Boroumand.com - Expenses As Compensation

Consulting Chronicles Part 2 – Expenses Are a Form of Compensation

This is an area that is of great importance because it constitutes between 15-20% of consulting fees which in turn are in the billions of dollars per year.

Expenses are typically categorized and titled in proposals as, "all necessary and out pf pocket travel and lodging expenses accrued as part of delivering said services." These expenses are usually cost based (i.e., whatever you paid out), in some cases they are fixed as a percentage of the fees (e.g., not to exceed 10-15%), and in rare cases they are highly regulated per diems [government work.]

We are not professing to eliminate these expenses from being paid out, but to better understand them. The reason for considering them compensation is, in a manner of speaking, to most consultant a form of payment titled - Suffrage Pay.

For most consultants, consulting is a hard, all encompassing job with tremendous pressures and long hours, and although the pay is above normal, it just never seems to be enough. Add to that the hassles of having to travel on Sundays, late Fridays and having to be away from family, friends, hobbies, and the comforts of home, and we end up wanting to take full advantage of a situation where expenses are paid.

We become Frequent Flyer and Hotel point whores. We acquire a taste for trying each and every restaurant in the towns we go to and we try as many different wines as we can. After all, how many wet hotel burgers and cheap US beers do you expect us to consume. We rent comfortable and safe cars to match ones we have at home. Why should we drive a compact Chevrolet when we are paying for a BMW sitting in the long term parking (by the way, we never park in long term parking, as we need to protect the Beemer from the elements.)

Not only do we rack up the expenses, but we compete with each other on many fronts. Bragging rights as some say. We flaunt who got upgraded to first class seats, what hotels and suites we stay at, what new dining establishments we frequent and what new wines we consumed, and what new features our high-end rentals have.

What is the rationale behind this arrogant expenditure of the clients' money? Do we have a right to it?

Simply put, the answer is yes. From both the client's and our firm's perspectives, we are no more than highly skilled intellectual prostitutes sold by the consulting firms and hired by the clients to do the jobs that can't be done otherwise.

Can this be remedied?

I seriously doubt it. After more than 15 years of working with consultants and being one, and having interviewed a great many hundred or so consultants on this subject, I can say that they will take you to the cleaners every chance they get on every expense possible. As long as the cultural norms are as described above, then they will feel compelled to compensate themselves any way they can.

Contributed to Boroumand by A.R., San Rafael, California, 2004

Take Away Lessons For the Guilty

Consultants

Be fair, reasonable, and honest.
You don't eat and drink out every night at home, and yes the food at your homes suck for the most part (I've eaten at many of your homes...), so hotel food is better than what you normally eat.
Rent cars no better than what you have at home. If you rent a car, don't take taxis everywhere. I had to fire someone just for that.
The list goes on ...

Clients

Hire locally.
Pay per diems or place a 10% cap on expenses.
Ask for receipts along with every expense report.
Randomly audit expense reports. Look at the details, they are typically a good 2-5% in the wrong.
Invite consultants over for meals at your house once in a while. Be hospitable, that way they will be more considerate towards you and yours. Remember, they are far from home and could use constructive human interaction.