Management consultancy – how it really works

First you get a few junior management consultants with egos that are much greater than their knowledge or abilities:

Then you add in a consultancy partner/director who could sell sand in the Sahara:

Then you sell the client a reasonably-sized consulting project which might “only” cost the client say £1,300,000, but would ONLY cost the consultancy about £240,500

Of course, the consultancy has other costs like its offices and other administration. But even if you assume that for this project, the overhead expenses are £100,000, the consultancy is still making a profit of just under a million pounds on a project costing £1.3m. And, as most consultancies operate an “eat what you kill” bonus scheme, a goodly proportion of that profit will go straight into the pockets of the director/partner who sold that project.

But the fun has only just started. A first project with a client is usually only a “foot in the door”. Once you get into a client’s organisation, you can start finding all sorts of other things that need to be fixed and keep on selling more and more projects. And if you’re lucky, you can get the really big prize – convincing the client they need a massive (and massively expensive) new computer system with lots of bells and whistles and flashing lights and things that go “buzz” and “beep”.

With a private-sector company you can easily be talking about another £5m to £10m for a new computer system. With a government department full of useless overpaid, over-pensioned civil servants spending/wasting taxpayers’ money you’ll be looking at hundreds of millions of pounds and, in the case of our hopelessly mismanaged NHS, about £6bn. Oh, and at the end of the day, the computer system probably won’t work and will have to be scrapped – but the consultancy still gets its money.

I revealed all this and much more in my 2005 book RIP-OFF The scandalous inside story of the consulting money machine and since then (to my amazement and disappointment) the management and IT systems industry has grown enormously – managers of large organisations have learnt nothing and consultants continue to be much richer than their clients