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Budgets – Can’t Live With ‘Em, Can’t Live Without ‘Em

January 24th, 2017 8:30am - Posted By: Rick Zwetsch

Seen at the end of too many Requests for Proposal (RFP)…

“Based on your proposed approach, please submit a draft budget estimate for the project.”

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“To respond to this RFP, please prepare materials to address the following: The fee for all service provided by your firm. Please identify any additional services that could include additional fees.”

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“Provide a good-faith cost estimate for your recommended solution, itemized by major component. Estimates should be fixed cost, not time and material. Provide unit costs for each major component to allow for a projection of costs under alternative configuration scenarios. Define the number of estimated labor hours by category of service provider and list their associated rate.”

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“Given our terms of reference, provide a proposal, workplan/timeline and budget for the entire project.”

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“Indicate estimated component costs in the proposal, with as much detail and breakdown as possible as well as a time-line for completion.”

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Now, let’s say you’re the client and you need to hire a consultant to help with a project. Any project, big or small, it doesn’t really matter.

You’ve put together what you believe to be a great RFP. The document outlines all aspects of the project including background information, timelines, proposed approach, desired consultant qualifications. Everything the consultant needs to know.

In the budget/project cost section of the RFP, you include any of the above paragraphs above to address the budget you have available for the project.

Or, wait. No time to put together a formal RFP document? Maybe you can have a few phone calls with prospective consultants instead. Ask some important questions. Get an idea of how the consultants work. Ask about their background, qualifications, who else they’ve worked with. See if they sound friendly and professional. Might they be “fun” to work with?

When the prospective consultants ask about your budget…insert one of the paragraphs above or just respond with – we don’t have a set budget. We’d just like to see your proposed scope of work and your proposed budget to complete the work.

 

Now, the proposals start coming in…

If you put out a formal RFP, you’ll recognize some of the consultants submitting proposals, others may not be familiar. (more on this later in the alphabet!) If you spoke with consultants on the phone you’ll know who everyone is.

Upon review the proposals look GREAT! It appears that everyone has the qualifications and seems to understand the project based on their proposed scope of work. Everyone’s proposed approach seems reasonable and is acceptable. And, of course, everyone can complete the project within the stated timelines!

But, WOW, the consultant’s proposed budgets are all over the place. Some are high. Some are REALLY high. Some seem kind of low. Some seem “about right.”

 

I guess my big question is: the budgets are high, really high, low or about right - compared to what?

I’m going to go out on a limb here and suggest that all clients know how much money they want to spend or can spend to hire a consultant. Even if they have never ever hired a consultant or if they’ve never hired a consultant to work on a particular kind of project. At some point there’s been a discussion about the project budget. There’s money allocated. There’s probably a “not to exceed” amount in someone’s mind.

Even if you have NO idea what a project like what you’re looking at should cost…I’m betting some amount of money or budget has been APPROVED to hire “the consultant.”

 

Okay, back to all the great proposals that came in.

If the proposed budgets are all over the place ranging all the way from suspiciously low to unreasonably high – how will you decide which consultant to hire? How will you effectively and efficiently compare all the proposals and choose the consultant best qualified and prepared to do the work? At the fairest price?

 

WHAT IF…the budgets in ALL the proposals you receive are too high? Too Much? More than you can spend or want to or think you should spend?

First, it’s going to be difficult to compare apples to apples. Second, you’ve put all your prospective consultants in a difficult and unreasonable position and you haven’t even started the project yet. And third, if you can’t or don’t want to spend what the consultants are proposing, then it’s back to the drawing board.

There is a better way and to be fair, we do see this better way more often than not.

Share your budget, share what you can spend with all your prospective consultants as part of the RFP or your initial phone calls or meetings. And don’t worry about consultants submitting proposals right up to your budget even if they don’t think it should cost that much. This does happen in the world of consulting but it’s not worth worrying about. And you’ll probably know when it’s happening as you are comparing all the apples!

I started with this last week. I believe good, experienced, professional, ethical consultants know what their time is worth and know what it will take to complete a project in accordance with a proposed scope of work which includes YOUR BUDGET. I can think of several occasions when our firm has advised the potential client that they don’t need to spend the budget they think they do to get the work done. Think about it - how often does that happen?

 

Hiring a consultant is like shopping for a home, a car or a nice bedroom set. You go shopping with a budget in mind. The salesperson can’t reasonably help you if they don’t know what you want and how much you can spend. And you’ll never be able to make a buying decision without a budget in mind. Oh yes, you may end up spending more than you wanted to. But you almost always have a starting number in mind.

Something we’ve done here at interSector Partners, L3C for years has been to propose a scope of work in accordance with the RFP (including available budget) and then include additional services or work we think may be appropriate for the project as outlined and their corresponding additional cost. Nearly all of the 80+ different clients we’ve worked with over the past 8 years really appreciate this approach.


A few parting thoughts for clients working with consultants:

Consulting Budgets

1. Consultants spend a great deal of time thinking through and preparing a proposal they believe will meet your needs and shouldn’t have to guess how much their work is worth to you. ALWAYS include a budget when soliciting proposals from consultants.
 

2. If you don’t know how much the project you’re about to undertake with a consultant should cost – do some research. Ask your peers who have hired consultants for similar projects for their advice. SUPER BONUS potential – you end up getting a referral or two to great potential consultants!
 

3. If a proposal comes in within budget but is either curiously low or high, take a few minutes to understand why. If you’re truly interested in them and their proposal, talk with the consultant to better understand what they’re thinking and why. Don’t just toss the proposal aside…
 

4. If your proposals are coming in all over the map - consider working with someone that understands the world of consulting to help you prepare future Request for Proposal (RFP) documents that will attract proposals where you’ll be able tell the difference between apples and oranges, pears, and mangoes.
 

5. Beware of consultants underbidding other consultants just to get the work. Rarely will these projects work out like everyone wants them to.

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