When Employing Software Consultants Can Save You Money

Some Notes For Management

Prepared by

Krishna Vasudevan

Golden Consulting Services



Executive Summary

External consultants or contractors can save a business money by providing the right force multiplier at the right time in a project. Consultants generally cost less over time than hiring a new employee. They bring additional expertise to a project, and can provide a skill set that is not essential on a full-time basis, especially considering overhead costs of staffing. Consultants can be hired and released to meet the changing needs of the workplace.

External consulting or contracting is a way of saving labor costs and time on a project. It is not always appropriate, and can lead to peculiar difficulties. If done correctly, however, it can result in significant savings in time and money.

How is a contractor different from a consultant?

These two terms tend to be used interchangeably, because contractors at times provide a consulting service and consultants sometimes contract themselves out.

A consultant is usually someone who has  specific expertise or provides a specialized service that is not commonly available, for instance:

o  has inside knowledge on hardware pricing
o  knows how to optimize a LAN
o  can train your team on a methodology

A contractor is a freelance employee.

To help distinguish further, consultants are usually paid by commission (e.g., a negotiated percentage of pre-defined savings), or by performance (e.g., a dollar amount per millisecond improvement in mean network message response time), or via a flat fee. In contrast, software contractors are almost always paid by the hour, and occasionally by the piece of work to be done.

Golden Consulting Services can provide either type of service, depending on your needs and preferences.

What are the appropriate conditions for hiring a software contractor?

When your project is delayed by one or more of the following factors, it makes sense to consider an outside contractor:

  • Transience
  • Quantity
  • Expertise
  • Training
  • Scheduling

The transience factor comes about when the circumstances of your organization dictate that your people have to do something that is urgent but outside the scope of the project, and is causing your project schedule to run amok. Hiring a contractor or consultant for the purpose of handling the problem will get your staff back on schedule.

The quantity factor comes into play when you have a manpower shortage for a phase in a project that is labor intensive. A short-term increase in staffing can be very effective in completing a project.

The expertise factor comes about when a critical job skill is needed on a project and nobody on the current team has this skill or the time to learn it. In this circumstance, finding the right contractor or consultant to provide assistance on an as-needed basis can be very cost effective.

The training factor manifests when you need to brush up the abilities of your team on specific skills or knowledge they need but do not have. Hiring a trainer means ensuring the team is taught efficiently and correctly.

The scheduling factor comes into play when a person is needed at a critical step in a project  and is not available due to scheduling reasons, (e.g., another project, illness, vacation, maternity leave, sent off to fight a fire elsewhere). Bringing in outside help on a temporary basis means keeping your core team intact.

When any one or combination of these factors occur, consider outside help. The key is to find a contractor or consultant who:

  • is  qualified  to do that extra work
  • is  available  when needed
  • is  willing  to do the work
  • can meet your price

When all four of these conditions are met, consider a software contractor. Two more conditions should be met be for making a final decision.

1. The work to be done is identifiable.

    • It has a start and an end in terms of hours and the calendar;
      • for example, "There is about 2 man-months of effort not already assigned to be completed on Project XYZ during the first quarter of 2007."
    • Or it is open-ended, but still finite by the piece
      • for example, sending out pre-printed responses to customer inquiries costs an average of fifteen hours a week, and all of the existing staff is already loaded 130%.
    • Or it is necessary work now, but will go away in the near future
      • for example, tape backup of all networked files takes ten hours per week now; a corporate policy will be implemented next quarter and this work will be taken off your department's hands at that time.

2. Funding for additional help is available and approved.

Golden Consulting Services can assist you in deciding if help is needed and cost-effective for your project.

We do not charge you until we both agree in advance for the clock to start. So let us talk!


Appendix 1: The Employee Benefits Package

In the calculations below, we estimated a 40% overhead rate in addition to the 7.8% social security (FICA) overhead for employees. This is a conservative estimate, because employee benefits package are highly variable, with no two employers providing the exact same benefits. Here is a list of potential benefits that have been considered in figuring a 40% overhead. If all of the benefits below apply, the overhead rate would be considerably higher than 40%.

It may be useful to see this as a list of items you DO NOT PAY software consultants.

Social Security and related taxes, about 8-9% of annual salary

Paid Absences

Annual vacation: 2 to 6 weeks depending on seniority (3.85% to 11.5% of salary)
Ten paid holidays; up to 2 weeks’ worth (3.85% of salary)
Medical leave; 2 to 4 weeks, depending on the employer (3.85% to 7.7% of salary)
Leave of absence (generally unpaid, but causes disruptions)
Excused absences; policies varies

Bonuses - highly variable

Insurance Premiums

General Health and Hospitalization, major medical, employee & dependents
Dental Plan, employee and dependents
Vision Plan, employee and dependents
Life Insurance
Accidental Death or Dismemberment
Worker's Compensation
Unemployment Insurance
Travel Accident Insurance

Disability-Related - variable

Short Term Benefits
Long Term Benefits
Gratuitous Death Benefit


Straight retirement benefits
ESOP, IRA or 401(k) as applicable, and matching contributions
Loss to corporation when a senior skill set leaves employ (intangible)

Miscellaneous Costs of Employees - not all employees take full benefit of these

Wellness Programs
Employee Assistance Programs
Impaired Employee Programs
Recreational activities
Transportation Costs (car pools, parking, bus pass, etc.)
Employer-run or subsidized day care
Education Reimbursements

If You Choose to “Do-It-Yourself”

You may already know something about software and databases. Perhaps you need only a limited amount of help. Or maybe you inherited somebody else’s homemade database or a collection of spreadsheets or simply a whole bunch of lists. For these or other reasons, you have decided to do it yourself.

How can we help?

First, we will give you our technical sympathy and moral support, which means we will help you any way we can, at your comfort level, within your budget.

Second, we encourage you to talk to us. Describe the problem, point out how you can use a helping hand; ask us for advice on the easiest solutions. Phone consultations are free for existing clients. If you are not a client already, invite us to pay you a visit. On-site visits are free until we both agree that the charging clock has started. Generally this does not happen until we have looked things over, understood your problem, discussed it with you and formed a technical opinion on how to help you.

Third, we always provide a cost estimate. This can be a verbal estimate, or a detailed plan, with timelines and milestones. It depends on the circumstances and what you want done.

Database Creation 101

If you are starting a database from scratch, please talk to us before you construct any part of it.

Every database has something called a data model built within it (even if you put one together by yourself or use software wizards that come with the product). The data model is the equivalent of a building plan, or a circuit diagram for an electronic device. If you have not studied and built databases, please do yourself a huge favor and get your data model looked at by a competent software professional before you begin work. The cost for this is minimal.