In this article, and related podcast, we discuss a very important and rarely addressed topic – how to manage travel expenses during a consulting project. This is an important question to ponder over since mismanagement of travel expenses can, and usually will, be detrimental to your reputation within the firm and your consulting career.
Your project leader and other colleagues will contribute in meaningful ways to making decisions on which travel expenses are relevant and appropriate. But in the end it is you who bears full responsibility for the choices related to travel expenses.
Your choices must rest on a foundation of clarity and sensibility. No one should even think about questioning your expenses. Hence, gaining a clear-eyed perspective on how to manage travel expenses on consulting projects will help you prepare to succeed.
The post was inspired by a question from a Firmsconsulting reader, a Deloitte consultant in the United States. This Deloitte consultant wanted to know how to determine if travel expenses (e.g. bills related to hotel stay, restaurants, taxi, etc.) during a consulting project are reasonable and appropriate. And he has given examples from his recent consulting project.
Example 1: A management consultant chooses a flight or hotel which allows him to collect reward points even though an equivalent alternative is much cheaper.
Example 2: A management consultant visits a luxury spa and charges it to the client. This charge is included in an aggregate bill so the client cannot see the itemized charge for the luxury spa.
Example 3: The engagement team stays at a five-star hotel even though the Deloitte consultant feels he does not need that lifestyle.
Example 4: The engagement team enjoys expensive dinners at a luxury hotel which are not necessary.
The Deloitte consultant expressed the following concern, “This doesn’t seem to be in the client’s best interest. It appears to be unethical. How do you ensure these practices are curbed? And how does the junior consultant decide what is ethical or not in the above scenario and act accordingly in team settings?”.
That is a great set of questions to begin with. I will give you a framework and guidelines to analyze how you should manage travel expenses during a consulting project.
Before I get into the framework and guidelines on how to manage travel expenses, I want to talk about two situations from my own career.
Serving a client: The first example is from the days when I was a management consultant. When I just joined the firm, this is a long time ago, we had recently finished a turnaround engagement for a major oil company. That oil company was about to lose its biggest client. And they had hired us to figure out a way to replace this revenue stream.
The project was very successful. The client was incredibly impressed with the work done.
But there was an issue with that project. A presentation was put up by the senior partner which covered feedback from the client. And one of the things the client said is that, while they would not hesitate to recommend us for our analytical skills, what they didn’t like is that they felt we were not cognizant of what they were going through.
The client disliked that the project team ran up expensive tubs at restaurants in the town where the client’s head office was located, knowing full well at the time that people were being retrenched. And this came from the CEO. This is CEO giving feedback to a major firm, us. Telling us he loves the work, but he did not think we handled travel expenses well. And while they are most likely going to use us again, it just leaves him with a bad feeling knowing that the travel expenses were abused.
Being a client: And another example involves Firmsconsulting. We once hired a team to do some significantly media work for us. We flew them down and booked them in a hotel covering all their expenses, including setting a nice team dinner at a very prominent restaurant. And when we were doing the travel expenses later, we came across an expense statement for the drinks and charges they occurred going to a night club.
This situation still upsets me because we did not ask them to go to a night club. They chose to do it and they decided to bill us for it. We paid it, but never worked with them again and would never recommend them to anybody.
They lost a major client over a relatively minor expense. It was the principal of the issue. They contact us often for work but can never understand that trust has been broken.
These two incidents serve as a framing point for the structure I am going to give you to analyze this. When determining whether a behavior or travel expenses are appropriate you have to think about it from your perspective, from the firm’s perspective and from the client’s perspective. And you need to consider 3 elements: cost, perception and value.
Imagine a 3 by 3 matrix here. On one side you have got yourself, the firm and the client. On the other side you have got cost, perception and value.
When managing travel expenses, seek to consider six essential guiding principles:
These six guiding principles are not a formula. They do not represent the whole universe of “good management of travel expenses”. However, they will help guide your decision making on how best to manage travel expenses.
Let’s take a closer look at each guiding principle.
1. Don’t spend money on things you don’t need to get the job done
The most important rule to remember is only do things you need to do to get the job done.
For example, you do need to stay at a hotel. You have to sleep in a comfortable and safe place while you are working on the consulting project. But in most cases you don’t need to go to a luxury spa to be able to do your job.
Also, if you are doing something because it will not show up on an itemized bill, the mere fact that you are doing it because it won’t show up on the bill indicates that you know it is wrong. So don’t do things you know or assume to be wrong. It’s unethical.
So, to come back to this Deloitte consultant who asked a very important question, when deciding if travel expenses are reasonable consider whether you need it to get the job done.
2. Don’t spend money on things you would not spend on by yourself
You also should not do things you would not do if you were paying for it. You cannot do things just because a client is paying for it. That is just wrong.
3. Make sure your choices are in sync with the client’s culture and situation
That is where we come to the concept of perception. Be very circumspect about how you spend client’s money in light of a client’s culture (how the client behaves and thinks) and the client’s particular situation (e.g. turnaround).
Choose a hotel that a reasonable person will consider to be an appropriate selection for a particular client and client’s situation. For example, if a client is going through a turnaround, don’t book a five-star hotel. Also, if you are working for a client that is very reserved, everything you do that interfaces with them should be reserved as well.
Further, while from client’s perspective they always want to cut consulting costs, from the client’s perception level don’t do things that clash with their culture.
If you are doing things that put you out of sync with the client that is a problem. If you are, for example, going to serve a major financial services client who has a certain way of doing things, which happens to be staying in five-star hotels, and you instead stay in a two-star motel you will look out of sync. So you see, this cuts both ways.
You can get away with staying at a two-star motel if being frugal is just the way you are. There are stories of Marvin Bower who was very frugal. In fact, he would fly coach when everyone else was flying business class. But you need to manage it and make the judgement call based on your particular situation.
You can charge a lot for your work, but do not create the impression you are abusing the expenses. In fact, that is my philosophy. Bill very high fees but charge reasonable expenses. Never ever charge low fees to a frugal client. They will not value you and it will hurt your firm in the long-term. Quality costs money.
4. Make sure your actions look congruent with your overall profile
When it comes to costs, if you are not comfortable to charge the client for the finer things your project team selects, my view is that you are fine to say, “You know what, I don’t think I want the most expensive thing”.
It’s okay to do that. You don’t need to do what other people on the team are doing. But don’t make it look like you are better than anyone else. Just say, “I don’t need this. It’s too much for me. So I will go with a cheaper option”.
If you are someone who is frugal or just likes simpler things it is okay to go down that path versus doing what everyone else is doing. It is okay to order the cheapest item in a restaurant. Just because you go to an expensive restaurant does not mean you have to order an expensive dinner.
I have been in situations where I ordered the cheapest things because I knew the client was paying for it. And I did not wanted them to waste money.
I also had meetings with clients in Starbucks. I have met CEOs in Starbucks. That is not even a joke. I have always believed overhead is legal theft from shareholders and consulting expenses are one sliver of overhead.
Yet, and this is very important, if you are decided, on a personal basis, to not abuse the client’s finances, as long as it is consistent with the way you are, you will most likely not be treated badly by your project team.
However, if you generally like splurging on cupcakes and expensive nail polish, and you drive a fancy German convertible, but when it comes to a client issue you say, “Oh, this is wrong. I am not going to do it”, your team may take it the wrong way.
They will notice a disconnect between who you are and what you’re doing. And some members of your project team may think you’re trying to make them look bad. You can be ethical without insulting your colleagues.
5. While it is important to save money for the client, also make sure your needs are met
If you ask a client how much you should spend, they will almost always tell you to spend as little as possible. As a result, if you make decisions based on what the client considers to be right, you will almost always undercut yourself.
So don’t ask a client how much to spend on a hotel or meals because they will likely give you the cheapest option. This is what clients do.
While you should try to save money for the client, you should also ensure you meet your needs. So I would say don’t cut costs to the bone so it is detrimental to you.
Building a great firm is expensive. You have to do things that are sustainable. If putting all consultants in B&Bs to save money forces them to leave, then it is not sustainable.
You have to treat consultants well and that means relatively higher expenses.
6. Extravagant travel expenses should translate into at least equal value for the client
If you are an awful consultant who is adding little value you should feel terrible about racking up extravagant travel expenses knowing full well you are doing a terrible job for the client. If you are a brilliant consultant who is adding enormous value to the client it is okay, in my opinion, to rack up extra travel expenses.
I will share my own experience here. Yes, I always tried to cut travel expenses for clients. But, there are certain things I never compromised on. And one of the things I never compromised on is my clothing.
I always laundered my clothing no matter at which hotel I was staying in and I often used expensive laundry options. And a client could always come back and say, “Well, why didn’t Michael go with the cheapest laundry option? Isn’t it unethical?“.
It depends on whether the tiny amount of time I was saving was used to create better value for a client. Time is money for me. I will go with the best option because they accommodate my schedule. And I would go with that option even if I was paying for it myself.
Adding value to a client does not mean, “I’m a McKinsey consultant. Therefore, I am adding value”. The fact that you are there does not mean you are adding value. I always say, you know you are adding value when you feel you are doing things that will earn you a bonus. You add value when you do more than what is expected of you.
If you are just doing enough to complete the tasks assigned to you, earn your base salary and get promoted in the normal amount of time, that is really poor value and you should not splurge.
If you’re someone who likes the finer things in life make sure you are adding value to a client. And if you don’t feel you are adding value then keep your travel expenses to a minimum.
Whether incurring a specific travel expense is right or wrong is often a judgment call. It comes down to this. Do you feel you are adding value to the client or not? And do you feel you require a particular expense so you can add additional value?
And if you honestly believe, “You know what, I can add this value to a client even if I don’t get these things”, then don’t go for these things. If you feel, however, that you need the finer things, only do it if you believe you are adding an additional value to a client.
And I know many of you will say, “the luxury experience during consulting travel is a major perk of management consulting“. But this perk is a reward for bringing in talented people who will do extraordinary things.
You do something extraordinary and you get a perk. A mere fact you are there does not mean you are doing anything extraordinary. Yet, this is the way many consultants think. They think, “Well, McKinsey hired me. Therefore, I deserve this perk.” That is wrong.
If you have extravagant taste and you get the job done a client may hate you for spending too much of their money but they will likely tolerate you while you are adding value. Like that example I gave you about the oil company.
Yet remember that the predominant majority of clients like frugal consultants who are good at their job. In fact, I have never seen a client saying, “Oh, you are a consultant with simpler taste and, therefore, we will not hire you”. Clients don’t care about your taste.
Some of the most brilliant consultants like George Stalk etc., look like they shopped in a trailer. Yet clients loved them.
If you get the job done and you care about client’s money like it was your own, they would most likely like you a lot more than if you were not frugal but was good at your job. And that is the thing you need to consider.
So the bottom line is if I was you I would try to not spend the client’s money unless it is necessary because ultimately that is all overhead and it increases the amount of value you have to add to a client.
Now let’s look at this issue from the consulting firm’s perspective. The consulting firm needs to hire the smartest people. Its going to be very difficult to entice the smartest people to work for the consulting firm if those smart people can work somewhere else and get better perks than what the consulting firm can offer.
So in a truly competitive market where people are joining a consulting firm partially for the perks they are unlikely to join a consulting firm that doesn’t offer these perks.
And the weaker the brand of the consulting firm the more important the perks. When people are picking a consulting firm that has a weak brand and they only picking it because of salaries and perks, such consulting firm has no choice but to offer these perks.
People would say, “McKinsey also offers these perks”. Yes, that is true. But a lot of the perks McKinsey offers are not so great. For example, McKinsey salaries are not as inflated as people think. And McKinsey can get away with this because the brand is so strong.
So from a consulting firm’s perspective the position is, “This is the cost of doing, plus quite high travel expenses to bring in the best people. Even though we are incurring high travel expenses because we are bringing in the best people the value of the work will show through”. The firm is basically looking at it from a cost / value perspective.
When you apply this competitive market position from recruiting to clients, the same thinking applies. If a consulting firm is offering these perks obviously the cost to the client goes up because all that overhead needs to be eaten up. If the cost to the client goes up, in the short-term the client may accept it. But in the long-term, unless you add enough value to that client, the client is going to say, “You cost us a lot of money. You don’t add enough value. Therefore, we will not work with you anymore”.
So now we come back to the value discussion. If the consulting firm is not adding enough value to justify the costs, the client is completely free to walk away. This is what it means to be in a competitive market. The client is not obligated to work with any particular consulting firm.
The client sees the fees. They understand that part of it is baked in travel expenses. If they are satisfied with the value versus cost trade-off, they say, “This is the value the consultants brought. So we are ok with it. The value of the work is showing through”.
From a client’s perspective it is also a cost / value trade-off.
Proper management of travel expenses on consulting projects requires good judgement. However, those six guidelines above will help you in determining whether travel expenses are appropriate.
Frugal consultants who add an enormous amount of value are respected. Extravagant consultants who add significant amount of value are usually tolerated, but are likely to be shoved aside at the first sign that value is starting to drop.
So the question is: do you want to be a consultant who is liked or tolerated assuming both add the same amount of value?
If you are spending a lot of money, at the first sign of trouble the client will likely shelve you. So ask yourself, whether the risk is worth it, after everything you have invested in building your career.
QUESTION(S) OF THE DAY: Which key guiding principle do you find most helpful? Please share in the comments.
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