Shifting of Risk in Investment - Shifting of risk is the biggest gain to the clients, as the risk of failure is now with the consulting company, and not with the
client organization. Also, there is zero or minimal investment from the client organization initially and, hence, less risk upfront.

Easier to Get Buy-in for the Project - Many a occasion, it is difficult for a line manager in a client organization to get a buy-in from senior management on a project, as there can be some amount of skepticism about the possible RoI. But, as there is less upfront cost involved, and an assured RoI, so getting a buy-in for the project is simpler.

Better Returns on Capital - Since the consulting fees of the consultancy is completely dependent on the benefit realized by the client, so they would ensure maximum possible benefits. Thus, it means maximum returns on capital employed by the client firm in implementing the solution.

Higher Commitment from the Consultancy - A common complaint that many clients have is that consultancy firms attack a problem from a twenty thousand feet level, and provide a solution which is brilliant theoretically, but can't be employed in a practical scenario. Also, at times the commitment from the consultancy is seen to be lacking. But in this model, the clients are ensured full commitment from the consultancy, as their own professional fees is dependent on the success of the project.

The consultancy company also benefits from this model: -

Higher Professional Fee - This model ensures higher professional fees than what is possible from any other model. Since the payment is defined as a certain percentage of the benefit provided, so it can be much higher than any other situation.

Better Cash Flow - The payment for the consulting firm is based on the benefits derived from their assignment. Also, the payment is spread over a certain time-span when the benefits are still accruing to the client. During this time, it is possible that the consulting firm is not working on the assignment, but the cash flow is still intact.

Next

Devroop Dhar is a Management Consultant with PricewaterhouseCoopers in Mumbai. He has almost 5 years of experience in the field of Consultancy, Project Management, IT. He is an alumnus of IIM Kozhikode, specializing in Finance & Operations. He has also worked with TCS & Bristlecone in the past, and done internship with EXL Service. He also holds BE Degree in Production Engineering from Jadavpur University, Kolkata.
All views expressed in this article are author's own, and not related in any way to his employer.