Pricing strategy for the budget-constrained BI client

Abstract

The financial services industry and the public services industry are currently faced with increasing regulatory norms, cuts in IT budgets, and a need for a strong IT foundation to stay ahead of the competition. Though the CIOs seem to be pushing for IT transformation projects, Gartner Survey indicates that “For 2013, CIO IT budgets are projected to be slightly down, with a weighted global average decline of 0.5 percent.”

As a seasoned consultant you might be able to see the true potential of your client. But for various reasons like budget constraints, other IT priorities, etc., your request to implement certain key projects might not see the light of day. Find out what you can do to achieve a win-win situation in this article.

The D2RC model

In this model, the consultant is required to get two things. First, secure a “go-ahead” from the client to start the project by explaining the big picture. Two, get the required approvals to reinvest the savings obtained in the first three months (post-due-diligence phase) on key projects identified by the consultant. The four stages of the D2RC (Due diligence – Deliver – Reinvest – Charge) model are detailed below:

Due Diligence – This phase charts out clearly defined and agreed-upon benefits with an up-front process to measure the resultant value. The consultant, based on his knowledge of the client, picks the least-effort-maximum-impact project that could bring about substantial savings to kick-start the “Deliver” phase. The consultant also identifies potential projects for implementation along with a roadmap. This is typically a consulting phase.

Deliver – In a short duration of, say, two to three months, the identified project must be executed and the savings required for reinvestment secured. If the consultant is going to take longer than three months, it’s better the project is reconsidered or not attempted unless there is a strong rationale behind it.

Reinvest – The estimated savings over a one-year period from the “Deliver” phase would fund the potential projects identified in the “due diligence” phase. Projects will have to be hand-picked such that the funds are sufficient to implement at least 70-75% of the project. This is to show tangible benefits to the business for obtaining remaining funds.

Charge – Midway through the Reinvest phase, the consultant can show tangible benefits to the client and either charge for effort spent until then or ask for a percentage of the savings as a fee. This is more like a risk & reward model. End of the day, it all depends on the progress made and tangible benefits the client can see.

Making it work:

The first step for the consultant is to convince his company that there is a lot of potential with the client. Secondly, he has to secure client buy-in before the engagement starts, which is not only tough but also risky. To make this model work, the consultant must:

• Have sufficient knowledge of the client, his environment and culture (preferably worked with the client)
• Good rapport with key stakeholders (business, IT, and top management)
• Long-term commitment from the client and support when it comes to working with other vendors
• Clear definition of scope of activities, quantum of work and the projects to be carried out
• Follow caution in terms of explaining the model, billing and chargebacks when tangible benefits are realized

The Risks:

If the “due diligence” and “deliver” phases combined take a long time to show tangible results, the planned projects might not even kick off. If the due diligence was based on sub-standard analysis or incorrect assumptions, the savings obtained in the “deliver” phase will not be substantial enough to meet the funds required for the re-invest phase. If the consultant cannot show visible progress or results at regular intervals, the project is destined for failure. Above all, the consultant must have a clear view on when to pull the plug should anything go wrong to ensure damage control.

The presence of other incumbent vendors can also pose a risk if there is no client buy-in at the executive level to enable smooth implementation.

Possible due diligence projects:

Here is a sample list of projects the consultant could consider for the least-effort-maximum-impact projects.

• Technology stack rationalization – If the client has a host of tools in their environment, this is a good place to start. The savings obtained from licenses per year can be used for reinvestment
• Lean BI projects – On occasions where the client has a lot of processes in place, which are age-old, attempting to study a few key processes and trimming them could help achieve the required savings
• Centralization – If the client operates on a fragmented model, analyzing the impact of centralizing a few key processes could bring in efficiency and savings. Example: centralized report creation team

Benefits:

• Guaranteed Savings for the client
• The consultant can build the client’s confidence/trust and a possible long-term relationship
• For the client, he gets to execute projects which he has been wanting to without having to go to the top management for funds
• Prevent the client from floating an RFP. Caveat: Assuming the client does not have the funding to float a RFP

Conclusion

There are several pricing models available in the market. What differentiates this model from the others is the fact that this is a combination of a risk-reward model and a result-oriented pricing model. Given today’s market condition, this model is a win-win for both the consultant and the client if risks are understood and cautiously handled.

#Pricing #Strategy