Figure 33.1 Expanded profit model for consulting firms

Management consulting

it is decided to take corrective action, the precise target to be achieved and the responsibility for the action to be taken should be defined.

It is good practice to keep not only partners and senior members of the firm but also other consultants informed about the performance achieved by the firm, pointing out what should be improved, and how individual consultants can help and will be encouraged to make such improvements.

Selected performance ratios can be calculated and analysed by unit (team, department, service group, practice area, etc.) within the firm. Such an analysis can show which units are the main contributors to the total results achieved, and which “problem” units have become, or may become, a financial burden. This can stimulate the management and staff of these units to be more active and entrepreneurial.

It is often useful to know performance data for each consultant employed. A typical example is the ratio of volume of work sold per consultant engaged in marketing the services. Rather than calculating and examining average data per consultant, some consulting firms record and analyse the marketing performance of each individual. The same can be done in assessing programme delivery by comparing the budgeted and the real income and profitability for individual consultants. If an individual’s profitability is low, the reasons can be, for example:

–the fee charged is too low in comparison with the salary paid and other costs;

–chargeable time utilization is low owing to small demand for the services of the individual concerned, or for other reasons reflecting weaknesses in service marketing, scheduling and organization.

Performance of individual assignments

In a similar vein, profitability and some other performance indicators can be calculated and analysed by assignment (project, product). For example, one consulting firm found that the profitability of its consulting assignments was low. However, most assignments generated demand for tailor-made in-plant training programmes, and also brought participants to regular open training seminars. Since these two groups of products were highly profitable, the overall result was judged as being satisfactory and the relatively low profitability of consulting assignments fully acceptable.

Information on assignment performance provides insights into issues such as the adequacy of fee formulas and fee levels for various types of assignment, assignment staffing, the use of experienced (and more expensive) consultants for the backstopping and supervision of operating assignments, the quality of assignment scheduling and administration, various expenditure (and cost) items that are not reimbursable, and so on.

The key condition is correct recording and measurement of the time spent by various categories of consultant on particular assignments. For example, it may be established that junior consultants use more time than budgeted because of poor briefing and guidance by the seniors, or that more seniors’ time is used

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