CHAPTER 1: OVERWIEW OF
MANAGEMENT CONSULTANCY
SERVICES BY CPAs
Consultant – has expertise in a
specific area & offers unbiased
opinion for a fee. Not an employee
but an independent contractor
- anytime someone pays somebody
for their unique expertise or opinion is
a consultant
*Advice is exclusively for interests of
the client.
Reasons for becoming consultants:
• Sharing knowledge to help
clients
• Build business network
• No boss, make own decisions
• No fear of being laid off
• Source of income
• Giving back to community
Independent Accounting Firm’s Role
in MAS – to provide advice &
technical assistance which should
provide for client participation in the
analytical approach & process.
*No authority to marshal client
resources & make management
decisions
Independent Accounting firm’s
Purpose – to utilize the essential
qualifications it has avail. to provide
advice & technical assistance
Management Advisory Services –
function of providing professional
advisory services, purpose of which is
to improve client’s use of its
capabilities & resources to achieve
obj.
Management Consulting –
independent and objective advisory
service provided by qualified
persons
2 Types of Encounters:
1) Consultation – providing advice &
info. during a short time frame &
provided orally
2) Engagement – analytical
approach and process is applied in
a study or project.
Rationale for Using Management
Consultants:
1) Independent Viewpoint – see true
nature of the problem, distinguish
feasible and infeasible solutions.
Tend to be unbiased
2) Professional advisor and counselor
– business firms prefer CPAs to act as
their management consultant
3) Temporary professional service –
consultants are less expensive
4) Agent of Change
Types of Consultancy Firms –
consulting industry has a relatively
low concentration
a) IT firms – means of increasing
revenue
b) Accounting Firms offering
Consultancy – sold consulting
operations to management or IT.
Narrow focus
c) Major Consulting Only Firms – offer
wide range of services but core
business is consulting
d) Independent – range of services,
often specialized.
Career Structure in Consulting Firms
- Hierarchical
- Teams that cut across levels of
responsibility undertake most
consulting projects
Common Roles (ascending order):
• Analysts
- graduates start here
- gathering info. and processing
it
- only large firms offer
• Consultants
- Promoted analysts
- Evaluation of client business &
make recommendations
• Senior consultants or
Managers
- Leading a consulting team
- 3-5 years experience
- Dealing w/ members of client
team
• Business Development
Managers
- Responsible for developing
firm’s products and building
relationships w/ clients
- Strategic level, 5-10 years
• Directors/Partners
- Most experienced
- Development of the org. as a
whole
- Lead its strategic
development
- 10+ years
CHAPTER 2: AREAS OF MAS PART I
6 Dimensions: (Every engagement
involves all)
I. Nature of the problem
II. Service delivery area
III. Phases of analytic process
IV. Techniques & methodologies
V. Industry or Nature clients
belongs
VI. Geographical areas
I. Nature of the Problem
a. Corrective Problem –
conditions have worsened.
Demands urgent action
b. Progressive problem – existing
situation that can be
improved
c. Opportunistic problem – future
opportunity exists. Likely to be
more risky and more
rewarding
II. Service Delivery Area –
functions/activities in which the
problem situation exists. Business unit
or department
III. Phases of analytic process –
engagement could involve one or
more or all of these phases
a. Identifying the objectives
b. Defining the problem
c. Finding out the facts
d. Developing the solution
e. Implementing the solution
IV. Techniques & Methodologies
Applied
- Engagements can be aided
by technical models or
methodologies
- example, capital investment
planning
V. Industry or Nature of Organization
- privately owned, gov’t. agency,
NPO etc.
VI. Geographical Areas – single
location, multiple locations,
TYPES OF CONSULTANCY WORK:
A. Business Planning and
Development (Project Feasibility
Studies)
- broadest project type, ambitions to
grow and develop
- first task is to establish client wants
B. Information Systems Consulting
- managers need info. if they are to
make good decisions
- Information is a corporate source
- Managements Information Systems
aims to collect & organize info. and
present it to managers in a usable
form.
C. Internal Audit Services –
independent, objective assurance
and consulting activity designed to
add value and improve an
organization’s operations.
D. Management / Operations /
Performance Audits
- evaluate effectiveness and/or
efficiency of operations
- examinations of all or part of an
entity
E. Business Process Improvement /
Process Reengineering
- more radical than TQM
- imposed from above & use outside
consultants
- complete redesign of a process
Business Process – any series of steps
that are followed to carry out some
task
Organizational Culture – mindset of
employees, beliefs, values and
goals.
*Culture is a key factor that increase
likelihood of successful
implementation
Employee Resistance – recurrent
problem in process reengineering
Change Champion – recognized the
need for change and seeks to bring
it through his own efforts.
F. Other Types
• Marketing Research – discover
nature of the competitive
environment. 2 Types:
(1) Primary Research –
collected for the specific
project
o Quantitative research –
provides answers in
statistical or numerical
form
o Qualitative research –
who, what, why
questions
(2) Secondary Research –
collated earlier for reasons
other than the project
• Marketing Strategy
Development – approach will
take in order to get the
customers’ attention
• Developing Promotional
Campaigns – any program of
activities dedicated to
informing customers about a
product
• Planning Sales Force Activity –
sales team is the primary
promotional tool. Most
important investment
• New Product Development –
undertaken by interdisciplinary
teams, which cut across
departmental boundaries.
• Developing Proposal for
Financial Support – four critical
areas:
a. Evaluation of investment
needs
b. Identify funding
providers
c. Develop understanding
of criteria employed by
funding providers
d. Develop
communications with
funding providers
• Staff Recruitment – area in
which dedicated consultants
operate
• Exporting and International
Marketing – route for
expansion
 CHAPTER 3: AREAS OF MANAGEMENT ADVISORY SERVICES – PART II
Management Consultancy Services Category:
I. TRADITIONAL SERVICES:
1. Managerial Accounting
- Assistance to mgmt. related to planning and controlling operations as
well as decision making:
o Financial statements analysis
o Budgets and their preparations
o Cost analysis planning and control
o Variance analysis
o Cost analysis for managerial decisions
o Development and installment of responsibility accounting and
evaluation of responsibility center
o Assistance in preparation of reports to employees, stockholders,
SEC and others
2. Design and appraisal of accounting system
- Development of accounting system for a newly-organized firm
- Revision, partial or complete, of an existing accounting system
- Extension of present accounting system to cover new business activities
- Accounting service in general
- Accounting machines installation
- Internal control studies and installations
3. Financial Management-related services
- Study of working capital requirement
- Study of methods of financing asset acquisition
- Credit and collection practice studies and advice
- Analysis of capital investment proposals
- Study of alternative methods of financing expansions
- Survey of pension, retirement, and profit-sharing plans
- Preparation of feasibility studies for new projects
- Valuation of capital stock of companies for purpose of merger or sale
4. Project feasibility studies

II. EMERGING CONSULTANCY SERVICES

5. Global Risk Management Solution
- Totality of risk: financial, operational and systems, and strategic to
improve financial and business performance
- Determination of critical risk that the firm faces
 - Areas of risk management:
a. Financial risk management
o measure risk-related return on capital, and link performance
evaluation to creation of shareholder value
o model review of derivative valuations
b. Strategic risk management
o Review of whole business unit, departures, function, or process so
that senior management can fully understand risk of operation
c. Operational risk management
o Controls and assurance services
o Technological risk services
o Operational risk services, corporate governance
d. Compliance risk management
o Review of compliance with regulatory requirements and ethical
standards
e. Internal Audit Services
o Assessment of units’ performance against standards and peer
o Development of new internal audit function
o Review of controls of key business processes
6. Transaction Services
- Related to mergers, acquisition, divestitures, joint venture, spin-off,
strategic alliances
7. Financial Advisory Services
- Complex business problems and disputes; investment baking, fraud,
dispute analysis, intellectual property right issue
8. Project Finance and Privatization
- Partnership between public and private sectors in delivering services,
infrastructure
9. Valuation Services
- Providing value; debt restructuring, entry to major stock exchange
10. Business Recovery Services
- Rebuild value; creditor services, business regeneration, etc.
11. Dispute Analysis and Investigations
- Fraud, environmental, real estate damage, investigative
12. Computer Risk Management
- Implementing mission critical business systems, e-commerce, network
sensitivity, etc.
13. Application Software Selection and Implementation
- Prioritizing their needs, identifying the right software
Determining the Scope of Services
- Generalist – more service
- Specialist- less service
1. Responsibility to establish scope of services
- Accounting firm has the responsibility to determine scope that it is
competent to offer
2. Independence
- Both independence and appearance of independence
- Independent auditor of the same client – should not be rendering MAS
3. Competence
- Responsibility of the firm to evaluate their ability to render MAS
- Consider technical and qualifications
4. Requirement for specialization
- Exclude areas provided by other profession
5. Identification and resolution of client’s basic problems
- Scope of services offered should be adequate to identify and resolve
problems
6. Referrals
- Develop cooperation thereby expanding knowledge and scope of
services
7. Code of professional ethics
- Assure itself that the nature and scope of MAS it offers are in conformity
with the code of professional ethics
Type of Clients Served
1. Contact Clients – first approaches the consultant
2. Intermediate clients – work with consultant and provide information
3. Primary clients – who identified the problems, most immediately affected,
and willing to pay
4. Unwitting clients – will be affected by intervention but unaware that they
will be affected
5. Indirect clients – will be affected; consultant not aware that they will be
affected
6. Ultimate clients – totality that will be affected

Groups of clients that CPAs can provide MAS are

1. Privately-owned business firms
- Business enterprises
 2. Governmental agencies and organizations
- BIR, SEC, BOC, DOH, DENR
3. Not-for-profit nongovernmental organizations
- Hospitals, research institute, charitable institutions
4. Professional associations
- Lawyers, medical doctors, etc.
5. Others
- Labor unions, sports organizations, religious, etc.
How consulting adds value
The decision to use a consultant:
1. An immediate financial cost
2. Disruption of a manager’s routine
Management consultants must constantly ask 3 fundamental questions:
1. What can I offer?
2. Why will my contribution be more valuable than existing managers,
potential recruits?
3. How can I communicate that what I offer is valuable?
Consulting exercise provides:
1. Information
2. Specialist expertise
3. New perspective
4. Support for internal arguments
5. Support in gaining a critical resource
6. Facilitate organizational change
Provision of Information
- Information: a resource that can be managed; has direct and hidden
cost
*Change management – specialist consulting area
Provision of Specialist Expertise
- Call support of consultants rather than have to learn technical
knowledge and specialize techniques themselves
- Important areas of management that can benefit from the insights
and ideas of a specialist are:
o Business strategies
 o Marketing strategy development
o Marketing research studies
o Promotional campaign development
o New product development programmes
o Developing proposals for financial support
o Information system developments
o Planning exporting and international marketing
Provision of a New Perspective
- Managers are not decision auto-mata
- Managers use cognitive maps, mindsets, and dominant logics
o Not rational decision-making devices
- Thus, consultants may offer fresh mind to an issue
- And offer creative techniques
Provision of Support for Internal Arguments
- Managers do no always agree
- Consultant’s opinion is of clear value; independent and expert
- Ground rules:
o Understand politics of the consulting exercise
o Be sensitive to who is supporting different positions
o Recognize who will benefit and who will lose from different
options
o Make sure objectives of exercise are clear and in the open
o Make sure information used can be legitimated and any analysis
undertaken justified
o Build rapport with client and be honest about the strengths and
weaknesses
o Introduce and explore options which reconcile different positions
o Provide the client manager with information and insights but
allow to make particular case within the business
o If put in a position where credibility might be lost, remind the
manager that a loss of impartiality and credibility will defeat the
point of using independent consultants
Provision of Support in Gaining a Critical Resource
- Organization must attract resources in order to survive; critical
resources are:
o Goodwill of customers
o Capital from investors
 o Capital from government support agencies
o People with particular skills and knowledge
o Specialist materials, equipment, and services
Facilitating Organizational Change
- All organization undergo change
- Present new possibilities, and also uncertainties
- Change management – specialist consulting area
 CHAPTER 4: PROFESSIONAL ATTRIBUTES OF MANAGEMENT CONSULTANTS
Professional Attributes of Consultants: T I C
(According to Prof. J. Owen Cherrington, Brigham Young University)
1. Technical Skills
- Understanding and experience in a technical discipline
2. Interpersonal Skills/Developed Attributes
- Personal attributes that makes one amiable among people
- Effective in accomplishing desirable objectives through people
3. Consulting Skills
- Understand and use problem solving approaches such as:
- Identify cause of problems/inefficiencies
- Identify alternative solutions
- Select the most desirable alternatives, and
- Implement the chosen solution
Technical Skills
Education Requirements
1. Technical Training
a. Length of Education
- Undergraduate, graduate, etc.
b. Type of Education
- General, specialized degree, master’s in something
2. Common Core Requirements C M C
a. Communications
b. Mathematics and statistics
c. Computer data processing
Interpersonal Skills or Developed Attributes
AIIOUCJPPRAP
1. Ambition
2. Intelligence or capacity for logical thinking
3. Integrity
4. Objectivity
5. Understanding of people (human relations/empathy)
6. Courage
7. Judgment
8. Psychological Maturity
9. Physiological Equilibrium
10. Relationship-building skills
11. Analysis Skills
12. Project Management Skills
Meaning:

1. Ambition
- Desire and motivation to earn and obtain full recognition for the
attainment of professional status
2. Intelligence or capacity for logical thinking
- Degree of mental organization and development; reason inductively
and deductively
3. Integrity
- Moral and ethical soundness, fairness, equity, ability to distinguish right
and wrong, honesty, dependability, freedom from corrupting influence
4. Objectivity
- Ability to grasp and to represent facts, biased by prejudice,
independent
5. Understanding of people (human relations/empathy)
- Anticipate human reactions to differing situations, establish and
maintain friendly relations
6. Courage
- Strength of mind and character; stand by one’ convictions regardless
of pressure
7. Judgment
- Reasoning power to arrive at a wise decision
8. Psychological Maturity
- Ability to view situations in perspective and to take action needed on
a calm and controlled basis w/o being diverted from a sound, logical
and ethical course by outside pressure
9. Physiological Equilibrium
- High-energy level to (1) support intellectual, emotional activities (2)
withstand pressure, frustration (3) avoid physical illness
10. Relationship-building skills
a. Ability to build rapport and trust with the client
- Communicate with ease, work together effectively; not confined
with face-to-face, all communication, verbal or written as well
b. Ability to question effectively
- Get info, build rapport, control direction of conversion
c. Ability to communicate ideas succinctly and precisely
- Use knowledge to create value (not too technical)
 d. Ability to negotiate objectives and outcomes
e. Ability to convince through verbal, written and visual mediums
- Turn ideas and encourage people to follow courses of action
f. Ability to use information to make a case for a particular course of
action
- Ideas must be backed up with info
g. Ability to develop selling strategies
- Consultants must sell their ideas and sell themselves as providers
of ideas
h. Ability to work effectively as a member of a team
- Team work (skill itself), advocate interest ang yet compromise
concerns for the interests of the group as a whole
i. Ability to listen effectively
- Listening represents a skill:
▪ Actively concentrate on what is being said
▪ Keep track of key themes
▪ Keep an ear for particularly relevant ideas or facts
▪ Identify and mentally record key phrases
▪ Note use of imagery or metaphor
▪ Use own paralanguage and body language to
encourage speaker
▪ Ask questions\
▪ Summarize points
▪ Note taking if possible
▪ Avoid concentrating on preparing own response
j. Ability to demonstrate leadership
- Leadership is an ability to focus and direct individuals in a way
that brings benefits to the whole organization
- No permanent lead
- Leadership not inherent or fixed; may shift
11. Analysis Skills
a. Ability to identify what information is available in a particular
situation
b. An ability to identify what information is needed in a particular
situation
c. Ability to process that information to identify the important
relationships within it
d. Ability to draw meaning from that information and use it to support
decision-making
 e. Ability to recognize the business’s profile of strengths, weaknesses,
and capabilities
f. Ability to recognize the opportunities and challenges the
environment offers the business
g. Ability to assess the business’s financial situation
h. Ability to evaluate the business’s markets and how they are
developing
i. Ability to assess the business’s internal conditions
j. Ability to analyze the way in which decision-making occurs within
the business
12. Project Management Skills
a. Ability to define objectives and outcomes
b. Ability to develop formal plans
c. Ability to sequence and prioritize tasks
d. Ability to manage financial resources that are to be invested in the
consulting project
e. Ability to recognize the human expertise necessary to deliver the
project
f. Ability to manage personal time

Common Barriers to Effective Communication Between the Client and the

Consultant
IKIRI
1. Inability to understand technical language
- Jargons/technical language
2. Know-It-All-Attitude and/or prejudice of some personnel of the client
- Consultant should develop cooperative and supportive climate;
disagree if necessary
3. Inadequate background or knowledge
- Knowledge difference
4. Resistance to change
- Be open and encourage participation
5. Information Overload
- Limit
Consulting Process Skills
Four Areas:
1. Problem definition phase
 - Purpose of fully describing the underlying problem
- Initial recognition of symptom and ends with complete description of
the problem
2. Identification of alternative solutions
- Fact-finding and analysis phase; gather facts, analyze facts to clarify
requirements of best solutions
3. Selection of the most desirable alternative
- Solution development phase
- Optimal solution and develop detailed plan of action
**Presentation
4. Implementation phase
- Putting detailed plan into operation; least difficult if previous phases
are performed well
- High degree of complexity; deviations due to environment
Chapter 5: MAS PRACTICE STANDARDS and ETHIC
AL CONSIDERATIONS
- AICPAS’s Management Advisory Services Divisio
n promulgated “8 STANDARDS” for all MAS practi
tioners
1. Personal Characteristics
2. Competence
3. Client Benefit
4. Due Care
5. Understanding w/ Client
6. Planning, Supervision and Control
7. Sufficient Relevant Data
8. Communication of Results
1. Personal Characteristics
- w/ integriry and objectivity, & be indeendent in
mental attitude
- INTEGRITY- highly personal characteristic; free fr
im intentional distortions/misstatemengs
- OBJECTIVITY- avoid bias; imprtial attitude
- only engagements where he can maintain ind
ependent mental attitude; avoid impairmeng of
public confidence in profession
- Only as: researcher, analyst, advisor, rather tha
n decision maker
2. Competence
- COMPETENCE- ability to identify & define client
needs, utilize analytical approach & processes, a
pply knowledge of technical subject matter...
- Competence is acquired & maintained throug
h:
a. Education- formal & informal instruction & self-
study
b. Experience- knowledge & judgement acquire
d by personal participation in MAS engagement
- Competence is augmentd by research & cons
ultation w/ others
3. Client Benefit
- notify client of any reservations he has regardin
g anticipated benefits
- problem definition,identification of objectives &
benefits to be derived- considered in structuring
engagements
- Client’s willingness to accept recommendation
should be considered; Unwillingness impair realiz
ation of potential benefits
4. Due Care
- what practioner does & how he does it
- involves Diligence & Appropriate attention in c
arrying out the engagement
- requires all work done within Code of Ethics & o
ther Prof Standards
5. Understanding w/ Client
- before engagement, inform client of all signific
ang matters related. Which includes: Scope, Ap
proach, Role of Personnel, Manner of Communic
ating Results, Timetable & Fee
- clear expression as to both engagement objec
tives & extent & nature of practitioner’s involvem
ent
- FORMAL CONTRACT/ LETTER OF UNDERSTANDIN
G/FILE MEMORANDUM- summary of terms of an
oral agreement
- significant change- new arrangement & written
record
6. Planning, Supervision and Control
- based on practitioner’s understnading as to en
gagement & role of personnel
- PLANNING- translation of objectives to activities
& events w/in targeted time schedule (ENGAGE
MENT PLAN- resultant)
- CONTROL- measuremnt of proress of plan & obj
ectives
7. Sufficient Relevant Data
- obtained, documented & evaluated in develo
ping conclusions & recommendaions
- Professional Judgement- determining type & a
mount of data (nature, scope, source & reliabilit
y & any limitations)
- formality & documentation- vary accdg to nat
ure & scope
- documentation: evidential matter & its source;
alternative considered; analytical processs
8. Communication of Results
- principal findings, recommendation, accomplis
hments, major assumptions relied upon (togethe
r w/ limitation, resevation)
- Reports- written/oral
- Not issue written report- prepare ‘FILE MEMORA
NDUM’
INTERIM COMMUNICATIONS
- encourages involvement of management; pres
eve roles of management as decision maker
- summarized findings to date, work accomplishe
d, tentative recommendation
FINAL REPORT
- should be made upon completion to ensure res
ults & recommendation are communicated
ETHICAL CONSIDERATIONS
- Professional Accountants (Code of Ethics)- pers
ons holding a valid certificate issued by BOA
- distinguishing mark: not exclusively satisy individ
ual client but reponsible to act in public interest
FUNDAMENTAL PRINCIPLE (wether public, private
, commerce, academe, govn’t)
1. INTEGRITY
- straightforward; honest; fair dealing; truthfulness
- not considered to be in breach if provides a M
odified Report
Not involved w/ infos:
- materially false/misleading
- furnished recklessly
- omits/obscures info (misleading)
2. OBJECTIVITY
- not bias, comflict of interest, undue influence
3. Professional Competence & Due Care
- maintain professional knowledge & skills; act dili
gently (standards)
- DILIGENCE- act accordingky w/ requirements o
f assignment
- Competent professional service requires exercis
e of sound judgement
Two Phases of Professional Competnce:
1. Attainment- education, training & examination
& period of work experience
2. Maintenance- continuing awareness of releva
nt technical professional & business developmen
ts
4. CONFIDENTIALITY
- continue even after the end of relationships
- maintain even in a social environment
When disclosure appropriate:
- permitted by law & authorized by client
- requiredby law (legal proceedings/infringemen
tof laws)
- professional duty/ right to disclose, when not pr
ohibited by law
Consideration wether to disclose:
- interest of all parties (affected)
- relevant infos are known & substantiated
- type of communication & to whom addressed
5. PROFESSIONAL BEHAVIOR
- comply w/ relevant regulation & avoid action t
hat discredits profession
In markting themselves & work, should not:
- exagerrated claims: services, qualifications, exp
erience
- disparagung references/unsubstantiated comp
arisons
ETHICAL RESOLUTION
- weigh consequences of each actions. If matter
remain unsolved- consult w/ other appropriate
persons w/in the firm
- conflict w/in organization- consult w/ charge w
/ governance (BOD, audit comm)
- significant conflict cannot be resolved- advice
from relevant professional body/legal advidors w
/o breaching confidentiality
- If after exhausting all- refuse to remain associat
ed: withdraw from team/assignment/firm
INSTANCES:
1. Charge highest fees you can get away with?
- if client is aware & accepts, he detemine that v
alue is worth the investmebt
- do not overpromise & undeliver (extravagant p
romise-high investment but marginal delivery)
- If per diem- do not charge other than actual h
ours- Padding days/ hours- theft
2. Travel first class & bill client?
- client approves, no problem but;
- pimary goal: improve client condition
- if client not offer, don’t abuse it
- if you want first class, then shoulder the differen
ce from that of economy/standard
- Even if client is willing, it may cause questions a
bout the ‘high-priced consultant’
3. Bill more than one client for same basic expen
ses?
- Never double-bill
- Cover Letter W/ Statement of Expenses- epxpla
ins why client is charged one-third of full amount
- Opportunity to demonstrate fairness & fiscal res
ponsibility
4. Accept assignment from A Client’s Competito
r?
- nothing wrong with working for several clients w
/in same industry
- criteria: consultant not be asked to reveal confi
dential info, directly/indirectly; assign different p
ersonnel to each project; inform present client of
competitor’s request (if he wants the consultant
to decline)
5. Use tickets supplied by client to bring spouse a
long?
- tickets are still client’s.
- ‘INNOCENT FALSEHOOD” can develop into co
mplicated & unnecessary questions about one’s
standard
- If one is uncomfortable then chance are, what
he’s doing is unacceptable
Guidelines whether a consultant is doing right or
not:
1. Improve client’s condition
2. Comfortable explaining it to client
3. Coul be proud of & be publicize as a trait
4. Harm being done to anyone
5. Something that consultant willingly subject to
CODE OF CONDUCT
- attitude, principles & approaches; contribute m
ost to success & make for equitable & satisfactor
y client relationship
CODE OF ETHICS
- promiote highest quality of performace in pract
uce of management consultancy
COMMON PRINCIPLE (Code of Ethics)
1. Basic Responsibilities
- integrity & objectivity, independence, confiden
tial info
2. Practice Standards
- professional competence, planning, supervision
& due care, reporting results
3. Fee Arrangements
- REASONABLENESS- based on services performe
d, time required, experience, ability, reputation,
responsibilty assumed, and benefits
4. Business Conduct
Enforcement of the code is everyone’s responsib
ility
Chapter 6: Organization and Management o
f MAS Practice
to be a consultant
Assess:
- talents
- expertise
Review:
- communication skills (oral & written)
- sales ability
- focus to carry project to conclusion
- maintain objectivity
Evaluate:
- business & professional judgement
- Recognize firm’s background & expertise so sc
ope of consulting practice can be defined
- Firm should not ‘oversell’ or accept work outsid
e its capabilities
- Prior consulting, conduct market research (iden
tify opportunities)
- Economic statistics & financial information of c
onsulting practices- not readily available- can b
e obtained from word of mouth discussion with o
ther consultants and knowledge of local market
place
- consultant starts when client indicated- like to u
se his/her talents as consultant
- Practice Development Program- initiated to tar
get potential clients
- Market Research- important to both new firm &
established
- Operating Plan- set goals and objectives which
includes:
1. Desired income level
2. Potential Clients
3. Stategies
- Based on services provided, type of clients, am
ount of work- practitioner can now identfiy staffi
ng requirements and financing needs
- Contacts (network) grow based on solid person
al relationship & consultant’s commitmment (exc
ellent service)
- Consulting firm should periodically assess its in-h
ouse knowledge and skills. In case of deficiencie
s:
1. Employ additional consultant or;
2. Undertake ‘staff development activities’
Staff Pyramid & Fee Structure (5-15 people)
- size but not structure may vary
Level 1: Partners, Principals, Directors
- 10-20k per hour
- most experienced & highly paid
- responsible: successful completion of engagem
nets, dealing directly w/ client & selling work
- If new partner is recruited, principal considerati
on: external reputation (competent consultant)
+ remaining useful period + compatibility w/ exist
ing practice
Level 2: Senior Managers, Managers, Supervisors
- 8-10k per hour
- week to week management
- responsible: identifying new clients & assissting i
n sales process
- firms recruit mainly managers- worth from begin
ning; his personal competence determines succ
ess of individual engagements
Level 3: Senior Consultants, Senior
- 5-8k per hour
- 2-3 yrs consulting experience
- supervise daily work of younger staff
- short supply in most firms
Level 4: Asscociate Consultant, Staff
- 2-5k per hour
- young or new staff
- have less than 2yrs experience
- hired directly- out of graduate/undergraduate
school
(Billing rates adjusts anually- promotion and salar
ies chang)
- Consulting Competence- ability to deliver spec
ific agreed upon consulting services on a profita
ble time-and-fee basis
Four Major Factors when defining Target Level of
Competence (Practice Standards)
1. Scope of Practice Area
2. Service Variety
3. Service Delivery Capability
4. Client Requirements
1. Scope of Practice Area
- when a consultant desires to grow he must: revi
ew economic region, inventory service required,
select service from inventory, acquire compete
nce needed, notify clients (firm is performing con
sulting services)
2. Service Variety
- range of services consultant- extremely broad
Categories:
- planning, contril & reporting system
- operational computer system analysis, design, i
mplementation, evaluation
- Specialized technical services (advice on new l
aws, entering int’l markets...)
3. Service Delivery Capability
- Service Delivery- application of consulting skills;
without this, high levels of knowledge & underst
anding cannot put into use
4. Client Requirements
assess clients, questions:
- will a fully implemented service ready for use? (
more care, organization and attention)
- will service require addt’l changes/ adpatation
? (client must be told what to do to realize benef
its)
- client have special financial oo growth proble
ms? (not aggrevate such)
Steps in Starting MAS Practice
1. List of services (offered)
2. Client list (classified by industry, size...)
- Initial Package- services closest to conventiona
l acounting function (budgeting...)
3. Prepare Line-up MAS Personnel
Sources in selection of staff:
- firm’s own staff
- experienced specialists
- referral by other CPAs
4. Seek out advisory engagements
- done within Code of Ethics
- Mention of CPAs availability for MAS work in his
audit letterand use of letter & brochure is allowe
d
Sources of MAS Engagements
- Audit Client- primary source of MAS engageme
nt
Other sources: (Referrals from)
- other CPAs
- audit clients
- businessmen
- financial & govn’t institutions
- legal & professional firms
Determining Market Opportunities
1. Private Sector
a. Individuals
- how to save/ make money
- target: higher earning bracket
b. Small Businesses
- for new consultants, these are excellent client b
ase
- failure rate is very high: owner’s lck of knowledg
e of assignment to finance it
c. Medium-Sized Businesses
- going through various stages of growth w/ all pr
edictable problems involved
- they hire experts to identify, analyze, & find solu
tion instead of hiring staffs (relted costs & long ter
m commitments)
d. Large Companies
- difficult to obtain contract in here: they prefer l
arge consulting firms
2. Public Sector
a. Government
- major user of consulting services
- consultant may submit a solicited/unsolicited pr
oposal
Steps to make contracts w/ govn’t
- read govn’t advertisements & publications
- place name on govn’t mailing list
- contact govn’t officers
- submit resume to govn’t departments
- contact large consulting firms w/ contract w/ g
ovn’t (ask if they need addt’l assistance)
- contact friends who work in govn’t
3. Grant Consulting
- Grant Consulting- obtain grabts, loans, subsidia
ries for a client
- consultant normally takes an administration fee
- % amount awarded
Potential Probles in Rendering MAS
1. Questions as to Independence
- solely advisorh not decision making
2. Development & Maintenance of High-Level of
Competence
- establish policy when resolving problem of disa
greement between Mas partner & Audit Partner
as ro wether competence exists
3. Questions of What Fee to Charge
- policy regarding fee structure and reasoning
4. Question of Audit-MAS cooperation
5. Question of Regular Communication between
MAS function & rest of the firm
Financial Management of a MAS Practice
- Financing can be by capital invested or borrow
ed
Initial & Basic Capital Requirements:
1. Working Capital Requirembts
- pay monthly operating expenses
- atleast 3-4 months expenses
- sometimes received retainer’s fee at beginning
- Care: avoid “Financial Trap”- funds received ar
e spent before work is actually performed
2. Office Facilities & Equipment Requirements
- practical option: lease an office, next, lease off
ice furnitures, employ permanent secretary, mult
iple employees and other consultants
- Prime Concern: Costs of Operation, Equipment
& Facility Requirement- long term impact on prof
itability
Revenues & Expenses of Management Consultan
ts
Net Services Fees
- peso value of what has been sold
- Gross Fees-allowance or fee adjustments or writ
e off
- Allowance- percentage normally 12-16% (depe
nd of effective use of staff)
Billings and Collection
- per hour, daily, per diem basis
- Some absorv or cahrge out of pocket costs exp
enses
- Staff billing rates often a mulitple of salary paid.
Like 2.5, 3, 3.5
- Project Basis- another billing approach- fee is d
etermined for project and work is completed w/i
n reasonable time
- No matter what method of billing- TIME is of pri
me importance
- Appropriate mix- Practice development & Prod
uctive Chargeable time
- Follow-up Invoices is important (Aggressive Invo
ice Collection is important to cashflow & survival
of practice)
- Those who do not plan run a very high risk of fai
lure
 CHAPTER 7
Stages of Management Consulting Engagement
I. Negotiating the Engagement
II. Engagement Planning
III. Conducting a Consulting Engagement
A. Problem Identification and Solution
B. Identification of Suitable and Accurate Sources of Information
C. Data and Analysis Diagnosis
D. Solution and Development
E. Preparation and Presentation of the report and recommended solution
F. Implementation
G. Follow-up Evaluation of the Implemented Solution
IV. Evaluating the Engagement and Post-engagement Follow-up
*variations may occur depending on the nature and additional requirements of the client

I. Negotiating the Engagement

➢ stage where the CPA and the client discuss the proposed professional
consulting services.
➢ process whereby:
CPA Customer
Determines whether or not to Decides whether or not to engage
accept the engagement the CPA

accept the engagement only when he knows that the work can be
successfully undertaken that can be assessed through necessary steps
(1) Ascertain the real problem and what is required to reach the solution.
(2) Identify the end product of the assignment
(3) Agree on the role to be performed by the CPA
(4) Agree on the basis for establishing billing fees
(5) Confirm understanding in writing
➢ Proposal Letter
- advisable first step in most MAS engagement
- written communication between the CPA and the Client setting forth
the terms and conditions of a proposed consultancy work
- Purpose of the Proposal Letter
1. To minimize misunderstanding between CPA and client
2. To assist in better administration of the engagement
- Generally includes
1. Objectives and Benefits
o Should be described clearly by the engagement letter
o Objectives shall establish the benefits to be derived
2. Scope of Work and the Role of CPA
o extend of work to be done and the degree of participation,
joint or individual, of client and CPA personnel should be
clearly stated
3. Approach to the study
o how the work will be undertaken and specific approaches
such as
 1. Data gathering methods (questionnaires and interview
check list
2. Flowcharting and document testing
3. Extent of use of mathematical methods
4. Order in w/c various phases of the project are to be
undertaken
4. Project Organization
o Should specify how the CPA and client personnel are to be
assigned and organize, and what working relationship
between them and the client's organization should be
1. Functions and responsibilities to be assigned to the
project
2. Number and types of personnel
5. Fees and Billing Arrangements
o Fee estimate, the frequency of interim and final billing and
the method of billing should be included
o Factors to consider in setting the fee
1. Nature of the MAS job
2. Job's degree of difficulty and complexity
3. Qualifications of the staff required
4. Time involved
5. Technical importance of the service to the client
II. Engagement Planning
➢ Begins the first time the consultant is contacted by the client and
continues in more detail as the project proposal is presented
➢ After the proposal is accepted, a detailed work plan is developed which
will be the blueprint of the remainder of the project
➢ Engagement Program or Work Plan
- Operational plan for conducting a management service engagement
- Contents
1. Objectives and description of each task to be accomplished
2. Description of tangible outputs required
3. Lis of manpower
4. List of personnel
5. Starting and completion dates
6. Project cost
- Objectives
1. Provide means for arranging, distributing and assigning
responsibility for various segments of engagement
2. Provide a means of control for determining whether all segment of
engagement have in fact completed
3. Provide framework for reporting progress of engagement
4. Facilitate time and efficiency control over personnel assigned to
the engagement
5. Assist in engagement review by a partner or supervisor
6. Provide basis for estimating fees
III. Conducting a Consulting Engagement
 - A process that emphasize the solution problem is of great interest to a
consultant
A. Problem Identification and Solution
- Problem Definition is the first phase of the problem solving process and
its position in the process is well established
- Problem is said to exist when the observed behavior of a system or
processed violates the bounds of reasonable expectations.
- Existence of:
a. Human awareness of the problem
b. Predefinition of the allowable tolerances
c. Recognition of the established standards
Quantitative standards, such as sales quotas and budget levels are
easily recognized as are variations of actual values from this
standards
Qualitative standards though not easily recognized are pervasive in
the realms of human relationships and human-oriented process
- Problem definition phase
Begins with initial recognition of a symptom pointing to the problem
and ends with the complete problem description
1. Identity of the problem
First and last question asked is “What is the problem?” and final
answers will only emerge after completing two procedures
o Problem finding – involves identification of the (1) reasonable
explanations pertaining to a system or process and (2)
allowable tolerances from these reasonable expectations
o Problem stating – involves the formulation of a comprehensive
and valid statement of the problem.
2. Objectives of the problem-solving process.
Desired outcome is generally objective of the problem-solving
process and should be permanently expressed in the problem
definition statement in terms of clear-cut expectations and beliefs
3. Scope of the problem
Once clear should suggest the extend of needed response or
solution to the problem or point the need for repackaging the
consulting engagement.
4. Intensity of the problem
Intensity is the degree of difficulty or adverse effects they bring to
interested parties. May determine relative urgency and importance
of initiating a particular problem-solving process.
5. Time dimension of the problem
6. Location of the problem
The geographic point(s) where it occurs, necessary to provide a
complete description of the problem
7. Human elements involved in the problem
It should be identified and assessed in SOP
a. Attitude of involved managers and employees
b. Personal traits
c. Training
 d. Tenure
e. Prevailing political climate
8. Support system surrounding the problem
Analyze together with the functional and dysfunctional effects to
the problem
9. Tracking system related to the problem
Often detects a problem
10. Institutional process for managing the problem
Where problem in org are managed. May be informal or formal.

B. Identification of Suitable and Accurate Sources of Information

- Facts help the consultant in sorting out client symptoms from client
problem as well as structuring and organizing the problems.
Foundation for prospective solutions and direct the consultant to
solution.
o Internal Sources
1. People are the most important source of facts. Includes client’s
managements as well as clerical marketing and production
employees.
2. Client Documentation 2nd important source of facts and
classified as
(a) How the org is structured
(b) What the org has been doing
(c) What the org plans to do
Careful because plans change while related documentation
are not
3. Relationships can provide info and insights unknown or
undocumented anywhere else w/n the org.
o External Sources
Provides many facts about the company
- Fact Gathering Techniques
1. Interviews
2. Questionnaire
3. Observation
4. Document Gathering
5. Charting
Provides pictorial representation of a dimension of client’s organization
or of its activities.
Organization Chart provides facts concerning the reporting
relationships, quantities of resources, and levels of authority and
responsibility of clients. Brief narrative describing the functions and role
Data flow Diagram logical view of data flows through a system. Clearly
portrays the workings of a complex system
System Flowchart overall view of a system in terms of major elements.
Pertains to computer based info. In contrast to data flow diagram, it
specifies the physical nature of data processing and data storage
Detail flowchart graphically represents the logic of a process.
 Decision table viable alternative to a detail flowchart, since it portrays
a situation involving logic.
C. Data and Analysis Diagnosis
- Consultants needs to apply a variety of fact analysis techniques.
o Decision-Level Analysis
Purpose is depicting the varied interrelationship among the
decisions made through segment and levels of organization
Begins with interview with client managers and focuses on
resources (since resource allocation and usage are the concern of
most decisions).
o Input/Output Analysis
Inputs and outputs are described and nothing is included
concerning the process.
o Structured Analysis
Any org is comprised of number of well-defined functions, which
are made up of group of activities and focusing in such can help in
gaining a clear understanding of inputs, process and outputs of the
org.
Begin with top level and wok down to the lowest level. Upside-
down tree like function diagram.
o Less Structures Analysis
Unstructured Analysis counteract limitations on structured
approaches such as (1) difficulty in application and (2) stifling of
creativity of the consultant
Brainstorming free flow of ideas among group members. Ideas are
received w/o restriction or criticism and later sifted to find the best
Delphi Approach opinions are obtained from managers
concerning impending present problems or future conditions. And
consensus is used to arrive at decision.
- Creative Approaches to Analysis
Competitiveness is built not so much on access on data but on ability
to use it effectively
Analysis is an area where consultant can add value
Analysis Strategies:
1. Categorization
Process whereby data, facts or items are sorted into different
groups by virtue of their features.
No demands on theoretical insights
Ex. SWOT and PEST model
2. Classification
Items are sorted into different groups by external criteria rather than
arbitrary features
Derived at theoretical insights
Ex. Porter’s Generic Strategy Model
3. Numerical Analysis
Numbers are combined to understand how they relate to each
other with the use of equation or function.
Ex. Ratio
 Management Science is a technical discipline that offers a highly
sophisticated mathematical approach to support managerial
decision.
4. Association
Two things are connected in some way
5. Correlation
More precise that association. Variation in one variable occurs in
step with that of another
May be identified statistically by the measure of a correlation
coefficient
“+1” two variable follow each other perfectly in same direction
“0” two variables are totally independent
“-1” indicates that two variables follow each other perfectly but in
opposite directions
6. Causation
Explains correlation. Suggests that two variables are correlated
because there is a cause and effect link between them.
Ex. Relationship bet. Planning and performance
 Chapter 8
D. Solution and Development
- Third phase
- Steps
1. Generation of solution alternatives
First step. Approaches are
a. Pattern recognition and matching approach – emphasizes
experience especially those having very similar characteristics
to the problem solution being investigated
b. Brainstorming approach
c. SCAMPER approach – stands for Substitute, Combine, Adjust,
Magnify, Put to other uses, Eliminate and Reverse
d. Delphi approach – idea generation concept similar to
brainstorming. Experts are individually polled for ideas and ideas
are then summarized and presented to each participant,
reviews by them and establish collective responses until
stabilized then stabilized responses are summarized and
presented as refined ideas of collective experts
2. Evaluation of Solution Alternatives
To determine the most preferred solution.
Based upon situational feasibility analysis that considers all relevant
dimensions
A very important evaluation step is comparison of alternative
solutions by means of established criteria rep by qualitative and
quantitative.
Areas of consideration are: (S.T.O.L.E.)
a. Scheduling feasibility – determination if alternative solution can
be rendered operational by a specified time and date
b. Technical feasibility – concerned with adequacy of current
state of technology to meet the requirements of each solution
alternative
c. Operational feasibility – usability of each solution alternative in
the environment and the persons for whom it is intended.
d. Legal feasibility – ability of each alternative solution to meet the
legal requirements imposed by outside authorities
e. Economic feasibility or cost/benefit analysis – require
application of more commonly used models as break-even
analysis, payback, NPV, IRR, optimal capital budget or make or
buy analysis
f. Other evaluation factors such as simplicity, flexibility,
adaptability, sensitivity, and reliability.
3. Choice of preferred solution alternatives
General rule “choose alternative solution that yields the best fit or
value relative to the established criteria”
o Approaches in an Environment of Certainty
Certainty environment – there is only one event and
therefore only single outcome of each action. 100% of
occurrence, 1.0 probability
 1. Optimizing Approach – employs one of the
mathematical techniques such as linear programming,
integer programming and dynamic programming.
2. Satisficing Approach - Optimizing Approach cannot be
applied. Consist of search among the alternative solution
for any solution that acceptably satisfies desired
performance criteria
o Approaches in an Environment of Uncertainty
Uncertainty Environment – does not provide sufficient
information to assign probabilities. Reflects only personal
attitudes concerning willingness to accept risk.
1. Maximin Approach – identifying worst outcomes and
choosing alternative with greatest worst outcome.
“downside” protection to insure survival
2. Minimax Approach – computing the maximum
opportunity loss and computing the alternative that
minimizes the maximum summed-up opportunity cost.
“Regret Avoidance”
3. Maximax Approach – identifying best outcome and
choosing alternative with the greatest best outcome.
“Optimistic Attitude” accepting high degree of risk to
maximize return.
4. Rationality Approach – assumes absence of available
information, ach has an equal probability of occurrence.
Involves applying these equal probabilities to outcome
associated with respective states of nature and choosing
alternative with highest expected pay off
o Approaches in a Risk Environment
Risk Environment – probability distribution associated with the
potential states of nature
1. Expected value calculation – weighting the outcomes for
the states of nature by the probabilities of occurrence
then adding up the weighted outcomes to obtain
expected value of payoff for each solution alternative
and choosing the alternative having the maximum
expected payoff
2. Decision tree approach – provides probabilistic results,
suitable whit a series of sequential decision must be
made
3. Monte Carlo Simulation approach - form of computer
program, over one or more time periods during repeated
trials or runs
4. Other risk environment approaches – probabilistic
approach based on queuing theory and game theory.
4. Detailed development of the selected solution
Selected solution will undergo detailed design and refinement
This involves designing of ff and employment of sound design and
project management techniques.
 1. Outputs
2. Inputs
3. Conversion processes
4. Resource and data bases
5. Organization
Guidelines
1. Selected solution should be directly related to objectives
2. Maintain a comprehensive view
3. Search for all the important relationships
4. Employ systematic procedures and methodologies
- Deliverables links the Solution and Development to previous phases
- Range of recommendation consultants are expected to produce
a. Solution to specific problem
b. Educational course or training program
c. Designed system component
d. Implemented system development life cycle
e. Advice or assistance
f. Expert opinion
E. Preparation and Presentation of the report and recommended solution
- Must be presented in persuasive manner
- Guideline
1. Made orally and with audiovisual aids and a written report
2. Facts and arguments are presented in clear, concise, and
nontechnical manner
3. Do not overwhelm the client with numerous details and
unnecessary discussion
4. Be ready to describe briefly the significance of any gathered fact
and the purpose of any technique employed
5. Volunteer information concerning risks that a recommended
solution entails and difficulties of implementing
6. Interim reports and written reports should be made through out the
solution development phase
F. Implementation
*CPA should not and cannot take the responsibility for making
management and policy decisions in any MAS engagement
- CPA should
1. Evaluate the client’s capacity to develop and carry out plans
for recommended program and system
2. May recommend that client hire additional qualified personnel
- Is important and lengthy phase
- Involves following activities
1. Development of a work plan
2. Establishment of controls over the implementation activity
3. Selection and training of needed personnel
4. Installation of needed physical facilities
5. Development of standard and documentation.
6. Testing of the solution
7. Follow up and evaluation
 G. Follow-up Evaluation of the Implemented Solution
- Involves:
1. Comparison of actual performance with expected performance
2. Compare the details of implemented system with documented
design
3. Determine potential improvements
4. Determine means for improving the system
- Qualified personnel to conduct evaluation (Implementation team is
most familiar with the implemented system
3 suitable choice
1. Special audit team
2. Internal audit team that performs operational reviews
3. External team of consultants
- Not a one-time process, can be performed at regular intervals.
- 3 specific area of focus
1. Economics Review – comparison of actual and expected benefits
and cost
2. Operational Review – focuses on actual use of the implemented
system. How well they function with emphasis on inputs, error rates,
and timeliness of outputs and utilization of outputs.
3. Future Performance Review – identifies potential improvements to
the implemented system and estimates the effort required to
implement these improvements
IV. Evaluating the Engagement and Post-engagement Follow-up
- Evaluation of the Engagement
Necessary for constant improvement and refinement in the quality of
future advisory services to be achieved
Benefits are:
1. Provide direction for staff training program
2. Serve as basis for evaluating on-the-job performance of staff
personnel
3. Provide data for determining required resources for subsequent
similar engagements
4. Provide tangible evidence of quality consciousness consistent w/
other areas of CPA practice
Evaluation will formally cover
1. Proposal
2. Engagement Program
3. Work program and schedule
4. Source data and documentation
5. Reports
6. Results
- Post-engagement Follow-up
First look effective for first few months but later run into difficulty
because (1) change in operating conditions (2) design may prove to
be faulty.
It important that the CPA should provide observation of the programs
or systems for a long period to uncover deficiencies early to make
necessary modifications. Usually agree with the client either in original
agreement or in the course of the MAS work