Abstract: This article delves into one of the least considered aspects of the cost of consulting or Interim Executives Services; out of pocket expenses.
Those reading my blog might think that I’m hung up on the cost of an interim engagement, and I am because I have been beaten more than once on price alone. The thing that interests me is that the same geniuses that will take another consultant on a small reduction in hourly rate will then pay exorbitant travel cost without giving it a second thought. Some will not quibble about receiving out of pocket expense invoices for over $6,000 per consultant per month.
For example, consider the consultant coming from a smaller community that has to fly a leg into a hub airport to get anywhere. I have worked with such consultants. My round-trip fare to the destination airport can be around $300 while theirs was more than $1,500. That is considerably more expensive than flying me first class would have been. During the course of an engagement, I normally fly back and forth once or twice per month while my compadres typically fly every week. Assuming I did fly every week, on airfare alone, my cost of ~<$1K/month compares favorably to their cost of ~ $6,500 per month. This difference alone equates to an hourly difference of ~$36 or close to 15% of a typical hourly rate.
How about the cost of a rental car? If I am going to be on a job more than a month, I usually bring a vehicle to the site and use it for daily commuting. Assuming I am running an average of 20 miles per day which is generous in most cases, I am burning about $10 per day of my client’s money compared to rental car rates of around $125/day. Assuming the traveling consultant is in town four days per week and given the fact that four hours make a day to a car rental company, the client is paying some $2,700 per month for a rental car compared to around $300 by me bringing a vehicle to the site. This difference equates to about $14/hour on the hourly rate. So far, the hourly rate difference is up to $50 or around 20% of a typical hourly rate.
What about lodging? I have invested in an RV that I bring to most engagements and use for housing. With a nominal per-diem of around $60 and campground rates of approximately $600 per month, this equates to about $80 per day for lodging. Most hotels these days are around $150/day or more; especially in urban areas. This difference equates to about $2,600/month in added lodging expenses depending upon how many weekends I spend in the client’s town.
How efficiently is your consultant using your money? There are all kinds of ways for a consultant to run your travel meter. For example, on a longer-term engagement or an interim assignment, it might make more financial sense and make it easier on your consultant to put them in a furnished apartment. A client paid accommodation is fine until they bill you for spending the night in a hotel near the airport each week to catch an early flight out instead of staying in their pre-paid (by you) accommodation.
Food is probably a toss-up. I prefer a nominal daily allowance of around $25. Since I am eating my regular diet in my RV most of the time, my food cost is generally less than eating out two or more times per day. From the client’s standpoint, it is easier to pay a per-diem than to audit restaurant receipts to ensure that the company’s policies, i.e., expenditure limits, alcohol purchases, etc. are being followed.
Speaking of policies, I rarely see clients require their consultants to observe their travel and out of pocket expense policies. My question is why not? Why should consultants be allowed to indulge themselves at the client’s expense when the organization’s employees are held to a stricter standard? I worked with a consultant that treated himself and his crew to ~$20 lunches and ~$40+ dinners at four-star restaurants every day of an engagement. I am still carrying the extra weight I gained on that job.
What is a client to do? I recommend that the client determine where consulting resources are going to come from and how much their commuting and temporary living is going to cost. The client needs to decide whether or not a particular consultant is going to cost significantly more based on their travel and living requirements. If I were advising the client, I would recommend that they cap out of pocket expenses. On an interim engagement that can run into months at a time, these expenses pile up very quickly. It makes no sense for an otherwise cost sensitive client to make a decision based on a relatively small difference in rate then spend lavishly on their consultant’s travel expenses.
As I have stated in other articles, I do not like air travel, and I am not particularly eager to bear expense unnecessarily on behalf of a client. It is paradoxical that some clients get hung up on a rate or fee then ignore a significant and mostly uncontrolled cost of their consulting or interim engagement.
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