Pitfalls of choosing cost over quality

Article

A Costly Risk – Placing Importance on Price Over Quality

Businesses embarking on projects where additional expertise is required are being enticed by attractive pricing models by third party providers. Forgoing quality, however, comes at a cost.

In the world of consulting services, once dominated by the Big Four (Deloitte, EY, PwC, and KPMG) it was a natural evolution for customers to look at lower-cost alternatives and the industry saw a seismic shift towards offshore outsourcing. Years on from this evolution, Customers have been seeking alternative solutions that are both onshore and cost effective, creating a new market for alternative onshore players, offering new solutions and a more agile service.

“Over the last couple of years, however, there has been a seismic shift in the scale and complexity of client projects,” says Ian Moran, Executive Account Director, Aston Carter Consulting Services.

“Simultaneously, we are seeing more players in the consulting space entering the market and driving down pricing.”

Clients are seeing expenditure on projects increase, making lower commercial models a more attractive solution. This is putting pressure on the entire consulting ecosystem, including the Big Four – not just their challenges – to participate in downplaying prices.

Price, however, should be a guide to whether a consultancy has appreciated the scope and scale of a project, and an indication that the consultancy is offering value for money in comparison with its competitors. Clients should rely on other factors when selecting a consultancy to support on their projects.

Price does not always amount to quality

Fiona Czerniawska, Chief Executive of Source Global Research, says that firms that are, or aspire to be, “in the premium segment, are not talking about quality or value (they perhaps should be), but about fee rates. They are, or want to be seen to be, expensive.”

Our observation, however, is that in reality ‘premium priced’ consultancies are finding fee rates for some of their traditional services are falling due to competition and more and more automated processes. Big-firms have lost share to newer, more agile mid-sized firms, who in turn are losing share to cheaper, less experienced players entering the market.

New competitors coming into the market challenge the quality expectations of consulting firms by suggesting commercial models that are not necessarily viable. When an organisation is motivated by tight margins, selecting a consultancy based on price is compelling, but at what long term cost?

The impact is costly

Being able to guarantee the delivery of a project on schedule and to the high standards expected by clients, comes at a cost. Without experts on a project, competitor consultancies can provide much lower pricing structures. Pricing is a key factor that determines the quality of the people deployed on a project.

With little to no expertise, some lower-priced model consultancies go to market to seek out people who are untried and untested and deploy them on site. Some clients find the lower cost consultancies are not always able provide oversight, management, or governance to deliver the project, meaning they have to step in directly.

The immediate benefit to the client is that at the start of the project they will see a very competitive price. However, once the project is underway, cracks will begin to appear. The outcome of opting for the competitive pricing model is lack of quality, lack of experience in delivering complex programmes, lack of management and oversight expertise.

A project can begin to deteriorate as early as month one due to an inefficient project mobilisation model, an inexperienced team or worse - both! Ultimately, inexperienced people are not capable of delivering a project to the expected standards. The result is that quality will fall.

Further, people attrition, missed project deadlines, poor quality and productivity will lead to financial loss and reputational damage for the client.

Root cause analysis, the methodology of discovering the root causes of problems to identify appropriate solutions, will be needed to uncover where and what is failing. A complete review of the project, it’s workstreams and what the consultancy has done or is doing to fix the problems, is often required. From there a new solution is proposed and the process of setting the damage right can begin.

The cost benefit may look attractive at the outset of a project; however, costs will increase for clients further down the line when they have to mitigate challenges that have arisen by allocating more of their own staff to the project to help, paying the consultancy more to provide more expertise or even removing the consultancy completely and engaging another partner.

What distinguishes top performing consulting firms from the rest?

In a Voice of the Customer survey conducted towards the backend of 2021, our clients gave us a net promotor score of 83. That’s well above the industry average of 42 and the world class score of 70. Our clients told us that key criteria for selecting a consulting partner is ‘access to quality teams and specialist talent’ and one that ‘delivers proven results’. Cost, as it turns out, is of least importance to our clients.

Top performing consulting firms can provide a holistic approach to solving clients’ problems. They have expertise within the practice who continuously add value, helping identify risks and issues before they arise and recommending better ways or new innovative ideas to the client.

“They add value in the operational processes, they can share lessons learned from previous engagements and how to avoid potential issues which may arise at different stages of the programme, as well as recommend solutions,” says Ian.

Importantly, top performing consulting firms will have the ability to deploy their teams of specialists at pace, in line with client expectations and will offer flexibility throughout the engagement as per the evolving programme’s needs.

They will also have the ability to provide governance and oversight, drive high performance across the project and ensure successful outcomes for their clients, through their experienced leadership team.

Savvy clients who focus not so much on cost-savings, but rather on cost-effectiveness will drive long-term value. A cost-effective consulting partner will provide:

  • Onsite industry experts: To ensure that metrics and key milestones are achieved along with consistent communication with the client to identify best practices.
  • Performance management: Full performance management process to ensure consultants onsite achieve their route to competency quickly.
  • Key performance indicators: Measured and monitored weekly performance reviews using processes and KPIs to support learning and accreditation.
  • Reporting: Tailored visibility and reporting, giving insight into the programme and deliverables.
  • Project management office (PMO): Ensures that key delivery milestones are being tracked and any risks or issues are identified.
  • Governance: Monthly governance reviews of project service level agreements (SLA’s) to ensure timely and accurate programme delivery.
  • Audits: Regular audit checks to ensure methodologies are being adhered to.
  • Knowledge transfer: Transfer of project knowledge and sharing of best practice.
  • Onboarding and offboarding: Managed onboarding and offboarding to ensure a smooth ramp up and ramp down of teams, leaving the client in a better place than where they were at the start.

Finding a balance between quality and cost

A balance between quality and pricing must be found to be able to provide a client with the level of service required to meet expectations.

Ian explains: “With clients seeing the scale and complexity of projects increasing, it’s getting harder to justify a higher pricing model, even with the foresight of experience and a quality driven solution.”

It’s natural for an organisation to be tempted by cutting consulting costs upfront. However, the potential for longer term financial and reputational damage can be avoided by considering the risk of choosing cost over quality.

Ultimately, working with a cost-effective consulting partner will result in increasing the likelihood of a project’s success together with the benefits of soft cost savings generated by management, oversight and expertise.