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Between 2005 and 2011, IMC published Daily Tips every weekday on consulting ethics, marketing, service delivery and practice management. You may search more than 800 tips on this website using keywords in "Search all posts" or clicking on a tag in the Top Tags list to return all tips with that specific tag. Comment on individual tips (members and registered guests) or use the Contact Us form above to contact Mark Haas CMC, FIMC, Daily Tips author/editor. Daily Tips are being compiled into several volumes and will be available through IMC USA and Mark Haas.

 

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#442: How to Be More Accurate With Uncertainty

Posted By Mark Haas CMC FIMC, Tuesday, November 23, 2010
Updated: Tuesday, November 23, 2010
We all know that the only guaranteed thing about all models is that they are wrong. There are too many uncertainties in any model, both in its inputs as well as its design, to do more than give us insights. How are consultants to respond to clients who ask them to build or use a model to predict future outcomes?

While true that models are not, and cannot, be accurate in estimating the future, this does not mean that they are not extremely useful. A model is a representation of the real world as well as we can characterize it. In both the building of the model and in collecting data to support it, we develop greater insight into how our (modeled) piece of the world works. The best think about models is that they can be tested and improved until you have a model that is "good enough," although criteria for that judgment vary with the client.

Where most models fall down is that they try to deterministically predict an outcome when the system they are modeling is probabilistic. Say you are building sales model. Product prices may range depending on economic factors. Number of sale staff may vary with the season. Sales effectiveness may vary as a result of a training program that itself has uncertain outcomes. When you try to build a spreadsheet model whose inputs area all uncertain, the outcomes are barely useful. You are left with saying to your client, "Based on average expected inputs, our best guess of sales is $3.5 million in the fall quarter, but it could be more or less."

There is a powerful alternative: changing a spreadsheet from into a probabilistic model using an add-in called @RISK. This commercial software program allows you to specify a distribution instead of a fixed "best guess" or average input number (including various shapes of the expected distributions). If inputs are correlated, you can even link these distributions (e.g., if customer traffic increases, the available time spent with each customer decreases, which may not be a simple relationship). The more you can model, the better you can understand how your business works.

Tip: How great would it be to say to your client, "We have used historical data on all the factors that affect sales and modeled the effects of enhanced sales training. The most likely impact is a $1.2 million increase in sales, with a 20% probability of it being $1.9 million and an 80% probability of it being at least $1 million"? Then you can tell your client which parameters are hiding in the model that have the greatest impact on decreasing the uncertainty in results. Just using this add-in gives you far greater insight into the business you are advising. Check out the add-in at Palisade.com.

© 2010 Institute of Management Consultants USA

Tags:  assessment  consulting tools  decision making  innovation  risk analysis  technology 

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#357: Prepare a Disaster Plan for Your Consulting Practice

Posted By Mark Haas CMC FIMC, Tuesday, July 27, 2010
Updated: Tuesday, July 27, 2010
Despite the increasing incidence of somewhat spectacular natural and intentional disasters, the evidence clearly shows we are poorly prepared - either as individuals or as communities (or nations). Aside from helping my clients become better prepared, is there something we should be doing as a consulting firm to prepare?

Most people are optimists, believing that the worst will not happen to them. However, ask anyone who has recently been through an earthquake, weather related disaster, flood, near-miss of a terrorism incident or the regional economic devastation of an oil spill (for example). They will tell you also that they didn't think they needed to be prepared - or as prepared as they later realized. Your consulting firm is no different. How ready are you to withstand the impact, and recover from, a similar unexpected event?

From the simple (power surge that fries your hard drives and on-site backup systems, or a flood of your facilities) to more complex (outbreak of flu that keeps you or your staff out of work for several weeks, or a lawsuit that prevents you from using a technology or IP on which your practice is built), you need to have thought these events through. No one thinks it will happen to them and neither do you. It is time to lay out the events from which you can currently recover and ones you are unprepared for.

Tip: Take a cue from Ready.gov for business. Use these checklist and suggestions to help your own business as well as those of your clients. Who knows, you might even develop a new practice area in managing risk and disasters for a new groups of organizations.

© 2010 Institute of Management Consultants USA

Tags:  planning  risk analysis  trends  your consulting practice 

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#48: Add Risk-Based Analysis to Your Consulting Toolkit

Posted By Mark Haas CMC FIMC, Wednesday, May 13, 2009
When clients ask for my "best guess" of what will happen in the future, I don't want to lowball my estimates just to cover my reputation, but am looking for a better way to give an estimate.

Our job as consultants is to give the best of our experience, knowledge and abilities to help improve change the future for our clients. Suppose your client asks for an estimate of cost, timing, volume, or any other object for which there is uncertainty in its calculation. You do your market research, go into your own files for comparables, ask client staff for data and then calculate your best guess of an answer to the question. Unfortunately, your answer is most certainly wrong. Misestimating any input parameter will throw off your answer. But there is a better way to approach this common consulting challenge.

A probabilistic (also called stochastic) estimate uses distributions of input parameters rather than single (point) estimates. Estimate or use historical data for the lowest, most likely and highest estimates of input parameters (e.g., unit price, task duration, customer order volume, training impact) and combine them mathematically to create a range of likely output values. The result is a far more useful distribution of estimates. Instead of one estimate of, say, profitability for an investment, you can say to your client that there is a 90% probability of at least a $1 million profit, and a 20% probability of at least a $1.5 million profit. This gives your client a better sense of the real range of possibilities, and allows you to answer the real question of "What are the odds we'll lose money on this deal?”

Tip: Every consultant should understand the principles of risk analysis. One of the best tools to generate these kinds of probabilistic estimates is an add-in for Excel spreadsheet called @RISK. It provides a framework to ask deeper questions about the nature of a client's processes and provides you insight into the greatest areas of leverage for your consulting services. Finally, risk-based estimates are also useful to find out which of your recommended interventions are likely to have the greatest impact on the client's condition.

© 2009 Institute of Management Consultants USA

Tags:  consulting process  risk analysis 

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