Why Consulting Projects Are Worth Less Than You Think

When you hire a consultant, you only know if you’re paying a fair fee if you have some idea of what the project is worth to you. Unfortunately, you overestimate the contribution of your project to whatever your larger goal is and therefore you risk overestimating the value of your project.

By the way, this same principal applies to the projects and initiatives you do in-house: you overestimate their value. Why? Let’s go back to 1979 for a moment, when Michael Ross and Fiore Sicoly at the University of Waterloo, Canada wrote about egocentricity biases. Really, you need to know about these.

In a nutshell, Ross and Fiore showed that each individual on a team thinks they add more to the team’s results than is logically possible. Let’s say you and four buddies take on another five-some in a game of pickup basketball. After you win the game and you’re all collapsing from exhaustion, you privately ask each member of your team how much they contributed to the win. When you add up the numbers you’ll come up with much higher than 100%.

In fact, even if there are only two people in a conversation and you ask each person how much they contributed to the conversation, they’ll each say they contributed around 70%. Of course, that’s not possible since the total can only be 100%.

I’ve seen the exact same thinking bias happen with consulting projects because a project is virtually always just one part of achieving a larger goal. When clients consider the consulting project, they invariably overestimate how much it will contribute to the ultimate goal. In fact, if they individually consider every element that contributes to the goal, they will add up to far more than 100%. This is partially because more than one item is critical. And it’s partially due to the underlying cause of egocentricity biases, which are also present when you’re thinking about one project.

So, what do you do? The hard answer is you think through all the major contributors and you assign a percentage to each which adds to 100%. Even a project which is critical to achieving your ultimate goal, may be contributing only 10% to the total value, when nine other factors are also critical to success. The easy answer is you estimate the way you always would, then factor down your estimate by about 35%. My experience is that 35% will put most projects in the right range.

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Email: david@ascendantconsortium.com
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