Best value procurement is a procurement system that looks at factors other than only price, such as quality and expertise, when selecting vendors or contractors. Pascal Evertz attends the Confare Swiss CIO SUMMIT in Zurich and Be CIO in Frankfurt as a keynote speaker. For our blog we asked him about his experience with Best Value Approach (BVA) in projects in companies like Heineken, AF-KLM and Randstad. He told us, how vendors and clients have more successful projects by working together in a new way that focusses on value more than just on price.
IT-Procurement still is a demanding job – What are the things that make it so hard?
The ICT industry has struggled with performance in the last 10 years. The success rate of IT projects is very low [on time, on budget, and customer satisfaction]. This has several reasons:
- Complexity of systems.
- Vendors may lack expertise due to a lack of experience.
- Rushed projects due to pressure of meeting the business deadlines
- A non-transparent environment where the client is using management, direction and control [MDC] rather than utilizing expertise.
- Levelling of the playing field resulting in lower profits, minimized value of vendor expertise, reactive behaviour of vendors and minimum standards/expectations being turned to maximum standards by the vendors.
- Getting work is more important for vendors than doing high performance work.
- Relationships are used to minimize risk instead of high performance, motivating collusion.
The reason for failed ICT projects therefore seems to have the following similarities:
- Project Complexity.
- Misunderstanding of scope/objectives/requirements.
- Inadequate resources and skills to deliver the total delivery portfolio.
- Changing scope/objectives.
- Poor planning/estimation.
All five of the reasons seemed to be related to project complexity. On the dual side, project complexity occurs when there is a lack of project expertise. Possible solutions for the ICT project performance should address either project complexity or the lack of expertise.
The project management model which currently is being used in the IT industry is an agile project management model, using an approach that allows the starting of projects without a clear and agreed upon proposal on the final deliverable and without a simplified milestone schedule that identifies the expert vendor’s proposed plan and scope from beginning to end. Whenever cost and time is not controlled by an expert against a proposed baseline, the risk is increased.
What are the most important mistakes that are done in procuring IT?
In the low performance environment, the client/buyer utilizes management, direction and control [MDC] to minimize project risk and ensure performance. If the client/buyer is using MDC, they are the experts and are hiring vendors that need to be managed, directed and controlled. The communication/direction is in the form of minimum requirements. There is no incentive for vendors to be proactive and increase performance. It forces the client to want higher performance and the vendors to minimize performance. This ensures that all parties protect their own interests, the clients want something better for a lower cost, and the vendors deliver less using the minimum as a maximum.
Client/Buyers representatives behave as if they are experts [they give the directives and define the scope]. The value of the expert vendors is minimized, and the vendors naturally become reactive. Not efficiently and effectively identifying and utilizing an expert vendor who has a proposed plan [identified and agreed upon deliverable, and a proposed cost and time schedule, from beginning to end].
What is new in the approach to vendors, sourcing and buying infrastructure using the method “Best Value Approach”?
The Best Value Approach is an integrated procurement, risk – and project management model which uses the following revolutionary concepts when delivering IT services:
- Identifies and utilizes an expert vendor who identifies their expertise by showing high performance on previous similar projects in terms of scope, observable project characteristics high customer satisfaction and on time and on budget performance.
- Competes the vendors in terms of capability to do the proposed project using easily understood metrics.
- Allows the expert vendor to have a detailed plan from beginning to end and a simplified milestone schedule that all other stakeholders can see and observe the plan from beginning to end.
- Allows the expert vendor to track project cost and time deviation from beginning to end.
- Allows the expert vendor to communicate in terms of observable metrics that all stakeholders can identify the ongoing performance of the project.
The biggest difference between the BV and the Agile approach is that the BV approach requires an expert vendor with expertise who can see the entire project from beginning to end before the project is started. The BV approach maximizes pre-planning and planning utilizing the expertise of the expert vendor. The expert vendor must also manage the entire project and create transparency that minimizes the need for the client to understand the technical requirements of the project. The BV approach also has a structure that enforces that an expert is selected. The structure includes a selection phase and a clarification phase that forces the following actions for the expert vendor:
- The expert uses metrics to first identify the project deliverable and get consensus from all stakeholders.
- The expert has a complete plan [includes a detailed schedule, cost and a milestone schedule].
- The expert must identify, mitigate and track risk [that they do not control] including unforeseen conditions.
- The expert works backwards from the deliverable, to identify all other requirements in their project plan.
- The expert tracks all project deviations from their project plan.
- The expert creates transparency that allows the client/client to see clearly into the future to the end of the project, minimizing the need for the client to get involved in the management of the project.
Digital Transformation is a major issue for the CIO – should the CIO change his way of cooperating with vendors and solution providers?
The Best Value Approach uses simple and logical concepts to simplify the complexity of delivering IT projects. It allows the experts to create transparency to ensure that all the stakeholders can utilize the expertise of the expert vendor. It also allows the expert to use their expertise to modify the proposed plan without sacrificing time and cost. To be successful, the BVA encourages CIOs to identify and utilize expertise. If CIOs continue to do the same practices, they will continue to get the same result.
Digital Ecosystems are evolving when IT, Startups, Vendors und Business start acting in win-win situations. How can the Best Value Approach help make this happen?
The client/Buyer wants low project cost and high performance. Efficient processes create a “win-win”, which result in low project cost for the client and high profit for the vendor.
Delivering IT projects are no different than delivering any other service. The Best Value Approach is about identifying and utilizing the most expert vendors. An expert vendor can simplify projects by preplanning, communicating with stakeholders in a more simple manner. CIO’s/Buyers have to understand that they do not need the same level of expertise of the expert. It is simply not logical to tell an expert how they should do their job, as it will make them reactive and lower performance. Instead CIO’s/Buyers should minimize MDC, track their project performance by observable metrics to mitigate risk and increase performance.
All stakeholders and vendors want to do the best they can to provide a successful project. However, some stakeholders know they should be identifying and utilizing expertise, and some IT vendors are more capability than others in delivering IT systems. The BVA identifies the best value which is the highest level of expertise to deliver the expected project for the lowest cost. The old adage is that we hire people who know what they are doing to lower our cost and increase the project performance.