Not long ago I posed the question, How can you build a budget before you know the work involved?

Last week I wrote about two strategies, working in phases and using risk premiums. Because of travel and the press of work, I’m a bit behind on the remaining strategies, for which I apologize.

Anyway, today I’ll talk about a third strategy. (Remember, don’t read anything into the order in which I’m writing about them.)

Strategy 3: Do Analysis Work Up Front, Paid or Unpaid

A site called Great Demo has an excellent example that has nothing to do with demos. In fact, it was this article that reminded me I’d been meaning to write this series of articles for some time.

They put it in the context of presales folks doing Statements of Work (SOWs). Most consultants use SOWs as part of their agreement with the client. An SOW serves as part of or a preliminary project charter, capturing the business problem, “Done,” usually a vision, out-of-scope constraints, and often a price. (Price is what the client pays; cost is the practice’s total cost to deliver.)

To get to a reasonable SOW, you have to do a significant amount of analysis up front. Is this work the consultant or firm should expect to get paid for?

Note that the two sentences in that paragraph are not logically dependent on each other. You have to do the analysis work in any case. It might or might not be (directly) paid work.

Let’s put the question of paid/gratis aside for a time.

A client who requires an estimate before any analysis is done is putting both client and professional in a difficult position; that’s what this whole series of articles is about. That said, you need to listen carefully to what the client is really asking. If she’s truly asking for an estimate (for non-commodity work), it’s fair to have the conversation that you need to analyze the situation before providing an estimate — and help her remember that she does the same thing in preparing her annual budget request. However, often she’s trying to triangulate on a different number — either what her budget is for the matter, or what it’s worth to her. It’s fair (but difficult) to ask, “What’s your budget” or “What is this matter worth to your company”; obviously, the more longstanding the relationship, the easier it is to discuss these particular topics without her fearing that you’ll bill exactly her budget or limit no matter how little work the matter requires. But the discussion should rather be along the lines, “What can you do for $10K”?

But let’s say she really is asking for an estimate. One way to approach this issue is to defer it: “I know you really need an estimate for budgeting purposes. However, in order to give you an estimate that is fair to both of us, I need to know a bit more about the work. I propose to do some preliminary investigation — build a project charter, as it were, or a statement of work — and get this to you in three days/a week/a fortnight. That will allow me to present a fair estimate and for us to be sure we’re on the same page as far as scope and overall approach.”

If after this conversation the client still says, “I need the estimate now,” you’re dealing with a client who is either a) unreasonable or b) highly stressed, probably by her own management. For a), take the client at your own risk, but I’d be pretty uncomfortable about doing anything other than hourly work here. For b), a little understanding goes a long way; consider breaking the matter into phases, in which the first phase is a very short one that includes the project charter and enough early substantive work to remove some of the client’s pressure without putting yourself at significant or long-term risk.

Digression: My father was a consulting engineer, fairly well known in his niche field of HVAC (heating, ventilating, and air conditioning) but also brought in regularly to solve other engineering problems left behind by predecessors. One day he got a call from a very famous client well known to be unreasonable. This client absolutely wanted him and no one else, and wouldn’t take no for an answer. So he told her a figure triple his not insubstantial going rate, and the client accepted it without a blink. Within two months, he was regretting taking the job; unreasonable is unreasonable, and not even a whole lot of money made up for the pain the client was putting him through. The moral of the story is: You don’t have to take on unreasonable clients. Yes, you’re leaving money on the table, but you’re also leaving a piece of your lifespan and values behind if you pick up that money. Of course, it’s easier to do when you have other clients that will pay the bills….

Back on topic, do the analysis first, even if you have to do it gratis.

Is It Gratis or Paid?

First, it’s only truly gratis if you don’t get the job; otherwise, unpaid analysis is simply part of your overhead, just like salaries or office space.

Second, I think it’s reasonable — though perhaps not always prudent — to bill for this work, assuming you’re willing to submit your analysis to the client that he can potentially show to other bidders. You are doing work at his behest, and providing value; there is value to the client in budget certainty, to say nothing of defining a project charter or SOW.

One of America’s most successful litigation boutiques, on the other hand, does the analysis on their own nickel, because they will take cases only on an alternative fee, often a flat fee with a success bonus. They need to know up front what their chance of success is on a case, and they are willing to spend some time figuring it out. They don’t nail it every time, but they get close most of the time, and it does average out. It’s simply part of their overhead, written off on the percentage of cases they turn down or cannot come to an agreement on price.

Summary

You have to do this analysis anyway. It’s a critical part of the first stage (Initiation) of any project. The only questions are:

• Do you get specifically paid for it?
• Do you have the processes/knowledge to do it quickly, efficiently, and with reasonable accuracy?
• Can you work out an arrangement with the (reasonable) client that allows for this analysis, with the understanding that either party can walk away from the deal — or negotiate a different scope and price — once the analysis is complete?

Next up, the client who starts off with a fixed budget.