In today's fast-paced and increasingly digital world, the ease of purchasing goods and services online has become the norm. With just a few clicks, we can compare prices and make purchases without much thought given to the underlying value of a certain product or service.
This "click-to-buy" culture, fueled by the convenience of e-commerce platforms, which accelerated during COVID-19, has permeated many aspects of our lives. Whereas previously we made relatively small purchases such as clothing and shoes that could easily be returned, now we are clicking and buying significantly larger, riskier investments, from collector cars to lavish vacation homes, based solely on written descriptions and photos.
While the "click-to-buy" trend may be suitable for acquiring tangible goods or services that carry some level of risk, it falls short when applied to assembling a project team of experts to handle hospitality development and renovation projects. The decision to engage a consultant on a project is often influenced by various factors, including fees, expertise and perceived value. However, we as individuals are inadvertently influenced by the concept of “anchoring bias,” which can stand in the way of making a well-informed decision rather than an impulsive one.
As studied by Daniel Kahneman and Amos Tversky, anchoring bias describes how individuals tend to rely heavily on the first piece of information that they encounter when making decisions, even if it is irrelevant. This often leads to skewed perceptions and suboptimal decisions, which can ultimately lead to the following downfalls on a project:
- Quality Sacrifice: Choosing to hire the consultant with the lowest apparent fee often leads to compromising the quality of the work performed. Consultants who offer their services at significantly lower fees may lack the necessary experience and resources to deliver optimal results for an owner.
- Limited Resources: Consultants with the lowest apparent fee may provide limited services or lack the flexibility to adapt to changing project requirements such as additional scope, and may not have the capacity to perform. A very small FF&E purchasing firm may have a project manager who is also acting as a project accountant with no proper “check and balance” in place.
- Hidden Costs: Choosing a consultant based solely on fee can lead to hidden costs down the line. Poor-quality work may necessitate rework, or result in subpar outcomes, ultimately costing the owner and the project more in the long run.
The studies of human behavior and psychology done by Kahneman and Tversky also focused on the concept of “loss aversion,” which suggests that individuals are more sensitive to potential losses than to equivalent gains. This bias might result in an owner opting to engage a consultant based solely on their significantly lower fee in order to avoid any perceived losses to a project. However, one must focus on the following gains that will benefit a project by choosing the more experienced, superior value consultant:
- Experience and Relationships: Consultants who provide the most value will bring a wealth of expertise and experience to the table, backed by strong purchasing power and vendor relationships. They possess specialized knowledge and skills honed through years of experience, enabling them to provide valuable solutions tailored to the needs of any given project based on the schedule, project location, budget parameters and experience in working with the other project consultants, any applicable brand standards, etc.
- Processes and Reporting: It is important to select a consultant that has optimal purchasing and accounting processes, backed by transparent and detailed reporting. A firm that understands the importance of protecting a client’s investment will ensure that no client funds are commingled with other client funds. Additionally, a strong accounting process — from the handling of sales tax payments, use tax accrual, accurate invoicing, coding assets to the general ledger and timely project close-out — is crucial to mitigating financial risk.
- Increased ROI: Value-focused consultants prioritize delivering tangible results and mitigating risks throughout the project lifecycle. Such a strategic approach and attention to detail help identify potential pitfalls early on, minimizing the likelihood of costly setbacks or displacement of revenue for an owner. Keeping in mind that the shelf life of a hotel room is one day, and if a room is out of commission for just one week longer than planned, that entire weeks’ worth of revenue is gone forever.
To overcome anchoring bias and the perception of loss aversion when deciding which firm to ultimately engage on a project, perform the proper due diligence by contacting the client and vendor references provided by each firm. This firsthand feedback can offer valuable insights into a firm’s track record.
Also, clarify that the fee presented by the consultant is their only form of compensation. Ensure that there are zero kickbacks, rebates or software subscription/user fees that could compromise the firm’s objectivity, or ultimately inflate the final compensation received by the consultant. Transparency in compensation ensures a level playing field and fosters trust between the consultant and the owner throughout the project.
Just as consumers should exercise caution when making impulsive purchases, owners must approach the process of engaging a consultant with careful consideration and due diligence. By understanding the psychological biases that influence value perception and decision-making, an owner can mitigate the underlying risks and guarantee a smooth and successful project process.
Sarah Churchill is director of business development at Benjamin West.
The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or CoStar Group and its affiliated companies. Bloggers published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to contact an editor with any questions or concern.