have been under ideal staffing situations, perhaps for a less complex scenario. Ironically, the
most successful, competent, and fast-growing
vendors are often the slowest to implement a
new client. Why? They are in such high demand that they are simply out of experienced
resources. For a fast-moving scenario, the
newer or the second-best provider may be the
best option for short-term goals.
So how do you determine ROI on a short-term investment and opportunity? These analyses should have clear benefits that quickly have
no impact if the delivery window is missed.
The investment should be correspondingly
smaller if there is a high risk of failure. The
focus of the ROI calculation is on the timing of
costs and benefits, not the discount rate.
Lastly, for these purchases, consider whether a lengthy RFP process uses up enough of the
market window or savings opportunity. Will it
increase the risk of the project by excessively
reducing the time available for delivery? In these scenarios,
a sensible procurement practice becomes a potentially catastrophic risk.
Organization transformation or development of
a new strategic capability
When building a business case for a far-reaching change that
will alter how the firm operates, developing the RFP should be
done in parallel. There are likely to be multiple scenarios and
timelines and the combination of many factors makes it difficult
to have a simple spreadsheet as is possible with the other prior
For these major initiatives, developing the ROI model is the
most critical step in securing commitment to results from internal staff. The RFP is used to secure an equivalent commitment
to delivery from the vendor.
In short, your managers and key individual contributors
should see the ROI and RFP as two sides of the same coin.
Often, in order to narrow the potential paths and outcomes
in the ROI analysis, it is useful to conduct a discovery engagement with the most promising supplier or by using a management-consulting firm with operations and technology depth in
The RFP will become much more focused and your firm
will get more relevant RFP responses to what is generally a
shorter RFP when the business case is clear. Building a good
business case means the investment will take place and all
vendors and talented staff hate losing to the “do nothing”
scenario most of all.
Determining the ROI of a project that involves procuring new
services or re-upping
for existing ones is a
necessary first step
ing how to do the
purchases with low
return on investment
because they repre-
sent a continuation
of the status quo are
really only useful
when there are sig-
exit costs or when you
are unhappy with the
and agents should
avoid complex RFPs
unless the purchase will be for a program that involves significant time and money or the development of a long-term asset
that has significant exit or ownership costs. Examining the
type of purchase or project under consideration and carefully
looking at its high level ROI before beginning the procurement
process is a best practice. ITA
Russ Bostick and Donn Vucovich are the managing partners of MVP Advisory Group, a management-consulting
firm focused on developing and executing superior strategies for business and IT.
The RFP will
focused when the
business case is
a good business
case means the
take place and
all vendors and
talented staff hate
losing to the “do
most of all.