costing and pricing consultancies

8/13/2019 Costing and Pricing Consultancies

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COSTING AND PRICING CONSULTANCIES:

INTRODUCTION

(FIRST SECTION)

FACILITATOR:

TOBIAS S MWANYIKA

DIRECTOR

PACE ASSOCIATES LIMITED


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1. LEARNING OBJECTIVES

Given relevant information about working daysper week, leave, holidays, retooling/training and

other time for attending meetings, you will beable to calculate correctly consultancy feeearning days in a year.

Once you have calculated both available and

chargeable time in a year, you will be able towork out the % utilisation of consultants time.

You will be able to cost and price an assignmentreasonably 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 = 260 days

Less leave of 6 weeks @ 5 days = 30 Less holidays 2weeks @5 days = 10

Less illness : 2 weeks @ 5 days = 10

10weeks@5 days 50 days Days Available: 42wks @5days = 210 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 ofwhom 4 are largely in administration, but

must spend 50% of their chargeable timedoing consultancy work .

Assume also that the remaining 18consultants must spend 100% of theirchargeable 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 whenspecific 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 durationofthe assignment.

This will usually be determined by using

the work-plan or Schedule of Activities forthe assignment (Vide 2 LGFC TechnicalProposal).

Considerable experience is required forcorrectly assessing time for all operationsand phases of the assignment as well asTasks and Sub-Tasks.


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6. Costing an Assignment (coned)

The second step is to apply the appropriateconsulting rate to the assignment this is

the professional fee component of the cost.

The third step is to list all other direct

expensesthat the client will be expected toreimburse the consultant . These expensesare also referred to as reimbursables.


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The number of consultants (NC) times thenumber of days required for the assignment(ND), times the chargeable Fee per Day perConsultant (FDC) will give you the TotalProfessional 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 andthe related total), tells the client what

reimbursements that client will be paying.


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Total Professional Fees (TPF)PLUS

Total Reimbursable (TR) EQUALS Total

Charge to Client (TCC). i. e. :

TCC = TPF + TR

Under normal circumstances if theassignment has been correctly costedthere isno reason for granting any discounting onthe consultin fees.


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7. MARKETING-POLICY CONSIDERATIONS

Consulting fees are simultaneously aninstrument of general, financial, andmarketing management policy.

Sometimes it is important to set differentfees for the different segments of themarket served.

Lower fees may be charged to smallenterprises, and higher ones for largeclients.


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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.


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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 thereare seven of you, two of whom will spend

half their time in administrative work.

Calculate your consultancy charge perworking 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 computedin no. 4 above calculate and explain theprofessional fee for an assignment toevaluate the gender balance compliance

by selected government ministries in yourcountry. State any necessaryassumptions you use.

8.6 PROCEED TO COSTING CONSULTANCYSERVICES Second Section file.

GRATIAS SIGNORE = THANK YOU VERY

MUCH FOR YOUR ATTENTION ANDCONTRIBUTIONS

costing and pricing consultancies

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