Why Lowest Cost Is Often Not the Best Value
There is an old but still relevant saying: “The bitterness of poor quality lives on longer than the sweetness of low price.” That quote applies to a lot of things, including enterprise-wide software and business process projects.
The history of those projects (ERP/HCM/Payroll/EPM) is littered with examples of the lowest bid running into major problems. In some cases, the project is scrapped, and the vendor dismissed. In many more cases, the system goes live but the customer is forced to live with poor performance, never realizing the touted benefits of the new system. Ultimately, the project fails to deliver on the promised ROI, and the frustrated staff either lose productivity or leave. These delivery failures don’t just hurt business relationships and waste capital investments — in some cases, they also lead to lawsuits.
Lowest-Cost Bids: What Are the Risks?
Technology project bids are normally based on best value, not lowest price. But public sector managers are wonderful stewards of the taxpayer’s money and try to balance value and price. There also may be pressured to select the low bidder for a variety of reasons from a variety of sources.
Estimating complex projects is a difficult process. Vendors must submit proposals that balance resources, likely success, and risk, all while earning a profit. Some, however, attempt to cut corners and win a bid even though there is a high risk of problems. Down the line, that decision often results in things like numerous change orders, disputes over the scope of work, and changes in timelines. If vendors aren’t clear about how they’re allocating the customer’s resources, they run the risk of derailing the entire project.
Knowing some vendors cut corners, how can you figure out if an engagement will create issues down the line? Here are some questions to help you evaluate a vendor’s proposal.
Questions To Ask
- Is the scope adequate to provide value and efficiency?
- Many projects, especially Cloud applications, will require process re-design. Has the vendor included time to examine what processes work for your organization?
- Does the proposal include processes to measure ultimate success?
- Change management and customer education are both essential for successful Cloud implementation. Does the proposal clearly state the process and provide adequate resources?
- Is there an overreliance on customer resources to complete critical tasks?
- Are customer staffing commitments clearly specified?
- Has a solid governance framework been proposed?
- Are all project costs included? They can include hardware, network services, third-party software, and consulting expenses.
Points To Consider
- It’s important to realize that vendors have an advantage. They submit hundreds of proposals a year while customers infrequently select ERP software. Customers rely on them to develop a proposal that will be successful. But vendors are under competitive and financial pressure which may defeat that objective. That is why you should consider an evaluation advisor for complex projects. They are, in a sense, a fiduciary looking out for your best interest. Considering how easily issues can pop up, it may be worth the cost.
- The vendor should have direct experience in your industry. The public sector is different from commercial enterprises. They operate under different accounting rules (GASB) and often have specific laws or regulations that commercial companies don’t adhere to. Selecting a company with public sector experience will save time, money, and ensure a successful project.
- Thoroughly vet references. This sounds obvious, but the vendor with the most projects may not be the best vendor for you. Some try to secure market share at the expense of quality, while others will not take on a new project they don’t think they can successfully complete. Vendors will provide references but select only friendly voices. It’s important to speak to multiple people and thoroughly prepare questions for the references that are relevant to you.
Finally, if you went through a less-than-successful implementation, all is not lost. Metaformers offers post-implementation review services that can pinpoint areas with the highest potential for improvement. We focus on a process called “People-Driven ROI” to create value. These processes can turn a mediocre project into one that provides the success and value you originally sought.
Bob Sabo has over 40 years of experience working for government and private sector companies providing technology services to the public sector.