Hiring a consultant is an important decision for a bank.

There are many situations in which a qualified consultant, properly used, can build lasting value. Conversely, the wrong consultant can cause persistent headaches for a bank, its customers, its shareholders, and - because of the interdependent nature of the industry - other banks.

There are no dollar thresholds to determine when a consultant should be used. The chief consideration should be whether the consultant will add sufficient value when compared with other uses of the bank's time and money.

Usually a consultant is an objective outsider who can make recommendations, carry out projects, or confirm results. He or she does a situation analysis and draws conclusions based on internal data, external research, and experience.

A consultant can also manage projects to achieve previously set objectives and meet timetables. Finally, an outsider can validate the recommendations or performance of others.

Before a consultant arrives, management should establish a strategy that governs the area in which the consultant will be working. Otherwise, the bank runs the risk of the consultant's recommendations becoming the de facto business strategy.

If, for example, the bank has no explicit pricing strategy, a consultant may recommend individual changes that inadvertently position the bank as a premium pricer, a position its products may not support.

Once a strategy is in place, management can decide which internal data should be made available to the consultant, how long the relationship should last, and when reports should be produced.

The consultant should not be expected to perform miracles. If internal data systems are inadequate or faulty, reports to management will be of questionable value.

Another area of preparation is employee trust. Employees are sometimes suspicious of consultants because it means change may be coming. Whenever possible, management should explain the consultant's role to employees and solicit employees' comments.

Management should never mislead employees about the possible outcome of a project. If the truth cannot be revealed, it is best to say nothing.

Engaging a consultant is like hiring an employee, so it is best to be thorough. The veracity of the consultant's resume should be carefully tested, and references should be checked. Conclusions reached on previous assignments should be examined and challenged.

The candidate might have consulted with a Fortune 500 company or a large financial institution, but with which division or subgroup? How big was the subgroup? What was the length, nature, and outcome of the assignment?

During interviews, a candidate should exhibit technical expertise, good communication skills, and ask a lot of questions.

Employees sometimes complain that consultants' recommendations are taken as gospel while their own are inspected under a microscope. They may have a point.

Though consultants can often approach situations more objectively, they are by no means infallible. Management should scrutinize consultants' conclusions as closely as they do those of employees.

If a recommendation seems unconvincing or fails to support management's strategy, the consultant should address the concern logically and on its own merits, preferably with data. A detailed competitive analysis is more valuable than anecdotal observations about industry practices that may not be valid in the bank's marketplace.

Recommendations should be stress-tested. Management must understand their potential impact on expenses, revenues, product quality, customers, and employees.

Finally, the consultant should design ways for management to monitor results after his or her job is completed. If possible, management should learn how to employ the methodology on its own, reducing the need for the consultant's help in the future.

Bank management is responsible for the success or failure of a consultant's recommendations. The consultant is only a hired hand whose work is capable of creating significant value or untold woe. If management is in any way troubled by the nature or timing of a recommended initiative, it should not adopt that initiative until its concerns have been completely addressed. Mr. Lahoda is a senior vice president at Summit Bank in Cranford, N.J. http://www.americanbanker.com

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