31.4 Controlling costs and budgets

Both the client and the consultant are concerned about the financial side of assignment execution. The client is certainly pleased to see that the job is making progress, but since he or she is also paying the consultant’s bills, it is normal to compare the progress achieved with the money that has been spent.

The consulting firm has a similar concern. If the contract stipulated a lumpsum payment, both the operating consultants and the supervisor involved must monitor carefully whether the progress made is commensurate with the time and other resources spent. It does happen that, through lack of focus and discipline, too much time is spent on fact-finding and diagnosis, and the consultants then have to complete the assignment under extreme pressure, or cannot finish it within the agreed time and budget.

However, even if a per diem fee rate is applied and no maximum budget was agreed upon, the consultant’s responsibility to the client requires strict control of cumulative costs and their comparison with the progress made in the assignment. If this relationship is ignored and the client is expected to pay the fees anyhow, this can lead to a major conflict. The assignment may be phased out in an unpleasant atmosphere, or the consultant could spoil the chances of getting other work from this client.

The consulting firm needs to control assignment budgets for one more reason. It needs to know which assignments are profitable and which are not, in order to adjust its service portfolio, assignment design, work organization, staff structure and personnel management, including partner and consultant compensation. Therefore many consulting firms budget and control the complete cost and the profit made for every assignment (see also section 33.2).