no. 4 above calculate and explain the professional fee for an assignment to evaluate the gender balance compliance by selected government ministries in your country. State any necessary assumptions you use.
8.6 PROCEED TO COSTING CONSULTANCY SERVICES Second Section file.

GRATIAS SIGNORE = THANK YOU VERY MUCH FOR YOUR ATTENTION AND CONTRIBUTIONS 17 21/02/2014