Like insurance, is consultancy a necessary evil?

Consultants sometimes deservedly get bad press but things have got out of hand

Irish Water managing director John Tierney. Irish Water spent €50 million on consultants in 2013.

Irish Water managing director John Tierney. Irish Water spent €50 million on consultants in 2013.

Tue, Jan 21, 2014, 12:19

According to one participant in a recent radio talk show, the label “consultant” now carries as much opprobrium as “paedophile”. I assume that this was a deliberate exaggeration. Nevertheless, having the word “consultant” as part of your job description is now as dangerous as being called either a banker or an economist.

Now, this column has previously criticised the role that consultants sometimes play. In more innocent times I bemoaned the fact that the governor of the Bank of England, Mark Carney, had called in management consultants to review his institution’s operations. The time has now come to make the other side of the argument: consultants can and do perform a useful, sometimes vital, role. Yes, they sometimes deservedly get a bad press but things have got dangerously out of hand. And I think all of this carries some pretty profound lessons for public sector involvement in, well, pretty much anything.

I once had occasion, via a strange set of circumstances, to get to know - over many years - a firm of consulting engineers who advised people on how to build things like power stations and hydroelectric dams. They worked in both the private and public sectors in countries as diverse as the US and Iran. As far as I am aware, they did a very good job and their principals and owners made a very good living. How do I know they did a good job? To be honest, I don’t really know. I can offer the observation that none of their power stations ever let its owner down and always performed to specification; none of its dams ever failed. But this is not a systematic assessment of whether or not it was right for the firm’s customers to have shelled out lots of money for its services. I’m not sure such an assessment can be made with any great precision. In many ways we are using the absence of a negative - something going wrong - to try and prove a point.

I am willing to bet that most, if not all, of the customers were happy, even those who were not able to systematically and objectively appraise the consultant’s role. Things working out as they should, in a world full risks, might be just good enough, might just be worth paying for. A bit like insurance perhaps.

Investing always involves risk. Starting up a company or building a nuclear power station involves lots of risk, albeit of very different types. It is often a very complicated business, requiring deep domain knowledge and expertise. The risks are sometimes ill-defined and impossible to measure with any great accuracy. Investment under uncertainty is a very tricky concept - it has philosophical as well as numerical dimensions. But without investment we don’t get growth; ultimately, we don’t get much of anything at all as we regress, as a species, to hunter-gathering.

Consultants are sometimes employed by weak management who are clueless about what to do next. They are sometimes used when technological disruption has altered the business landscape and in-house knowledge is suddenly redundant. Consultants sometimes offer management an excuse for taking tough and unpopular decisions. It might well be cheaper, in a start-up situation, to employ lots of consultants rather than acquire expensive in-house expertise for lots of one-off projects. At the end of the day, consultancy is another business investment, one which may or may not earn an acceptable return (like any other expenditure).

Investment, in anything, including the provision of water to the Irish people, involves taking risks. We might argue that creating a bog-standard (apologies) utility doesn’t involve much risk, but that is beside the point. Equally important, even where risky investment is not needed, money still has to be spent to maintain existing levels of provision. Assessment of whether or not that money is well spent is, of course, wholly legitimate. But we need to be both fair and reasonable when we ask those necessary questions.

Posturing politicians who appear to understand little of any of this simply add to the arguments for the public sector to get out of the business of business. Any manager of a state owned enterprise now has to factor into every single spending decision the possibility that he is going to be second-guessed by a future committee of one sort or another, on live TV. This will simply get in the way of good decision making. If and when the State ever gets around to restoring capital spending (the only thing to have been really cut), will the necessary decisions be rational or will decision-maker eyes be firmly on future politicians operating with 20-20 hindsight and little or no experience of capital budgeting for major projects?

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