How many times have projects come in the door and the decision must then be made, "Do we take the job?" If times are good, the consultant is in a seller’s market and has the advantage of providing a service for which there is a high demand and limited supply. On the other hand, the opposite situation often occurs, when economics dictate a more delicate approach to pricing and client selection. For a larger firm, these cycles may be more manageable than for a small, local outfit, but both must make a conscious effort to evaluate consistently the benefit gained by providing services for a particular job. Again, a larger firm probably has the advantage because of a wider range of expertise and more established policies and procedures. Smaller firms would do well to observe how projects are evaluated, emulate the methods, and ensure that they are not needlessly losing money.

Just as when the decision must be made to purchase equipment or other assets, the costs are often easier to quantify than benefits. Costs usually include labor; direct expenditures for equipment, materials, and overhead; and variable costs related to particular operating methods. There may also be some intangible costs, such as the risks that the project may not be completed, that the project may not represent the core values of the firm, or that the project will take away from other desired work. These and others are often termed "opportunity costs," although the term derives from the accounting definition of the actual monetary difference between investments. Such costs, to the extent that management deems them significant, should be evaluated with the "hard costs" of the project. Without them, the results are easily skewed or misinterpreted.

If the true cost of a project seems difficult to pin down, consider the benefits. The obvious one is the revenue stream over the life of the project. The not-so-tangible benefits could include increased efficiency, reputation, experience with a unique client or technology, or greater ability to attract new talent. Each of these should be somehow quantified, with either a dollar value or a point system, to rank the project in question relative to other opportunities. Remember that dollars work well for shorter-term criteria, but point values may be better for more subjective attributes, especially when the effects are expected beyond a year or two.

Once the costs and benefits are laid out on paper, it becomes much easier to identify those that do not meet the firm’s thresholds for desirability. Like most management tools, it is not foolproof, which is why we have managers. Every cost/benefit decision will require some level of judgment to interpret the numbers and predict the future. This means that the firm may indeed choose to go against the thresholds, but there should be a very good reason and it should be explained to the staff as soon as possible.

When a firm uses a consistent cost/benefit analysis in evaluating projects, it is better able to insulate itself from the vagaries of managerial emotion and address the more objective merits and drawbacks of each. Managers should be aware that their example of requiring evidence of economic benefits will encourage younger staff to do the same in the future. Of course, this may mean brushing the dust off the old economics textbook or investing in another seminar. But, if the culture of the firm allows projects to be bid with no regard for value or with inconsistent application of decision-making tools, then it is only a matter of time before the easily won jobs outnumber those that truly benefit the bottom line.

Jason Burke, P.E., works for Allied Engineering in Bozeman, Mont.