There are several options to charge the clients for the IT Consulting services rendered. Typical options are: Fixed Price (FP), Time and Material (TNM), Outcome pricing, Output pricing and a whole bunch of variants of these. In FP, the scope is defined clearly and a price is agreed between the customer and service provider. In FP, the cost incurred for the service is fixed for the customer. For the service provider, the cost incurred could be lesser or higher than the FP agreed. In TNM, the rate per unit of effort is agreed between the customer and the service provider. Outcome pricing is based on the business outcome from the service rendered. Output pricing is based on the quantum of output delivered through the service. In the case of platform based products/solutions that is being used or bundled into the solution, subscription based pricing is also possible. Hybrid pricing models are common in the industry where a mix of pricing model options are used for a given project.
Activity: Resume Sourcing & Shortlisting Improvement Project (A):
ABC Ltd has received a request for a proposal (RFP) from its client to provide consulting and implementation services for its internal business transformation initiative to improve the resume sourcing and shortlisting process as implemented in the client’s Recruitment System. The client managers and the Senior Consultant of ABC Ltd have had discussions and the following is what the Senior Consultant has identified:
- ABC consultants need to work with the client managers to identify the challenges, understand the current process (as-is), identify improvements, document the proposed process (to-be), estimate the time & efforts for the implementation phase and submit a detailed report for review by client top management.
- On getting the go ahead, the implementation was to be done by ABC’s software engineering team.
Questions:
- If you are ABC’s Senior Consultant which pricing model should ABC’s Senior consultant recommend to the Pre-sales manager leading the RFP preparation team? Why?
- If you are the client manager, who is outsourcing the work, what will be your preferred pricing model? Why?
Activity: Resume Sourcing & Shortlisting Improvement Project (B):
ABC Ltd has received a request for a proposal (RFP) from its client to provide consulting and implementation services for its internal business transformation initiative to improve the resume sourcing and shortlisting process as implemented in the client’s Recruitment System. The client managers and the Senior Consultant of ABC Ltd have had discussions and the Senior consultant has good clarity on the scope and approach of the work to be done. The following is what he has identified:
- Team profile (1 Consultant, 1 Senior Consultant, 1 Business Analyst (onsite), 1 Developer, 1 Tester, 1 Project Manager)
- Cost per hour for each of these members)
- Duration of the engagement (4 Weeks)
- Weekly effort (in hours) required from each of the team members
- A proprietary resume matching algorithm developed by ABC is to be used.
- Travel details: # of travels, How many people, Duration of each travel (days)
Questions
- Which Pricing Model should ABC’s Senior consultant recommend to the Pre-sales manager leading the RFP preparation team? Why?
- How should he estimate the total cost (or) indicative total cost to be given to the Pre-sales manager for deciding the price in response to the RFP?
- If you are the client manager, who is outsourcing the work, what will be your preferred pricing model? Why? How will you review the price proposed by ABC?
Activity: Resume Sourcing & Shortlisting Improvement Project (C):
ABC Ltd has received a request for a proposal (RFP) from its client to provide consulting and implementation services for its internal business transformation initiative to improve the resume sourcing and shortlisting process as implemented in the client’s Recruitment System. The client managers and the Senior Consultant of ABC Ltd have had discussions and the Senior consultant has good clarity on the scope and approach of the work to be done. The following is what he has identified:
- Team profile (1 Consultant, 1 Senior Consultant, 1 Business Analyst (onsite), 1 Developer, 1 Tester, 1 Project Manager; Cost per hour for each of these members)
- Duration of the engagement (4 Weeks)
- Weekly effort (in hours) required from each of the team members
- A proprietary resume matching algorithm developed by ABC is to be used.
- Travel details: # of travels, How many people, Duration of each travel (days)
In addition to the above, the client informs that the following needs to be included as part of the proposal:
A mobile application needs to be developed for enabling shortlisting of resumes by managers using mobile
Questions
- Which Pricing Model should ABC’s Senior consultant recommend to the Pre-sales manager leading the RFP preparation team? Why?
- How should he estimate the total cost (or) indicative total cost to be given to the Pre-sales manager for deciding the price in response to the RFP?
- If you are the client manager, who is outsourcing the work, what will be your preferred pricing model? Why? How will you review the price proposed by ABC?
Activity: Resume Sourcing & Shortlisting Improvement Project (D):
ABC Ltd has received a request for a proposal (RFP) from its client to provide consulting and implementation services for its internal business transformation initiative to improve the resume sourcing and shortlisting process as implemented in the client’s Recruitment System. The client managers and the Senior Consultant of ABC Ltd have had discussions and the Senior consultant has good clarity on the scope and approach of the work to be done. The following is what he has identified:
- Team profile (1 Consultant, 1 Senior Consultant, 1 Business Analyst (onsite), 1 Developer, 1 Tester, 1 Project Manager; Cost per hour for each of these members)
- Duration of the engagement (4 Weeks)
- Weekly effort (in hours) required from each of the team members
- A proprietary resume matching algorithm developed by ABC is to be used.
- Travel details: # of travels, How many people, Duration of each travel (days)
In addition to the above, the client informs that the following needs to be included as part of the proposal:
A mobile application needs to be developed for enabling shortlisting of resumes by managers using mobile.
The client’s Recruitment System will have to be maintained by the vendor on an ongoing basis to continuously improve the system as per business requirements
Questions
- Which Pricing Model should ABC’s Senior consultant recommend to the Pre-sales manager leading the RFP preparation team? Why?
- How should he estimate the total cost (or) indicative total cost to be given to the Pre-sales manager for deciding the price in response to the RFP?
- If you are the client manager, who is outsourcing the work, what will be your preferred pricing model? Why? How will you review the price proposed by ABC?
Activity: Analytics Lab Infrastructure. Understand the scenario and answer the questions
The Analytics Lab of a Management Institute has about 50 desktops with about 30 of them with i7 processor and one with i9 processor. Its vision is “To promote data-driven management in the industry through educational programs, consulting projects, and partnerships”. The approach that it has identified for this is as follows:
- Conduct industry relevant academic & executive education analytics programs.
- Execute consulting projects in analytics
Provide guidance to the Head of the Analytics Lab in terms of the following aspects:
Questions
- Is the lab infrastructure scalable for future requirements? If not, how should they make it scalable?
- If the lab infrastructure needs to be made accessible remotely what should be done?
- What are the pricing options?
Estimation
Estimation is the step which estimates a value as relevant for the pricing model. In the case of FP, the cost to be incurred is estimated so that the FP quoted to customer can be suitably higher to get sufficient margins. In the case of Output pricing, the inflow of work is estimated to check feasibility of taking up a given project. In the case of Outcome based pricing, the expected business outcome is estimated to check if the revenue will be commensurate with respect to the cost incurred.
Questions
How to address the client’s concerns in using TNM pricing?
How to address the vendor’s concerns in using Fixed Pricing?
Dr. Selvaraj Vadivelu 