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/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 was scrapped, and the vendor dismissed. In many more cases, the system went live but the customer had to live with poor performance never realizing the expected benefits of the new system. Lawsuits have occurred. Staff frustration is often a major result with people leaving or being much less productive than they could be. Ultimately, the project fails to deliver on the promised ROI.

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 pressure to select the low bidder for a variety of reasons from a variety of sources. 

Estimating complex projects is a difficult process. All vendors must balance submitting 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. That action manifests itself in things like; numerous change orders, disputes over what is included in the scope of work, changes in timelines etc. Not being clear about what customer resources must be committed at what level are common. 

Other issues get to the heart of what makes a project successful...

• 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 a process to measure ultimate success?
• Change management and customer education are both essential for a successful Cloud implementation. Does the proposal clearly state the process and provide adequate resources?
• Is there an over-reliance 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 consultant 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 interests. It’s more money but is often worth it. 
• 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 not found in commercial companies. 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 the best vendor for you. Some try to secure market share at the expense of quality. 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 (1) speak to multiple people and (2) thoroughly prepare questions for the reference that are relevant to you. 
• Go beyond the provided references. Speak to your peers or relevant professional groups about their experiences. 

Finally, If you went through a less than successful implementation, all is not lost. Meta offers, post implementation review services that can pinpoint areas that will result in great improvements. We focus on a process called “People Driven ROI” to drive 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 or for private sector companies providing technology services to the public sector.