How much do IT consulting services cost in New Zealand?

by Roger Dalgleish on 30/07/2015 10:00

How much do IT consulting services cost in New Zealand? - New Zealand coins and ten dollar notes

From time to time we are asked “how much do IT consulting services cost in New Zealand?”

The answer depends on a number of factors including:

  • The nature of the problem
  • The skills and expertise required by the consultant(s)
  • The effort required to complete the work and the length of the engagement
  • The number of consultants needed to perform the engagement
  • The individual or company that is providing the service.

Firstly, what do we mean by IT consulting services?

Wikipedia defines IT consulting as “a field that focuses on advising businesses on how best to use information technology to meet their business objectives”.

Getting a little more specific, I’d go further and say that IT consulting is about providing IT experts or specialists as part of a paid service to help client organisations solve IT problems and deliver business results through IT.

At Equinox IT we have defined our service offering to include software development and IT capability training in addition to standard IT advisory and delivery services.

How are IT consulting services priced in New Zealand?

Time and materials pricing

In New Zealand most consulting services are priced based on time and materials. The overall cost of the service in this instance will be the hourly or daily rate, multiplied by the number of hours or days worked, for each IT consultant working on the engagement, plus any other costs of supplying the service as discussed below.

Fixed pricing

Sometimes services will be offered on a fixed price basis for the delivery of an outcome. We often see this in software development projects but the approach can also be used in other IT services. Fixed price can be used to give certainty of price to both parties where the scope and risk associated with the engagement are relatively well-understood and agreed. Fixed pricing work assumes that all or most requirements are known, but it’s also worth identifying the mechanism(s) to accommodate changes in scope and requirements (and therefore price) should that be a possibility.

The calculation model used to ‘fix the price’ amount differs from consultancy to consultancy but while it’s obvious that the core components are time and rate, on occasions the most important component will be ‘risk’. This is a multiplier that will be applied depending on the consultancy’s assessment of certainty that all factors going into the work are known and understood. Some call this ‘contingency’, but I’ve seen both risk and contingency appear in calculations.

Risk is affected by many factors. Examples include:

  • Technical complexity
  • Incomplete requirements
  • Inconsistencies in RFP details
  • Contractual obligations and expectations (and consequential liabilities/recourse)
  • Vendor knowledge of the business domain (or issues arising from a complex domain)
  • Time constraints or unrealistic delivery expectations
  • Concerns gaining access to the key people and/or information for timely decision making.

Client specific requirements can unintentionally add risk. For example mandating use of certain technology, process or people that will impact productivity, quality or the actual solution or desired outcome.

As an aside, as software development processes have significantly improved and as the move to agile and lean continues, fixed pricing of software projects has become increasingly less relevant and in our view can disadvantage the client organisation from a price perspective.

Shared-risk or value based pricing

In rarer situations services may be offered on a shared-risk or value basis, where the consulting fee may be some percentage of the value that is delivered as a result of the engagement. We haven’t seen this pricing approach used often in New Zealand in IT, but it does get used especially where cost reduction or increased revenue/profit is a prime motivator for the services. For this pricing model to work the client organisation needs a good handle on the metrics of their business and a great deal of transparency, so that a fair assessment of value that will be received from the service can be measured and determined.

Other pricing components

Sometimes services offered may include other costs such as:

  • Use of intellectual property (where IP assets are required to deliver the service)
  • Software license or rental fees (if specialist software is required as part of the service)
  • Training delivery costs (if training is delivered as part of the overall engagement)
  • Travel and accommodation costs (normally on-charged at cost)
  • Daily consultant disbursement fees (if the consultant is required to be away from their home location as part of the engagement).

What to expect when understanding IT consulting services costs

Here are some of the factors that come into play in the cost of an IT consulting engagement:

  • Expect to pay more for highly experienced and skilled consultants with specialist or hard to find capabilities, compared to less experienced or less skilled consultants whose capabilities may be more common place.  When using higher cost, experienced consultants it is reasonable for you to expect that the time taken to deliver the services will be efficient, the quality meets your expectations and that, ultimately, you receive better value for money than using a less experienced and/or less productive consultant.
  • Longer engagements and/or multiple consultant engagements clearly cost more due to the greater number of hours or days effort being paid for. For such work, look for consultancies who use team based consultant delivery models to create accelerated productivity (i.e. “the sum being greater than the parts”). Depending on the nature of the engagement, this may warrant a discussion to negotiate special or blended rates given the greater certainty of ongoing paid work for the IT consultancy.
  • Expect to pay less for IT contractors and independent IT consultants, but also know that in this situation you normally take on the ownership and risk associated with delivering the required result.
  • Expect to pay less for IT services delivered out of countries where the cost of labour is lower. While potentially generating good cost savings, it's worth balancing this with considerations such as the quality of the communication, time zone implications, work delivered, and the ability to access support and expertise afterwards.
  • Expect to pay more for multinational vendors or global consultancies, but know that you have access to a substantial capability and knowledge base, as well as proprietary methods and frameworks. You also have a greater ability for recourse if the contractual outcomes are not delivered - this can be valuable for very large and high risk programmes of work.
  • Mid-tier IT consultancies such as Equinox IT fit somewhere in the middle and often have targeted areas of true capability and/or specialisation. Often the quality of services can be as high (and sometimes higher) than multinationals, but you are not paying for the multinational brand.

Consulting companies typically have good amounts of liability and professional indemnity insurance, which can offer some assurance of delivery, although for smaller consultancies or independent contractors there may be less scope for recourse for large programmes of work when compared to a multinational service provider.

There’s nothing wrong with ‘buying local’ and I believe this is a positive position for New Zealand organisations to take to support each other, assuming that credentials, assurances and business terms meet your requirements.

When should you start paying?

This depends on the relationship you have with the consultancy, but it’s reasonable to expect that there is or should be a ‘pre-sales’ discovery period which is at the consultancy’s cost. The output from this process should be a Terms of Reference or Statement of Work together with Terms of Business, which set out the resource plan, milestones, charge rates and time estimate and/or fixed price that will apply.

I'd recommend that a project or engagement should not start until the aforementioned deliverables have been reviewed and agreed in writing by all parties.

Ballpark IT consulting service prices (New Zealand dollars, excluding GST)

  • Independent IT consultants and IT contractors: NZ$80 - $180 per hour
  • Mid-tier IT consultancy: NZ$120 - $280 per hour
  • Multinational brand IT consultancy: NZ$200 - $480 plus per hour

These figures are based on the time and materials pricing option, and if additional materials were required as part of the engagement, these would be charged in addition to the above time-based price components.

Getting value from IT consulting services

Any discussion on cost also needs to talk about value. You need to consider the outcomes that you require for the price you are paying, and the true value of those outcomes to your organisation. IT consulting, regardless of the cost, can be a great investment when the organisation receives more value than the cost as a result of the services.

IT consultancies allow you to have a specialist skill applied to your problem, and these people often bring insights from a range of experienced IT leaders and professionals based in the consultancy. The use of specialist IT consultants as and when required may also save you from having that specialist role on full-time salary, and that latter cost may be higher if that skillset is not essential to your organisation every day of the year.

As an example of the value that can be achieved from IT services, many years ago we worked on a large government IT project. The IT system that was to be delivered as part of the project was due to go live, but a technical issue was stopping the launch.

As Christmas approached the system either had to go live the following week, or else a change freeze would kick in stopping it from being launched until February of the following year. This would require the whole project team to be retained for a further three months, including staff team members, consultants, contractors and international vendor representatives. The delay would have raised the probability of penalties being incurred by the ‘delaying party’ and therefore reputational damage would have been another longer lasting impact.

The cost of not going live in this situation would be many millions of dollars of additional project cost. That week, an Equinox IT consultant effectively changed teams and was used to trouble shoot and solve the technical problem. The IT system went live. The value of the work performed by that IT consultant in this instance was many, many times greater than the cost for their services.

Use this information the next time you use IT consulting services

This article has provided details on how IT consulting services are priced and ballpark costs within New Zealand. When you engage an IT consultancy know the outcomes that you are expecting, and work through the consultancy type, engagement type and pricing model that is going to deliver the outcome and value that you require. You can expect the consultancy to undertake any pre-sales discovery activity to create the terms or reference or statement of work at their cost.

We have over 20 years of experience running the Equinox IT consulting business, so if you want help in selecting the right IT services for your needs, we’re always happy to share our thoughts.

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