Consultants are more cost effective than they appear because of the hidden costs of employment paid by large employers. Employed staff typically cost over 2x their salary to their company.
“£100,000 spent on a consultant over seven months” a newspaper headline rants about a local authority bringing in outside help. But if a council manager is paid £50,000 you need to add in the costs of the buildings and office space and other associated employment costs. These include:
salary, overtime, holiday and sickness pay, maternity/paternity leave, jury service, special leave, national insurance, pension contributions and private health
running and maintaining a company car
business hotel, travel and other expenses
training bills and time out for this
employee and public liability insurance
staff restaurant and other shared social facilities
building space - large companies may own the building located in a prime location and have generous parking space - the shared annual cost may be considerable
shared cost of facilities staff to run the building
heat and electricity
a shared overhead cost of other office support staff such as HR, secretarial, post room, receptionists, accountants
There is an interesting ‘employee true cost calculator’ published by itcenta.co.uk that allows you to carry out the calculation for yourself. Check out http://tinyurl.com/yajfs2f.
In an example it shows a £30,000 salaried employee costing £48,998. But this doesn’t take account all of the items I have listed.
I have come across HR debates on the internet that place the figure of true employment cost at 2.5x times employee salary cost. But every business needs to do its own calculations.
Another figure I found in a discussion group was that when a consultant is employed by a company of consultants the amount charged to the client is typically 3x the consultant’s salary. That also applied to me when I worked for an agency.
We also have to recognise that a consultant will have to charge more than a full time employee as very few are working every working day of a year. They will need to market for work and administer their business. Business expenses have to be met - such as insurance and some of the items listed for their employed counterpart.
Better productivity Consultants can be highly productive. Being self-employed they have to be highly motivated and be seen to ‘deliver the goods’. They often have to work extended days and over weekends to meet deadlines to satisfy their client.
They are usually able to bring in a broader experience and a wealth of new ideas. Sometimes they have been working at a more senior level elsewhere and within larger corporate environments. Cost savings that they introduce may well bring substantial long-term benefits for their corporate employer.
For example, in my own field of corporate communications, Cabinet Office figures confirm that improving the efficiency of communications can save councils half a million pounds a year. This is by providing easy-to-access information so that citizens and internal staff can find the answers for themselves rather than picking up a phone and taking up staff time (£2.83 per call*) or visiting a council office (£8.62 per enquiry*). So employing a consultant for a few months to train staff to put this process on track is hugely cost effective.
By using consultants, organisations can employ just the right number of staff and only bring in help when it’s needed. This replaces hiring and firing their own employees to manage the peaks and troughs - and provides more security for core staff.
Finally, it’s great when a local business can employ consultants from their local area. This helps small businesses survive in what currently is a very difficult trading environment and help the local economy.
My local paper today speaks of a consultant paid £100,000 for seven months work for a county council - ‘more than her predecessor was paid in a year’. That sounds as if it was likely to have been very good value!
*SOCITM / Cabinet Office figures
With thanks to David Jacobs of Lewis-Barned & Associates for additional material.
As a former computer book author, and feature writer for Knowledge Management Magazine and other computer journals with some 45 years of programming experience behind me I sometimes despair at the lack of willingness or ability of IT staff to communicate clearly.
I firmly believe that there are fundamentally two states in computing ‘on’ and ‘off’ - any complexity of interpretation is entirely man made.
Some random jottings on writing content for intranets, websites, email newsletters and social media by Malcolm Davison of www.writingfortheweb.co.uk. Select the RSS feed to receive the latest (usually weekly) postings.