Performance-related payment - has its time finally come?

Thursday 24^th Mar, 2011

Every time private-sector organisations cut back on their use of consultants, the amount of talk about risk-reward or other types of performance-related payment increases. However, history suggests that the talk far exceeds the walk. The recent recession has been no exception, with many organisations announcing their intention to make greater use of this approach, only to baulk at it in practice. Our quarterly survey of buying trends shows that, at 12%, the proportion of payment-by-results is scarcely higher than it was three years ago.

There are four primary problems associated with risk-reward projects:

A difficult option? People typically underestimate the amount of work involved in setting up a risk-reward deal.
Intangible benefits? Not all consulting projects result in direct and measurable benefits which can be tied back to the work of the consultants and only the consultants. And because the benefits are hard to measure and attribute, the temptation is to rely on metrics that are too simplistic to be useful or to create an entire cottage industry to work out who’s responsible for what and whether something falls inside or outside the scope of the project that’s been agreed.
An expensive option? Clients who put a risk-reward deal in order to reduce the price they pay may end up paying a premium for work which should, if the project had been correctly scoped, have been part of the base-level service. There are knock-on effects across the market: consulting firms will charge higher fees to all clients to cover the risk they are taking on with a few.
The wrong behaviour? We all know that metrics and targets have a direct impact on what people do – and this applies as much to risk-reward work as it does to any other area of business. A consulting firm which will earn a bonus for the early delivery of a new IT system may be tempted to cut corners in order to meet that deadline.

So are we about to see this cycle of talking-not-walking repeat itself in the public sector?

Certainly, there’s a lot of talk about “outcomes-based” payment going on, not just in the UK, where the cutbacks on the use of consultants in the public sector have been most severe, but all across Europe. However, there is also more discussion about changing the way consultants work, hiring them to deliver services rather than primarily for advice. This starts to stretch the definition of consulting, pulling it more towards outsourcing - an industry where performance-related payment is far more common. By contrast, the private sector has tended to maintain a clearer distinction between consulting and outsouring - and perhaps that's why the prevalence of performance-related payment seems to have stalled. Using consultants as “delivery partners” in the public sector may just tip the balance.

Blog categories:

Pricing

Comments

Liam Palmer replied on Wed, 2016-08-31 11:57 Permalink

Payment for results

We believe that the time has come for payment by results in many types of consulting work...and that message is really resonating with clients. You raise four of the big risks...but through doing this work we believe we have identified not only the best practices but unforeseen challenges needing robust solutions. The journey continues...but we are finding that the main challenges are behind us.

Fiona Czerniawska

The year of “udsyn”

Alison Huntington

Who’s up and who’s down in the digital transformation war

Brexit diary

Performance-related payment - has its time finally come?

Thursday 24^th Mar, 2011

Comments

Payment for results

Add new comment

Subscribe to our content

Categories

Contact us

Become one of us

Head office address

Fiona Czerniawska

The year of “udsyn”

Alison Huntington

Who’s up and who’s down in the digital transformation war

Brexit diary

Performance-related payment - has its time finally come?

Thursday 24th Mar, 2011

Comments

Add new comment

Share this article

Subscribe to our content

Categories

Thursday 24^th Mar, 2011