Client organizations often allocate up to 3% of their revenues to consulting services each year. However, many fail to monitor the returns on this significant investment. The common belief is that the intangible nature of consulting services makes it difficult to measure outcomes. This challenge echoes John Wanamaker’s famous quote: “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.”

While it’s true that consulting results can be elusive, there’s a vast difference between managing imperfectly and not managing at all. Through our extensive experience, we’ve identified eight best practices that can help organizations optimise their consulting spend and extract maximum value.

#1. Ensure Consulting Projects Align with Strategy

The foundation of optimising your consulting spend is ensuring that your projects are strategically aligned. Over the past year, how many of your consulting projects directly supported your strategic goals? Or at least, were they considered strategic when initiated?

Strategic consulting projects typically fall into two categories: Core Strategy Projects and Strategic Adaptation Projects. A Core Strategy Project advances your company’s long-term vision, such as restructuring your business model to enhance customer experience. Strategic Adaptation Projects, on the other hand, help your company adapt to external changes like new regulations or market shifts, ensuring ongoing compliance and operational stability.

#2. Align Projects with a Unified Strategic Goal

Creating a sustainable competitive advantage requires more than just selecting the right projects—it involves ensuring that all activities and capabilities reinforce each other. These activities must work together to achieve a unique value proposition that is difficult for competitors to replicate.

To achieve this, map out the key activities necessary to execute your strategy and regularly review resource allocation, including your consulting budget. This ensures that no critical elements are overlooked and that your efforts are congruent with your strategic objectives.

#3. Plan Projects Smartly: Timing Is Everything

Strategic timing and sequencing of your projects throughout the year can make a significant impact on their success. Proper planning ensures that each project is launched at the most opportune moment and poised for maximum impact.

Consider these questions as you reflect on the projects you launched last year:

• Did you initiate them at the right time?
• Was the entire project a top priority?
• Did you break down the project into manageable phases?
• Were there any phases that could have been deferred?
• Did you evaluate interdependencies with other activities or projects?
• Were you able to self-fund some of your projects?
• Did your projects include quick wins to facilitate change?

By planning strategically, you can enhance the effectiveness and impact of each consulting engagement.

#4. Keep a Close Eye on Consulting ROI

One of the most important aspects of optimising consulting spend is closely monitoring Return on Investment (ROI). It’s essential to assess whether your consulting investments are delivering the expected results.

Ask yourself:

• Did you achieve the strategic goals set at the beginning of the year?
• Are you satisfied with the ROI of the projects you initiated last year?
• How did the consultants you hired perform?
• Do you believe you received value for your money?

Regularly measuring consulting project performance and evaluating ROI is key to maximizing the value of your consulting engagements.

#5. Define a Clear Consulting Strategy

To fully leverage consulting, it should be integrated into your strategic planning from the outset. Consulting must be more than just an afterthought; it should be a core component of your strategy. Aligning consulting spend with your overall strategic goals is crucial, but defining a comprehensive Consulting Strategy can unlock even greater benefits.

Here’s how:

• Translate your high-level priorities into strategic clusters and allocate resources accordingly.
• Identify potential projects and assess their contribution to each cluster.
• Define priorities, sequence your projects intelligently, manage interdependencies, and conduct a make-or-buy analysis.

Developing a Consulting Strategy requires a collaborative effort. If your consulting volume is substantial, consider forming a dedicated team to define and execute the strategy. This team can ensure that the Business Lines retain control over their consulting spend while maximizing value through best practices.

#6. Optimise the Use of Consulting Resources

Are you consolidating similar projects? Within your strategic initiatives, you may find redundancies or potential synergies that can be leveraged for greater efficiency.

You might encounter situations where:

• Similar projects have been launched in different parts of the organization. When a strategic direction is set, all business units and functions must translate it into their own strategies, often resulting in similar actions and projects.
• The same consulting firm has been engaged across multiple areas. If different parts of the organization are working in the same niche, they might naturally gravitate toward the same consultants due to familiarity and recommendations.
• The same subject has been addressed through multiple projects. This can occur when teams want to stay under the demand management threshold or when the scope of the project was too uncertain at the start to commit to a larger scale.

To optimise your consulting spend, anticipate these scenarios and actively seek out synergies that can reduce costs and enhance the overall impact of your projects.

#7. Implement a Make-or-Buy Strategy

The decision to handle a project internally or outsource it to consultants is often complex, influenced by varying levels of understanding among executives regarding project management, consulting, and procurement.

To streamline this process and ensure consistency, define a Make-or-Buy strategy closely aligned with your demand management system. Your strategy should guide executives through three key steps:

• Determine whether the project is suitable for outsourcing. Projects with vague scopes or unclear deliverables are often doomed from the start.
• Assess whether the project is critical to executing your strategy. In other words, is it aligned with your strategic objectives?
• Evaluate whether hiring external consultants will create more value than building an internal team. This is the crux of the Make-or-Buy dilemma. Outsourcing can provide access to niche skills or offer the advantages of third-party intervention, but it must generate higher value to justify the investment.

#8. Manage the Tail End of Your Consulting Spend

Many companies are beginning to realize the significant savings potential within the tail end of their consulting spend. Given the persistent pressure to reduce operational expenses, managing the tail spend can be a key initiative for achieving savings targets.

Effectively managing the tail spend requires executives with a deep understanding of both procurement practices and the consulting market. The good news is that when managed properly, tail spend can yield savings of 5% to 40%. That’s an exciting prospect, isn’t it?

Conclusion: The Role of Finance in Optimizing Consulting Spend

Finance has a crucial role and responsibility in optimizing consulting spend, but this responsibility cannot be shouldered alone. Effective management of consulting expenditures requires close collaboration between Finance, Strategy, and Procurement teams. Turning a blind eye to consulting costs might keep internal stakeholders content in the short term, but it can lead to significant waste and an unhealthy dependence on external consultants.

Overreliance on consultants without a strategic framework can erode internal capabilities and drive up costs unnecessarily. Just as in any other area of business, the key is to measure and manage. By aligning consulting spend with strategic goals, carefully planning and sequencing projects, and monitoring ROI, companies can ensure that their investments in consulting are not only justified but also optimised for maximum impact.

In essence, the judicious use of consulting services is a double-edged sword. When wielded carefully, it can cut through complex challenges and drive substantial value. But without careful oversight, it can also lead to inefficiencies and missed opportunities. Therefore, it is essential that Finance, in concert with Strategy and Procurement, takes an active role in managing consulting engagements to ensure they deliver the greatest possible return on investment.

By adopting the best practices outlined in this article, your organization can maximise the value of consulting, avoid common pitfalls, and create a more sustainable, competitive advantage.