How Much Should You Pay Consultants?

How Much Should You Pay Consultants?

 

How Much Should You Pay Consultants?
How Much Should You Pay Consultants?

There is a famous anecdote that a plumber fixes an overflowing toilet with an astute hit to a pipe with a wrench. He presents the $500 bill to the homeowner who is upset that he is getting charged so much for a quick fix, so he asks for an itemized bill. The plumber scribbles, “$5 to hit pipe, $495 for the 20 years experience needed to know where to hit the pipe.” The story is allegorical for how valuable expertise is, (which I agree) although in this story I believe the plumber was indeed ripping off the client. That is why the client called a plumber – he expected (and indeed received) expertise, and paid a premium for it; otherwise he could have called the cheapest (probably young and inexperienced) plumber he could have found and hoped for the best. 

In my opinion, the plumber should have charged a total of $100, half for turning up, and the other half for his expert solution. And in corporate, that should be the same – if you hire an experienced consultant, they should get the same price as an employee (for showing up), and then the same again for their expertise. And if that seems too much, maybe you don’t need such expertise in the first place.

Before anyone explains how they accomplished a complex task, there is an air of inscrutability, almost like the moment before a magician reveals his illusion. And then, after explanation, you think, “Huh, pretty simple – I could have worked it out if I had really thought about it.” Except…. you didn’t, and they did, and that is why you needed their expertise – not because the person solving such tasks is always the smartest, but because they have the experience and wisdom to fix your problems.

Once my boss asked me to look over the proposal to spend $16M on an infrastructure build for the test environment to process telephone call records. It had already been vetted and approved, but it was a lot of money so she asked me to give it a last glance. I came back the next morning with the bill at $6M. She (of course) asked me how I did it and I explained the logical steps that had brought me to the solution. 

The whole time I was expecting her to signify some delight that in a few hours we had saved 10 million dollars, but after the explanation she said, “I thought it was too high”. I was a bit deflated by the reaction and only on reflection did I realize that my explanation had made it reasonable to assume that anyone that was looking for a solution would have found it, even her. They only problem was…. they hadn’t.

A few years later and I had been engaged by the same client to join a team on another test infrastructure build. A vendor had delivered a proposal for $3M for a 128 CPU Fujitsu "mainframe" (a big machine back then), some software, disk, and tape drives. The deal had been in the works for a month and the manager explained he and his team had dissected and approved the proposal, and they were signing the following day, but could I take a final look through it. I found one item (software licensing) that brought the cost down $100K, but the big saving was on the $500K for the tape drives. I asked the vendor why were they there? 

He answered (reasonably enough), “to back up the data”; the conventional wisdom is always to backup the data, so you need tape drives, right? Except it was test data that we were recreating twice a week on new test runs. It wasn’t needed to be backed up – If we lost the data, we would just re-create on the next run.  I told my boss to wait until the next draft of the contract was produced before signing, and it would be $600K cheaper. Again, I had expected some excitement, but the reaction was pretty flat. Maybe because if the listener is logical, the explanation is logical, the listener probably thinks they could have worked it out themselves, except…. they hadn’t.

A few years later and I had been engaged by the same client to join a team on another testMy background is in theoretical physics, and so I’ve rubbed shoulders with the brightest, and they can be a strange lot. Where they gained in brilliance, they often lost in other qualities, like common sense or judgment. Such intellects can solve problems better if the question is well formed. Where there is ambiguity, performance drops. That is where you need expertise. When you have both expertise and intellect, you have a powerful combination.

On a different engagement I visited Israel to confer with the vendor on their bill for change orders. I returned with the bill $600K cheaper. The client VP said, “As a reward, you should get 10% of that!” I declined pointing out that is why he had hired me, to find such solutions. Otherwise, why were they paying a premium for such expertise?

Nowadays, corporate culture has decided they don’t need heroes anymore; how instead they will press an employee unfamiliar with a system, area or task, and ask them to deliver success. There used to be a culture where corporations brought in “hired guns” – the grizzled consultant who could transform the business – they knew what to do and how to do it. These “heroes” are mostly gone and instead replaced by a sea of mediocrity – sometimes employees, sometimes consultants, sometimes CEOs - filling desks, completing tasks but not always adding value. So if you want to pay your consultants the same as an employee, then expect hard work and diligence, but just don’t expect transformation. That costs extra.

The Author : Stuart Hamilton


About : 
To structure the delivery of complex, large-scale transformational projects while managing and coaching multidisciplinary and matrixed teams. Day 1 assistance to develop strategy, roadmap, and execution plan, then execute and manage the implementation.
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