Vendor Management - Ensuring Value for Money and Managing Risk


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Effective Vendor Management will help ensure that you know the answers to questions that ensure that you are managing the Vendor appropriately to secure a positive outcome.

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Vendor Management - Ensuring Value for Money and Managing Risk

  1. 1. Vendor Management Ensuring Value for Money and Managing Risk At least 15% of the total outsourcing contract value is at risk if the deal is not well managed. Furthermore, the majority of both buyers and providers believe that 80% or more of the contract value is at risk*. *From a 2006 study by US-based consultancy Vantage Partners working in conjunction with Cutter Consortium, BT’s Vital Vision Program and EquaTerra. Research indicates that many clients are not fully satisfied with the outcomes of their outsourced arrangements. This does not necessarily mean that they intend to terminate, but there may be questions around:  Is the contract meeting my original business case outcomes?  Am I paying more than I expected due to “additional costs”?  Am I managing risk appropriately?  Is my Vendor focussing on the contract rather than the relationship?  Am I managing my multi vendors appropriately?  Is the contract still matched to my needs?  How well am I managing my contracts at all stages of their lifecycle  Are people receiving the quality of service I expected? Effective Vendor Management will help ensure that you know the answers to all of the above, and ensure that you are managing the Vendor appropriately to secure a positive outcome.Cherub Consulting Group Pty
  2. 2. Value for MoneyEnsuring consistent Value for Money is an ongoing challenge for organisations with externalVendors.Effective Vendor management can help you manage challenges such as: Vendors seeking additional costs for out of scope work  Do you know that the costs are outside the terms of the contract?  Do you know how to contain costs whilst at the same time ensuring maximum service delivery? Are you getting everything you paid for in the contract?  Do you know all the services to be provided under the contract, and are they all being delivered?  Do you have internal staff supporting, or delivering entirely, services you expected the Vendor to deliver? Are you getting value for money?  Is your contract the mechanism to achieve maximum value for money for the services?  Can the Vendor change the way services are provided to improve your value for money?  How do you ensure that you are consistently getting value for money during the life of the contract?RiskOf the ‘at risk’ component CHERUB’s experience tells us that: 20% - 30% is due to a poorly constructed contract that makes it difficult for either party to be effective. 20% - 30% is due to under-performance of the service provider. 40% - 60% is due to ineffective Vendor management – on either one or both sides of the agreement .Vendor Management, carried out effectively, can have a significant influence in managing andmitigating risk with external Vendors.Vendor Management will ensure ongoing monitoring and evaluation of Vendor service delivery tothe organisation. Failure in service delivery is a key risk to any organisation, but this does not needto be catastrophic. It could be such issues as: Repeated operational service failures of a minor nature, that ultimately have a major impact on users. A break down in communication resulting in mis-understandings (by both parties) on emerging problems or issues. User perceptions (real or otherwise) of poor service delivery from the Vendor. Vendor not delivering all requirements of the contract. This is not always a deliberate act by the Vendor. Sometimes requirements can be overlooked, by both parties.These issues, and others, if not managed, can become a risk to the contract. They can often bereadily addressed, and solved through effective Vendor Management. 2|P a g e
  3. 3. Vendor Management CLG Vendor Management ModelThe CHERUB Vendor ManagementModel recognises two distinct Servicefunctions: Performance Management Governance; and Championing Relationship Service Service Management Governance Innovation Management Function Service Management FunctionTogether, these two functions deliver Contract Service Financiala comprehensive Vendor Management Administration & Risk Management Managementcapability.Governance is Build the framework and Guidelines, Service Management is ‘conducting VendorManagement against Governance’.Vendor Management is complex in a single Client:Vendor relationship. It is highly complex in aClient:Multi Vendor relationship. Multi Vendor relationships are increasingly common, andeffective Vendor Management has a major role in ensuring that Value for Money and Risk aremanaged in this environment.GovernanceIn our model, the Governance Function addresses the delineation of decision rights andaccountabilities in respect of contracted services. Excellent sourcing Governance provides andensures ongoing: Accountability Transparency Fairness and balance Legality Probity and adherence to ethical standards of practice GovernanceThe Governance Function is comprised of: Function Governance committee structures Roles and responsibilities Policies and procedures Decision authorities Controls and checkpointsThese elements are the engine of Governance excellence.Good Governance ensures that legal and ethical standards are maintained in respect of contractedservices and that the decisions made in respect of the services are transparent, auditable, fair, andin the best interests of the organisation. 3|P a g e
  4. 4. Poor Governance opens the door to inappropriate contractual arrangements.At its worst, poor Governance can enable fraud and corruption to take place. This can place thereputation of an organisation at risk; result in breaches of directors duties; and may even lead toexpensive civil or criminal prosecutions.Service Management Performance ManagementIn our model, the Service Management Function iscomprised of five primary capabilities: Service Performance Management Championing Relationship Service Management Relationship Management Innovation Service Financial Management Contract Administration & Risk Management Contract Championing Service Innovation Administration Financial & Risk Management ManagementThese five capabilities are the engine of ServiceManagement excellence.Service Performance Management Process of actively monitoring, measuring, reporting and providing feedback on the quality, timeliness and levels of the contracted services.Relationship Management Actively working to foster and maintain a harmonious, collaborative and cooperative working culture between your people and those of the service provider. Actively working to bring the two parties together and encourage the participants to work as a single team.Service Financial Management Ensuring the smooth and timely flow of quotations, statements, invoices, payments and remittance advices for services rendered by the provider. If you recharge the business units for services they consume, the financial management function of sourcing management may also be responsible for supervision of that recharge process.Contract Administration & Risk Management Controlling and supervising the maintenance and execution of the agreement in accordance with the contract terms and conditions; including compliance monitoring and reporting. Managing operational and contractual risk. The function also embraces negotiating, documenting and communicating any changes to contract sections such as statements of works, agreed service levels, financial arrangements, contract party responsibilities and general contract terms and conditions that may be required during the life of the agreement.Championing Service Innovation Recognising and seizing opportunities for enhancing the efficiency and effectiveness of contracted services that changing circumstances may throw forth. 4|P a g e
  5. 5.  Encouraging and facilitating others, be they persons in your enterprise or persons from your service provider, to be continually on the lookout for such opportunities and to bring ideas to the table.The five capabilities of Service Management enable you to mitigate the risk, and when combinedwith effective Governance function, realise your objectives whilst ensuring standards of probityand ethics are maintained. Business Objectives Sourcing Objectives Deal-specific Governance Objectives FunctionMulti Vendor ManagementA major challenge facing clients is“how to ensure that your multiple MVIvendors will co-operate effectivelyand efficiently with each other whendelivering service to your users”. An Vendor 2important approach to managingmultiple, inter-related vendors is to Vendor 1 Vendor 3 Service Deliveryimplement a Multi Vendor Interfacemodel. This model must recognisethat whilst the external vendors donthave contracts with each otherregarding the provision of services to Clientyou, the client, they do have acontract directly with you.The Multi Vendor Interface (MVI) acts like an umbrella over multiple Vendors, providing them witha common framework within which to operate when providing services to the client. 5|P a g e
  6. 6. Contract Life CycleThe role of Vendor Management, and indeed other stakeholders in the organisation supportingVendor Management, will change during the various contract lifecycle stages. It is crucial tounderstand the stage of the contract lifecycle your contracts are in. Contract expiry point Renewal Requirement Procurement Execution Revision Rectification Potential contract termination point Potential contract termination pointContracts can be considered to have three primary stages (Requirements, Procurement andExecution), plus three status conditions as an extension of the Execution stage (Renewal, Revisionand Rectification).Vendor Management, and other stakeholders, play differing roles at the various contract lifecyclestages. If these roles are not carried out properly, the ultimate effect can lead to userdissatisfaction, or worse still, contract failure. CHERUB has a robust, proven approach to help clients manage Value for Money and Risk with external Vendors. We know that Vendor Management is a crucial discipline that organisations must embed to ensure they are achieving maximum benefit from external Vendor relationships. 6|P a g e
  7. 7. CHERUB is a specialist advisory and consulting firm that brings togethera rich heritage of experience and expertise in business and ICTmanagement. Our clients rely on us to deliver solutions that address their complex and challenging issues. We are about practical solutions – combining specialist skills in Governance, strategy, performance management, sourcing and organisational change to make a real difference for our clients. Success for us is measured by our clients’ success. We pride ourselves on delivering real world outcomes and value-for-money.We have significant capability and experience in helping clients with: Sourcing and Selection, including advice and support through the entire sourcing lifecycle of Strategy, Go-to-market, Evaluation & Selection, Negotiation support. Vendor Management, including Governance and Service Management. Sourcing Price Benchmarking Strategic Planning, including Business Strategy, IT Strategy, Sourcing Strategy. Program and Portfolio Management, including complete lifecycle program and portfolio management support. Our name stands out...... but its our people you will remember For further information please contact us on 7|P a g e