Posts Tagged ‘vendor management’

4 tips for selecting the right consultant

by Brian Beedle on August 16, 2010

The vendor selection process can be an arduous, time consuming, and stressful task.  Receiving quotes that run the gambit of the budgetary spectrum, deciding which product will give your company the biggest bang for the buck and wondering if saving a dollar or two is really worth the frustration of finding the “right partner”.  Every Project Manager has dealt with these issues, but keeping in mind the following points may provide some clarity and assist with narrowing the decision-making process when seeking a value-added business partner.

  1. Prepare a well defined project scope
    • Create a list of requirements. Ensure all aspects of the project are being captured.  Alignment and agreement within the organization must occur first and foremost.
    • Project Scope must outline all roles and responsibilities.
    • Establish all high level deliverable dates and the associated milestones for the project.
    • Sign-off from the Executive sponsor of the project must occur at this stage.
  2. Gather a list of recommended vendors and interview each. It is critical that the following points are addressed during the interview process to ensure that the vendor(s) have the resources available and the knowledge to deliver a final product that aligns with the project scope.
    • It is important to determine the level of experience that the consulting team exhibits.
    • Request resumes for the consultants on staff.
    • Inquire as to the specific projects these consultants have worked to qualify the expertise that exists.
      • Do they have relevant industry experience?
      • Speak to them about a “proven approach” to a similar project and how they were successful in delivering in a timely manner.
      • How many dedicated and part-time resources are available?
    • What involvement (if any) is the customer expected to contribute?
      • This is key in determining not only the resources that your organization will need to dedicate, but will also have an impact on the billable hours being allocated for the project.
      • Keep in mind, having an internal resource dedicated to the project is a great way to leverage the “hands-on” experience as a training mechanism.  In addition, these employee costs can be capitalized, reducing the expense budget.
    • Does the vendor’s Project Lead have a Business or Finance understanding or does this person strictly possess a technical background? Depending on the direct involvement of the business users, this is an important issue that needs to be considered.
    • Have a thorough understanding of how your organization is going to be billed.
      • Understand how your organization is going to be billed and at what milestones.
      • What is considered as reimbursable expenses at what percentage is this “capped”?
    • Request three business references in which the vendor has successfully implemented a similar product.  It is acceptable to ask for examples, or a letter of recommendation from former or current clients.
  3. Depending on the result of the interview stage, make a request of the vendor to develop a proof of concept. Compare this document to the original project scope
    • Does the Proof of Concept support the Project Scope and required end result defined by your organization?  Ensure that all key deliverables are being met.
    • Ensure that the timelines seem reasonable. Do they align with the deliverable dates of your organization?
    • Don’t hesitate to challenge the methodology or the approach being used by the prospective vendor.
    • Compare the approaches of the different vendors – It is important to keep in mind that you are the subject matter expert, push back on what does not seem reasonable.
  4. Negotiation
    • The lowest price does not always constitute the best solution. However, staying within an allocated budget is important. Do what is fiscally responsible for your organization; do not sacrifice quality or functionality just because a vendor comes in with a significantly lower price.  It is important to deliver a product that is going to meet the expectation of the sponsors.
    • It is important to understand what level of post-implementation support, training, and maintenance is included. This can be used as a key negotiation point.

These high-level items touch on a number of areas that should be considered during the vendor selection process.  Of course, there are a lot of other aspects that may need to be considered for your organization which go beyond the areas addressed here. Be resourceful. Don’t hurry off to start a project without doing your due diligence by investigating and selecting a firm that fits your needs. The results of a good implementation can change the way a business functions, the remnants of an implementation that is not successful can have even longer effects

Regardless of the size of your organization, someone is responsible for identifying the need of a service or product being purchased. One could therefore surmise this individual would also assume the ongoing ownership and maintenance of the product, providing vendor management oversight, right? Well, you might be surprised by the number of occasions on which the linear progression of identifying a need and satisfying the need becomes disconnected in technology organizations.

This disconnect often occurs when a business unit obtains approval to bring a new product to the company which in turn places new or expanded requirements on its Information Technology (IT) organization.  With their backs often against the wall, the IT department will “buy” the technology in order to meet required deadlines. What happens in this case is that the IT department ends up relying on the vendor to manage the technology, and often times let the supplier act as the IT point of contact for the “customer” – the internal business unit.  Well, as we know problems often start out small and later mushroom out of control.  This situation is no exception:  If the new product the company has developed becomes successful, IT will continue to buy more of the necessary technology for the business unit.  The next thing you know, the original contract for, say, $100,000 morphs into an agreement covering perhaps $5M in purchases – and since the vendor manages the technology, no clear internal owner exists.  A sure-fire recipe for big problems.

The process starts with the negotiation of the contract which typically initiates a rather ‘interesting” time within the organization.  The discussions with the supplier often times become stressful with both sides treating the negotiations as a form of competition to obtain the best price and terms.  This is further complicated with the coordination of the different groups who provide input and are required to approve on both sides of the agreement. For example, the finance departments will be called upon to review the financial impact to budgets and Return on Investment (“ROI”), while the procurement and legal departments review terms and conditions.  With all these organizational units involved, the final agreement ends up segregated into sections which are relevant to disparate groups within the organization, and in many instances no single person understands the agreement as a whole.  This issue can be avoided by identifying the organizational unit that owns and drives the negotiation of the agreement, and ensuring this unit also has the authority to represent the company and manage the supplier.  By insisting on thorough preparation and coordination regarding input and approval processes in advance, the individual or group acting in the vendor management capacity will not only secure a contract which is beneficial to the company but will also foster a positive ongoing relationship with the supplier.

With the vendor management role clearly defined, you will avoid the most costly mistake of relying on the supplier to manage the agreement for your company.  The vendor manager will not only monitor the suppliers’ performance, but will also leverage the vendor on your company’s behalf to provide service level and performance metrics along with other valued services such as expert consulting support.  The individual acting in this role in your company can carry the title of Vendor Manager and coordinate with the technology owner(s), or this role can actually be incorporated into the technology owner’s job description.  In any event, the most important role of the vendor manager is to routinely meet with the supplier to review performance and to insure the negotiated service level agreements are applicable and are being met.  For those of you who practice ITIL, you may even want to invite your suppliers to attend your problem management reviews.  Problem Management aims to resolve the root causes of incidents and thus to minimize the adverse impact of incidents and problems on business that are caused by errors within the IT infrastructure and to prevent recurrence of incidents related to these errors.   Inviting suppliers to problem management reviews was always my favorite way to make sure the supplier understood my business and was focused on working for my company.

Identifying issues with your existing contract will insure that your company is prepared when it is time to negotiate a new agreement. This is especially critical in large organizations with dedicated procurement departments.  These procurement teams are responsible for negotiating agreements on behalf of the technology owner(s), often based upon templates and procurement methodologies meant to cover everything from bed pans to mainframes.  In these circumstances, the vendor manager must be prepared to identify and educate the procurement manager on any issues with the current supplier. This is especially true with products that the procurement department might consider as “commodities”.   (Products are referred to as commodities when the product is seen as fungible or the same no matter who produces it.)  The commodities tag can sometimes prove to be a BIG mistake, especially with technology as this term is often applied incorrectly.  I once had a junior level negotiator assigned to a request for purchase because the procurement department perceived desktop computers as fungible commodities.   That quickly changed once we were able to quickly show – from trends in our monthly product performance scorecards that we had experienced a 20% failure rate of over 75,000 desktops that had been in service less than a year.  These failures not only had a negative impact on customer service but also negatively impacted IT service level metrics with a dramatic increase in help desk calls and required additional contracted field support to fix the devices.  The vendor manager was subsequently able to successfully team with the procurement department and negotiate product quality guarantee’s which the suppliers indicated had never before been included in their contracts.

Once your suppliers are being actively managed, your organization can maintain a fully mature vendor management model by monitoring the lifecycle of your agreements.  The hallmark of a mature vendor management lifecycle model is tracking when agreements are scheduled to terminate.    Being prepared for expiring contracts is critical because your vendor manager will make sure all necessary parties are prepared to enter into a negotiation and avoid delays which result in the original agreement being extended because the organization was not ready to negotiate.  This is often times the point where organizations which are not prepared will bring in outside assistance to coordinate the competitive bid process and subsequent negotiations.  If you believe your organization needs external assistance, make sure that whomever you contract with is not only negotiating terms and conditions, but also provides an on-going vendor management model after the negotiation.

Lastly, I mentioned the importance of fostering a positive relationship with your supplier.  You want your account manager and his/her team to be the envy of the organization for account relationships.   Obviously the amount of revenue an account team brings to their organization is a major component in determining their performance within their company.  However, don’t underestimate the importance that suppliers place on their representatives to maintain healthy relationships.  Just as within your organization, you want your suppliers’ account team to be proud to be working for their company and proudly say they are servicing your company because, at the end of the day, your success is a result of performance – and support – of suppliers’ product and services.

At this point you’re ready to begin managing your vendors.  As we’ve seen, a successful relationship with your suppliers begins not with the contract itself but with the management of the agreement after it has been negotiated.  If you haven’t met with your suppliers recently give them a call and initiate your vendor management process by asking for an account review.  Before the review, draft a list of items you would expect them to cover when they walk into the room and then compare your list with their presentation.  You’ll quickly be able to identify gaps in your supplier relationship and use your list as a roadmap for obtaining better pricing and services from your vendor.  The results are guaranteed not only to surprise yourself but will result in new respect from your vendor.

One of the best ways to keep Information Technology (IT) costs to a minimum is through a systematic  undertaking known as Lifecycle Management.  A successful implementation will make it easy for IT, finance and the user community to know many vital pieces of information and be able to act upon them.  The knowledge that becomes known is:

  1. What the company owns or leases (hardware, software and services)
  2. What the company uses and where it is, and
  3. Is the company getting what the vendor has promised (bang for the buck).

The main key to success is sound process.  This cannot be stressed enough, hard work in the planning and implementation stages will reap huge benefits once your lifecycle program goes into production.   The more operational groups within the company that you can include in your planning stage, without giving them say over the ultimate solution, the more useful your lifecycle program will be.  An example of this is including the finance group in the planning process.  With the participation of the finance group, the lifecycle management system can ultimately feed the company budgeting system, making the budget process more efficient.

Stage 1:  Contract Management; What does the company own and lease?

It may surprise you that many companies cannot answer the simple question: What IT assets (hardware, software and services) do you own and lease?  By being able to answer this question, costs (potentially millions of dollars depending on the size of your organization) can be saved and reallocated to other corporate initiatives.  This is achievable through weeding out expired leases, eliminating hardware maintenance that is no longer applicable and the write-off of corporate software and hardware assets that are no longer in use.

The easiest way to start getting this information is to look at the previous year’s payments – accounts payable.  This will let the person or group managing this process to see what vendors the company is doing business with.  This action should be followed up by an inventory of that file cabinet full of contacts that no one ever opens.  Once inventoried, each vendor should be contacted to make sure all agreements in place are known and copies are on file with the contract management project.  This allows the second phase of contact management to happen, building a usable database.

Ideally, the database being built will eventually be used to inform IT managers that the equipment they use is coming to the end of useful life whether owned or leased.  Secondly, on the software side, managers will be informed when annual maintenance is due, how many licenses are owned, and by tying the asset management system, talked about later in this article, how many licenses are being used.   By getting this information early, managers in all areas of operations can make informed decisions and have time to act upon them; ultimately saving money by lessening the frequency of late payments and owning what you are using and planning to use in the near future.

Stage 2:  Asset Management; What does the company use and where is it?

Knowing what your company uses and where it is located is as important as knowing what you own.  By knowing these facts, groups both within and outside of IT can more effectively budget, plan and allocate resources.  Examples of this include: 1) The data center facilities group can more accurately plan for power expenditures, floor space usage and eventual expansions of the data center environment, if they know what equipment is being used and where it is located;  2) The disaster recovery group can plan their activities more effectively when they know exactly what equipment is being used and what software and applications are running on it;  and lastly 3) By knowing what is running on servers and the percentage of usage, etc.  Equipment can run at a higher usage level and put the purchase or lease of new equipment further into the future.

For larger enterprises, it may be cost effective to hire a company to do a complete physical inventory of its IT assets.  The results of this physical inventory can be analyzed against the information acquired in the contract management activity and then analyzed against the company’s IT department’s system wide device finding software (i.e. Microsoft, HP Open system, and various other vendors).  The asset management team can then work to figure out the differences between the three systems, which should not be more than 15% of the total assets.

On the software side, there are many agent and agent-less products that can be put onto the company’s network to discover what is running on each piece of equipment the software can see.  With the data that is provided, analysis can take place between what is owned and what is being used.  You may find that through many projects over the years you now own, say, 15,000 licenses of a certain software, even though you only have 10,000 employees.  Action can be taken to cancel the annual maintenance on unused licenses and write-off the non-depreciated capital expenditure associated with the purchase of the software.  You may also find that you are under-licensed on certain software applications, so be prepared to have some expenditure offset the overall savings that will occur.

Stage 3:  Vendor Management; Are vendor promises being kept?

This portion of lifecycle management is the most subjective.  Measuring if a vendor is truly providing what they say they are is complicated.  Metrics and Key Performance Indicators (KPIs) need to be developed for each obligation each vendor has signed up for.

Example:  If a PC vendor makes the claim that your company will get 20% longer life from their product, as opposed to its competitor’s product, metrics and KPIs need to be developed so that the results can be reported on either monthly or quarterly.

Hopefully your analytics came to the conclusion that your vendor is living up to the agreement it signed, which is usually the case.  If the vendor is not living up to it obligations, there could be many reasons.  These reasons include:  1) scope of work was not completely known at time of signing, meaning that failure to live up to its obligations are partially the fault of the customer, and just as likely 2) the vendor made claims it could not live up to, just to get business .

There are many ways to report vendor management information.  I have found that the most effective way is a simple dashboard, a quartered one-page report that shows all pertinent financial, contractual, usage and service information.  Once approved by corporate powers, a scheduled meeting takes place and the findings are presented to the vendor.  If vendor is living up to contractual agreements, future strategy or other topics may be discussed.  If the vendor is not providing its obligations, a discussion of why will definitely occur, followed by ways in which improvement can be made.  This is not necessarily a bad conversation, new understanding of the relationship will definitely take place and the corporate relationship will become stronger though the process, as long as positive results ensue.

Conclusion:

The steps listed above need to be tied together, resulting in an interface which brings all the information to a usable form. This is crucial.  Once this happens, the magic starts: managers are able to make informed decisions, leased equipment is returned on time (instead of having its monthly payment made for years on end) and overall, IT costs are minimized.  The company only pays for what it is using and at the end of the day, controlling costs while providing needed services, is the name of the game.

More bang for your IT buck: Three keys to success

by Brian Superczynski on March 15, 2010

Many companies do not have the luxury of providing dedicated financial support to their Information Technology (IT) organizations, which often results in a struggle to understand IT cost drivers and savings opportunities.  This struggle has become more evident as companies increasingly rely upon effective IT to drive operational efficiencies while simultaneously expecting IT units to reduce operating costs. This paradigm often results in the CIO seeking a liaison between IT and corporate finance in order to help provide transparency of technology costs as well as to identify the value proposition of all IT services. Identifying meaningful savings and efficiencies in your IT environment begins with a partnership between the technology and financial support units.  Preparing for these conversations requires an understanding of how to build a successful partnership between IT and corporate finance – the foundation for which begins with three related key practices:

Applying traditional financial management practices with the IT disciplines of vendor and asset management.

FINANCIAL MANAGEMENT:

The key to world-class IT financial management is coupling financial processes to your technology infrastructure and the organization’s strategic technology roadmaps.  Effective financial management ensures the IT infrastructure is obtained at the most cost-effective price, while providing the organization with a deep understanding of its IT services costs.  In many instances however, the most cost-effective price may not necessarily mean the lowest price; depending upon availability requirements and other demands placed on technology.   Financial transparency must therefore exist in order for the business to understand the tradeoffs between price and performance.

VENDOR MANAGEMENT

This price and performance tradeoff was painfully evident following one organization’s switch to a well-known personal computer supplier, which was initially calculated to save the organization millions of dollars.  Not surprisingly, the finance organization was quick to identify how the new agreement would reduce expenses in the following year’s budget.  However, those savings quickly evaporated after the supplier experienced a 20% failure rate on over 100,000 devices, which had been in service for less than a year.  Obviously, managing your suppliers not only includes obtaining the best price but also monitoring the quality of the product or service being provided.  This is why continually monitoring your relationships and agreements with suppliers (and including your finance organization in this process) is often your first and best opportunity to identify operational inefficiencies and IT cost savings.  The end result will not only mean achieving better price performance from your technology assets, but also will improve the reputation of your IT organization to provide a quality product at an explainable and predictable cost.

ASSET MANAGEMENT:

Keeping your technology assets current also requires active management of these assets:   An effective asset strategy not only tracks the asset but takes into account the lifecycle of the product from procurement to eventual disposition.  For example, leasing is a common asset and treasury strategy found in IT because it frees up cash flow associated with large capital purchases.  I’ve witnessed on numerous occasions leases being subsequently bought out because the technology owner was not made aware of the lease and was not prepared to replace the technology at end of term.  These pitfalls can be easily avoided by linking asset strategies with technology roadmaps and the organization’s budgeting process.

These three practices may appear straightforward, but in order to be successful they require the constant collaboration between your finance and technology organizations.  The application of financial, vendor, and asset management methodologies will keep your IT organization on track to realizing operating efficiencies while also optimizing operating costs.

Stay tuned: Our next few posts, we (my fellow Datacenter Trust teammates and I) will delve deeper into each of these key three areas as well as other topics on IT finance.