One of the most challenging aspects of consulting has to be when the client’s efforts to save money costs them money. Over the years, many clients have made numerous attempts to “reduce the costs” by shortcutting certain aspects of a project. They have also increased project costs by not meeting timelines, milestones and deliverables.
One project always stands out from all the others. The project involved preparing for a government audit prior to receiving an eight-figure award (almost $50 million). The award was pending and the client had been given certain requirements based upon the type of government award (grant), the amount of the award, and the program type (training). These parameters meant that the project scope would include design, development and implementation of a new accounting system, internal controls (policies and practices to ensure oversight and proper use of the funds), timekeeping, procurement practices and subcontractor/subrecipient monitoring and control. And one more tiny thing: A pre-audit of all these items, plus a financial control/going concern audit (when the company’s financial position of assets, debt and equity are reviewed to be sure the company is solvent).
Costs of Compliance: Funders Require Internal Controls and Accurate Financial Statements
As a consultant I tell my clients they should use me for the things only I can do. I’ll teach them and guide them on new things that the organization doesn’t know how to do, but can execute once they are given guidance and training. In general, for every one hour a client uses my services, they should be using internal resources of not less than five hours and usually ten hours or more. So the ratio of consultant time to internal client resources on a project is 1:5 or 1:10 (consultant:client).
When the project in this example was underway, we discovered that things would not be as straightforward as anyone thought. Upgrading to a new system would become the easy part. Validation of every financial transaction in the existing accounting system would be the challenge. We found that prior audits had not detected that the internal financial controls had not been maintained and that the accounting records were misstated.
Costs Increase As Client Organization Changed
The client could validate the numbers and redo the transactions on their own. It would be—and was—a Iabor-intensive process, but they would need limited guidance and review … if the client staff understood what to do and was willing to do it. The first issue arose when the client realized the controller didn’t know how to properly use the existing accounting system. Well the next surprise (not really) was that the controller resigned. As the consultant, guidance became oversight (Note: It is never a good sign when an external consultant is performing an internal audit of the financials). Soon after a second key employee with oversight of the “old system” walked out the door (really a bad sign).
The project then expanded to a complete review of all transactional documentation, verification of assets, re-performance of account reconciliations (e.g., bank, credit cards) to verify the amounts, payees, deposits and so on. An added complication, the client’s remaining staff didn’t want to make decisions or execute transactions. New resources had to be retained, and, you guessed it, more consulting services were going to be used.
Penny Wise and Project Foolish
As you could infer from the preceding information, the client didn’t see this coming. Audited financial statements are expected to mean that the financials are correct and that proper controls are in place. Unfortunately, all auditors are not created equal or competent. The good news was that prior to a government auditor coming in to audit, the financials were corrected.
The bad news? The project cost for preparing to receive the government award was twice what the client had planned. This was due to a change in scope and the client’s desire to minimize the investment/expense of maintaining the financial records with no management personnel involved in oversight on a regular basis.
Opting to ”save” money, the client brought in a second consultant/contractor to handle transactions. The new contractor didn’t understand the system and was limited in scope and expertise. Over 100 hours later, that contractor’s work had to be reviewed … and redone.
And Then Came Auditors
The audit could not be delayed, and with less than a week to complete all the tasks, an SOS call came in: Can you help us? Back to ground zero, everything had to be reviewed again, and new people trained and policies, procedures and controls implemented; not an easy thing to do in five business days. The audit was successful. The client was able to receive the almost $50 million project. But the costs far exceeded the original plan, the revised plan and timing, and the organization needed to adhere to the new policies, procedures and management oversight structures.
Cost Savings or Cutting Corners
In any project there must be a budget. The budget will be dictated by the scope of the work that is to be performed. When scope of work expands, and with it the budget, clients need to be even more cost conscious, but not project foolish. Doing things once the right way will always be less expensive than doing things “cheaply” and having to redo them. Staying on the timeline and keeping employee and organizational accountability in place will do more to reduce and prevent additional cost increases.
Here are some tips for your next project:
- Establish a project manager who is authorized to make decisions, delegate as needed and most importantly hold the organization accountable for the tasks, timelines and deliverables.
- Communicate the project objectives to the team members and the organization.
- Establish the project’s priority within the structure of the organization.
- Assign adequate resources to the project.
- Make decisions in a timely manner.
- Establish project deliverables tracking.
- Raise red flags before a task or deliverable becomes an obstacle.
- Commit to supporting the project priority across all levels of the organization (the project won’t be treated as a priority no matter what you say if the executive team and other key personnel don’t respect the timelines, deliverables and priority on a daily basis).
- Don’t let day-to-day “fires” derail the project by hijacking the team members or circumventing the priorities.
- Keep the objective in mind: A project may be more expensive to get done, but what will you lose if you don’t get it done?
- Understand the big picture AND the details that will be required to create it.
- Communicate, communicate, communicate! Across the organization, among team members, and with the consultants.
- Prioritize daily. There will be some instances when a “fire” takes precedence. However, if every day, all day, you are fighting fires that take precedence, you will have a five-alarm fire when the critical projects don’t get done.
A quote that I once observed fits this situation perfectly: “Lack of planning on your part does not constitute an emergency on my part.”
Author: Lea A. Strickland, MBA CMA CFM CBM GMC
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