It’s actually the complexity of SOW projects that make them ideal for vendor management systems.
By Peter Parks
Many organizations believe that vendor management systems (VMS) are only appropriate for the management of straight time-and-material engagements, and that statements of work (SOW) are just too complex for the software to handle.
SOWs are often viewed as in a different class, with many variables and higher fees. This is due to the fact that SOW projects can be billed in many different ways: by milestone, at a fixed fee, or hourly rates.
Ironically, it is some of these very qualities that make SOW spend an ideal and sensible target for a VMS. If asked in the abstract, most project or purchasing managers would tell you that consistency in process is a good thing. They might also tell you that the more costly the project, the more important it is for the organization to be aware of the details and have maximum visibility.
When properly implemented, a VMS offers many things to SOW management: compliance, consistency, efficiency, visibility, and auditability. Is consistency of process an undesirable thing for SOW spend? Does the purchasing manager want an SOW presented to a vendor that has not yet been vetted by the procurement or contracts team? When analyzing services spend, does a CFO want to ignore 20 percent, 40 percent, or even 70 percent of it just because it is on an SOW? Clearly no. By keeping SOW-based spend out of the system, organizations lose these benefits for what is often the majority of its services spend.
Adding Intelligent Structure to SOW
Without a platform like a VMS, most organizations have little consistency in the process around SOW engagements. Some may track the various categories of contractors manually through a spreadsheet, but that can open up an organization to considerable risk of inconsistency.
The inherent structure of a VMS includes categories of services along with specific services or project types, highly configurable requisition forms, and approval workflows that can be triggered by one or multiple data points in the project plan. A well-implemented VMS guides the project manager down a logical path, and once the correct template is selected, the manager will be prompted for appropriate details. These features help ensure that SOWs are crafted properly, in compliance with corporate policy.
For example, marketing might require five templates, depending on the type of SOW. Three could be milestone-based, while two others are fixed price. IT projects might use teams of individuals, with each role filled at a pre-negotiated rate. Once the template is complete, the VMS will intelligently route it for approval (if required) and then connect it to the regional vendors approved to provide the outlined services. For auditing, you could configure the system to enable the approved vendor to enter the requisitions for pure tracking purposes, with the owning manager (an internal customer resource) required to approve all requests for payment.
This will help ensure compliance and consistency in the implementation of SOWs.
The system will intelligently apply the correct templates and workflows for users. For those companies that are using a generic template for all SOWs, this offers more accurate detail in the requests going out to suppliers, and ultimately in your SOWs because the system will recognize the types of services being requested and guide the user to capture relevant details. For those who are managing multiple service- specific templates, it will translate into greater efficiency, a reduction in improper classifications, and enhanced visibility and auditability.
Keeping Costs in Line
Cost containment is often a consideration when enlisting a VMS, and for many companies it is at the top of the list. A VMS provides many ways to control costs.
Organizations often have negotiated rates for SOW-type services that are sitting in a directory on a drive stored with vendor master services agreements. A manager engaging a vendor for those services may have no idea that these negotiated rates exist, and even if he does, may waste valuable time finding them and matching them to the services he is requesting.
A VMS will drive users to the correct services and the templates that contain the current pricing. This not only makes the managers more efficient but also enforces those rates when vendors submit requests for payment. This eliminates overcharging by vendors who agree to one rate but then bill for a higher one.
The VMS will also give you the ability to engage with multiple vendors in a competitive bidding exercise. While some companies may try this without a VMS, it is a manually intensive process that is complicated by disparate proposal formats from vendors. Within the VMS, organizations can define required format (milestone, fixed fee, roles/rates/ hours, etc.), which enables managers to do a true apples-to- apples comparison when multiple proposals are submitted by competing vendors. By putting vendors in a system, organizations are making the competitive nature of the proposal process clear, which drives better pricing.
Because the VMS enforces the terms of the agreement, including length of engagement and budget, change orders can be routed for approval. Throughout the process, they are subject to the contractually agreed terms, including rates. The VMS can generate electronic invoices that are bound by the terms of the SOW in a uniform format, which reduces invoice receipt and processing costs.
Creating a Complete Picture
In order for an organization to effectively manage services spend, it must have full visibility to that spend. SOW—even more so than traditional contingent labor—demands a powerful, customizable reporting and business intelligence (BI) solution. SOW projects have greater variation in format and delivery than standard time-and-materials, contingent labor engagements. As opposed to traditional contract workers filling temporary roles common to a department, these are often one-off projects that demand workers with very specific expertise and a different analytical approach. No set of off-the-shelf reports will give any company what it needs to effectively manage and optimize SOW spend.
How useful are eyeglass frames with only one lens? If you’re missing half of your field of vision, you can’t possibly see everything that is going on around you and you run the risk of injury. The same principles apply to an organization’s services spend. If SOW data is absent from the VMS, the company will be blind to it and unable to factor it into critical business decisions. Are managers effectively negotiating with suppliers? How much are change orders affecting delivery timelines and exploding costs? How many SOWs are actually misclassified time-and-materials workers?
It is difficult to refute the necessity of effective BI in the management of services spend. To achieve the visibility a BI solution delivers, you must capture that spend in a robust system that manages the end-to-end process of services procurement. Whether those services are rendered according to a time-and-material billing structure (as with traditional contingent labor) or on an SOW makes no difference.
Choosing the Right VMS
When considering a VMS to manage your SOW spend, keep in mind that not all tools are created equal, and not every VMS can handle the aspects of SOW listed here. It is easy to assume that—based on an experience with an older or lesser- featured system—SOW spend is far too complicated for a VMS’s capabilities. Take a look at today’s technology to find dynamic options that enable organizations to manage services spend through a single solution. The benefits that come from the ability to closely manage SOW spend and report on key deliverables are invaluable, and get organizations one step closer to complete program management.
Peter Parks is chief operating officer of Provade.

Tags: Enabling Technology, MSP / Contingent Labor, Talent Acquisition

Related Articles