15 Ways Clients Get Ripped Off through Time-Based Per-Diem Fees

by Tom "Bald Dog" Varjan, Organisational Provocateur

This is a short summary of how you can lose your shirt by working with professionals on time-based Per Diem fees.

1. Per Diem fees remove the ceiling on your investment. You never know exactly how much more to spend to complete the project. You live in the world of constant surprises, because there are always a few more hours to go. And you pay for those hours, regardless of the outcome.

2. There is always a "timer running." Every time you need your advisor's assistance the clock starts. And even if the assistance is in the form of a five minute phone call, you get charged for 30 minutes or sometimes even for one full hour.

3. Instead of focusing on the success of the project, you end up focusing on daily budgetary decisions and try to justify every single action. Your focus should be the outcome of the project, but you are forced to focus on tasks.

4. You or your people will be reluctant to call the advisor and ask for help because every piece of help needs budgetary approval. This only makes your people more resistant to sharing their views about the project, and at best delays the flow of important information, thus jeopardising the successful completion of the project.

5. If your advisor finds additional work that was unanticipated but must be performed, you must write another cheque to get it done. In many cases these instances may attempt to generate additional hours or days to get paid more. Remember: Your advisor's focus is selling you more hours.

6. If you find additional, related work that must be done, you must pay before it gets done. It is like paying an extra $2.50 to the $10 per hour shopping assistant in the supermarket who bagged up your groceries, simply because someone did an extra task. Every time I get my car serviced, it gets detailed too. But I have never paid for detailing. Can you see what I mean?

7. By the time you pay for each day, hour and minute, you pay much more than you would pay if your advisors charged value-based fees.

8. If conditions change in your organisation, you may have a hard time to complete the project due to lack of budget. Corners may be cut to save time and the quality gets jeopardised. However, you are still responsible for the outcome of the project. So, if something goes wrong, it is your personal reputation and career that are at risk.

9. If you decide that additional resources are necessary to successfully complete the project, there are always additional costs you must pay. You also restrict your advisor as to what action to take. Your advisor may end up taking the kind of action that merely fits the budget, not what would contribute to the success of the project.

10. Working with Per Diem advisors is complicated. There are always debates about what is billable time (e.g., travel, report writing), when to turn the timer on and off should be running or what should be done on site or off site.

11. Many Per Diem-based advisors encourage simple problem solving, the restoration of the status quo. There is no incentive for innovation and raising the bar. The more problems they can "sniff out" the more hours they can sell you and the deeper you have to reach in your pocket.

12. When working with Per Diem-based advisors, they perform tasks for you at a cost. If they have no other projects on the go, they try to "conjure up" a few more tasks, few more items of deliverables, and you write bigger cheques.

13. Your Per Diem advisor is always on the opposite side of the table. Your focus is on the ball, that is, the outcome of the project. Your advisor's focus is on the scoreboard, that is, “How many hours have I sold so far, and how many more can I sell?”

14. You want to reduce implementation time; your advisor tries to increase it and tries to sell you more time to make more money on you. There is a clear conflict. Your advisor makes money when s/he sells you something, regardless of improvement in your condition.

15. You advisor can further increase revenues by “overstaffing” your project with junior partners and new MBAs at your expense. That junior staff will learn the profession at your expense, while there is no transfer of knowledge to you, leaving you in the consulting firm's mercy for the rest of your life.

Summary

Professionals who set value-based fees focus on the outcome of the project, that is, the improvement in the client's condition. Professionals who set time-based Per Diem fees focus merely on selling more hours, which may or may not contribute to the end result. So, if someone tries to sell you time, do not walk away, but run away as fast and as far as you can. You can save yourself a bucketload of money and grief.

Copyright 1997-2008 Tom "Bald Dog" Varjan. All rights reserved. You are free to use this article in whole or in part. One favour though: Can I ask you to you include complete attribution, including a live website link. Also, can you please let me know where you plan to publish the article.

The attribution: This article was written by Organisational Provocateur, Tom "Bald Dog" Varjan of Dynamic Innovations Squad, a firm specialising in helping consulting firms to sell their expertise at the highest margins. Get Tom's free Practice Management Black Paper when you sign up for his monthly newsletter, Commando Consulting: Lessons And Practices From The Ultimate Professional Service Firm, The Military. Visit Tom's website at http://www.di-squad.com.

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