Avasant - Outsourcing Vendor Selection Webinar

Confidential - Not For Distribution

Strategic Advisorsfor the Global Economy

Outsourcing Vendor Selection Best Practices

April 5, 2011


Topics

Avasant Background

Vendor Selection - Avasant Key Lessons Learned

Sourcing Lifecycle Overview

Overview of Sourcing Strategy and Its Impact on the Vendor Selection Process

Outsourcing Vendor Selection Steps and Best Practices

Q&A


Avasant Background

Based in Los Angeles, California, Avasant experts have performed over 1,000 engagements since2001 across 40+ countries within three primary disciplines: Enterprise Optimization, SourcingAdvisory and Globalization Advisory services

Avasant Headquarters

Avasant Offices & Client Locations

Enterprise Optimization – Avasant assistsorganizations with managing critical internal IT andOperations initiatives to drive efficiency andeffectiveness of service delivery, capabilities acquisitionand optimal cost savings

Sourcing Advisory – Avasant assists public andprivate sector clients with navigating the complextransaction lifecycle of securing critical IT , Operationsand Analytics managed services from global Tier 1 – 3service providers by leveraging best practice contracts,service level frameworks and financial analysis

Globalization Advisory – Avasant assists thegovernments and the supporting provider ecosystem ofemerging markets with targeted economic developmentsolutions designed to foster job growth, education,policy optimization, infrastructure development andglobal market awareness

Enterprise Optimization

Services

Sourcing Advisory Services

Globalization Advisory Services


IAOP World’s Best - Avasant has also been the recipient of severalawards for excellence in Management Consulting and SourcingAdvisory. Avasant has been designated among the “World’s BestOutsourcing Advisors” by the International Association ofOutsourcing Professionals (IAOP) in 2009, 2010 and for 2011.

Avasant Background (cont’d)

Within Avasant’s primary disciplines: Enterprise Optimization, Sourcing Advisory andGlobalization Advisory; are comprehensive solutions sets which have been hailed across theindustry in recent years

Avasant Ranks as the #1 Global

Sourcing Advisor for BPO and as a

TOP Ranked ITO Advisor . . .

1. Avasant

2. Hackett Group

3. Nelson Hall

4. Everest Group

5. Gartner

6. PricewaterhouseCoopers

7. TPI

8. PA Consulting

9. KPMG

10. McKinsey

1. Avasant 1. Avasant

2. neoIT

3. TBI

4. Equaterra

5. TPI

6. NelsonHall

7. PA Consulting

8. PricewaterhouseCoopers

9. AT Kearney

10. Global Equations

1. Avasant

20092008


Avasant Background (cont’d)

Underlying comprehensive Avasant Solutions are industry-facing experts, proprietary tools andbest practices methodologies steeped in requisite IT, Operations & Analytics domain knowledge

Sourcing Advisory Services

IT Operations & Business Processes Research & Analytics

o IT Help Desk

o Desktop

Support

o Data Center

Operations

o Server &

Storage

Management

o Network Ops

o Voice Services

o Application

Development

o Application

Maintenance

o ERP Systems

o Co-Location

o Source to Pay

o Sourcing

Support

o Supplier

Research

o Supplier

Training

o Contract Mgt.

o Market

Intelligence

o Procurement

Analytics

o Spend

Analysis

o Performance

Reporting

o Procure to Pay

o Order to Cash

o Record to

Report

o AP/AR

o Collections

o Fixed Assets

o Treasury

o Cash Mgt.

o Financial

Planning

o Analytics

o Tax &

Compliance

o Expense Mgt.

o Recruitment

o Compensation

o Performance

Evaluation

Management

o Workforce

Management

o Benefits

Administration

o Training

o Payroll

o Employee Data

Management

o Travel

Management

o Customer

Service

o Customer

Relations

o Customer

Acquisition

o Operations

Support

o CRM Support

o Outbound

Telemarketing

o Specialty Help

Desk

o eCommerce

o Forecasting

o Sales &

Operations

Planning

o Capacity &

Demand

Planning

o Sequencing

& Scheduling

o Distribution

Planning

o Logistics &

Transport

o Data

Management

o Business

Intelligence

o Market

Research

o Insurance

o Financial

Services

o Industry

Analytics

o Consumer

Goods

Analytics

o Marketing

Support

o Law Firm Back

Office

o Corporate

Legal

o Document

Review

o Intellectual

Property

o Contract

Management

o Compliance &

Regulatory

Management

Finance &Accounting

HRCustomer

ManagementSupply Chain

& LogisticsIT

KnowledgeProcessing

LegalProcessing

Procurement

End-to-End Solution Lifecycle Management

Strategy Development

Transition & Transformation Management

Transaction Management

Risk Management

ChangeManagement

Enterprise Optimization Services

EnergyEngineering & Construction

Financial Services

Life Sciences Manufacturing High Technology RetailPublic Sector

Industry Focus & Expertise


Vendor Selection - Avasant Key Lessons Learned

The sourcing lifecycle steps of strategy, vendor selection, transition, ongoing management must be tightly integrated

The vendor selection process begins with a well defined sourcing strategy

The vendor selection process must address all expectations of the future client/vendor relationship (services,

SLAs, legal and regulatory requirements, level of scope flexibility etc.)

The vendor selection process should be as interactive as possible

There is an increasing number of vendors and services solutions but the fundamentals of vendor selection remain the same


The recommendations and best practices covered in this Webinar are based on Avasant’s comprehensive sourcing methodology that has supported cross-industry operations and IT initiatives such as Shared Services, Consolidation, Transformation or Managed Services. An outsourcing approach that is comprehensive and that addresses the full sourcing lifecycle in an integrated way helps to ensure long-term successful vendor/client relationships.

Sourcing Advisory ServicesFull Lifecycle Methodology

SHARED SERVICES &

CONSOLIDATIONPLANNING

DEVELOPCHARTER &

ORG MODEL

INITIATE MANDATE &

PROGRAM FRAMEWORK

DETERMINE TARGET

PROCESSES & ACTIVITIES

DEFINE STAFFING

MODEL & POSITIONS

IDENTIFY TECHNOLOGY

ENABLEMENT REQS

VERIFY FUNDING &

FINANCIAL DISCIPLINE

CREATE METRICS &

PERF MGMT DISCIPLINE

RATIFY MODEL &

EXECUTION ROADMAP

PHASE 2: PREPARATION

PHASE 3: IMPLEMENTATION AND MANAGEMENT

GATHER INFORMATION

& STRATEGY DRIVERS

CONFIRM TARGET

SCENARIOS &

OPPORTUNITIES

ANALYZE OPERATIONS,

MANAGEMENT &

TECHNOLOGY

DEVELOP COMPARATIVE

FINANCIAL MODEL

COMPARE TARGET

SCENARIOS & ANALYZE

RISKS

FINALIZE SERVICE

DELIVERY STRATEGY

DEVELOP SERVICE

STRATEGY ROADMAP

PHASE 1: STRATEGY

ASSESS MARKET

MATURITY & SERVICES

FIT

SOURCING TRANSACTION

EXECUTION

CONDUCT PROVIDER

MARKET SCAN

CONFIRM STRATEGY &

COLLECT BASELINE

REQS

PREPARE SOWs,

CONTRACT TERMS & KEY

SCHEDULES

PREPARE RFP BID PACKAGE

& SCORING MODEL

MANAGE PROVIDER

SELECTION PROCESS

FACILITATE DUE

DILIGENCE

PREPARE NEGOTIATION

STRATEGY

NEGOTIATE FINAL

CONTRACT TO

EXECUTION

RFP RELEASE GATE CONTRACT APPROVAL GATE

FACILITATE RISK &

CHANGE MANAGEMENT

DEVELOP DETAILED

TRANSITION /EXECUTION

PLAN

VALIDATE CRITICAL

DELIVERBLES & MILESTNS

VERIFY PERFORMANCE

MEASURMENT & REPORTING

VERIFY FINANCIAL

PROCESSES & BILLING

DEFINE SERVICES

MGMT & GOVERNANCE

CONFIGURE

AvaSenseTM

SUPPORT

TOOL

PERFORM SERVICES

MGMT HEALTH

CHECKS

IMPLEMENTATION & TRANSITION SUPPORT SERVICES MANAGEMENT

CREATE INITIATIVE

PROGRAM OFFICE

MGT

CHKPT



Outsourcing Vendor Selection

Best Practices

Overview of Sourcing Strategy and Its Impact on

the Vendor Selection Process


Sourcing Strategy OverviewGather Information & Strategy Drivers andConfirm Target Scenarios & Benefits

Reduce cost

Reduce operational risk and focus on core competencies

Deliver services in new regions

Speed up time to market

Reduce geographical risk

Transform how services are delivered

What are the key strategic drivers that will guide the sourcing strategy and ultimately the field of vendors that will participate in the vendor selection process? For example:

PHASE1:SOURCING STRATEGY

CONFIRM TARGET

SCENARIOS & BENEFITS

GATHER INOFRMATION

& STRATEGY DRIVERS

DEVELOP COMPARATIVE

FINANCIAL MODEL

ANALYZE OPERATIONS

MANAGEMENT &

TECHNOLOGY

ASSESS MARKET

MATURITY & SERVICES

FIT

COMPARE TARGET

SCENARIOS & ANALYZE

RISK

FINALIZE SERVICE

DELIVERY STRATEGY

DEVELOP SERVICE

STRATEGY ROADMAP

Based on the strategic drivers what service models are available and are there vendors in the marketplace that support each model? For example:

Shared services

Managed services

SaaS, public cloud, private cloud services

Single vendor/multiple vendors


What is our cost baseline that will be used to compare vendor proposed costs? What is the potential market cost for each plausible sourcing scenario?


CONFIRM TARGET


GATHER INOFRMATION

& STRATEGY DRIVERS

DEVELOP COMPARATIVE

FINANCIAL MODEL

ANALYZE OPERATIONS

MANAGEMENT &

TECHNOLOGY

ASSESS MARKET

MATURITY & SERVICES

FIT

COMPARE TARGET

SCENARIOS & ANALYZE

RISK

FINALIZE SERVICE

DELIVERY STRATEGY

DEVELOP SERVICE

STRATEGY ROADMAP

Sourcing Strategy Overview Develop Comparative Financial Model

Outsource Scenario Capital Year 1 Year 2 Year 3 Year 4 Year 5 5-Year Total

Total Vendor Charges 130,000$ 1,848,180$ 1,918,800$ 2,353,800$ 2,693,400$ 2,863,800$ 11,677,980$

Total Retained Operation Expenses -$ 2,895,792$ 3,000,000$ 3,100,000$ 3,300,000$ 3,500,000$ 15,795,792$

Vendor Management Function 92,409$ 95,940$ 117,690$ 134,670$ 143,190$ 583,899$

Total Expenses 4,836,381$ 5,014,740$ 5,571,490$ 6,128,070$ 6,506,990$ 28,057,671$

Income Taxes Paid (1,257,459)$ (523,832)$ (642,587)$ (735,298)$ (781,817)$ (3,940,994)$

Total Expenses (After-Tax) 3,578,922$ 1,490,908$ 1,828,903$ 2,092,772$ 2,225,173$ 11,216,677$

Operations Cash Flow for Argo (3,578,922)$ (1,490,908)$ (1,828,903)$ (2,092,772)$ (2,225,173)$ (11,216,677)$

Non-Cash Expenses

Depreciation 424,334$ 600,000$ 600,000$ 600,000$ 600,000$ 2,824,334$

Capital Paid 130,000$ 130,000$

Net Cash Flow (After-Tax) 130,000$ (3,154,588)$ (1,490,908)$ (1,828,903)$ (2,092,772)$ (2,225,173)$ (10,662,343)$

NPV ($9,525,413)

$7,487$6,706

$5,829

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

An

nu

al $000's

Current Cost Market Price Mkt w/Max

Offshore

Leverage

Cost / Pricing Scenarios

Cost / Pricing Comparison - Total

$26

$24

$22

$20

$18

$16

Client Base Case W/O Change

Stradling Projected Pricing

Service Provider “X” Pricing

Service Provider “Y” Pricing

Service Provider “Z” Pricing

2008 2009 2010 2011 2012

$ 22.4

$ 19.5

$ 20.2

$ 19.2

$ 18.3

$ 23.4

$ 19.8

$ 20.2

$ 16.2

$ 16.7

$ 24.5

$ 20.0

$ 17.8

$ 15.0

$ 15.4

$ 25.8

$ 20.3

$ 16.6

$ 14.2

$ 15.2

$ 27.1

$ 20.5

$ 16.2

$ 13.6

$ 15.5

ProjectedSavings

(25% - 37%)

Totals

$123.2

$100.1

$ 78.2

$ 91.0

$14

$28

$12

$ 81.1

Client Base Case

Range of Actual

Savings

(15% - 18%)

Outsource Scenario Capital Year 1 Year 2 Year 3 Year 4 Year 5 5-Year Total

Total Vendor Charges 130,000$ 1,848,180$ 1,918,800$ 2,353,800$ 2,693,400$ 2,863,800$ 11,677,980$

Total Retained Operation Expenses -$ 2,895,792$ 3,000,000$ 3,100,000$ 3,300,000$ 3,500,000$ 15,795,792$

Vendor Management Function 92,409$ 95,940$ 117,690$ 134,670$ 143,190$ 583,899$

Total Expenses 4,836,381$ 5,014,740$ 5,571,490$ 6,128,070$ 6,506,990$ 28,057,671$

Income Taxes Paid (1,257,459)$ (523,832)$ (642,587)$ (735,298)$ (781,817)$ (3,940,994)$

Total Expenses (After-Tax) 3,578,922$ 1,490,908$ 1,828,903$ 2,092,772$ 2,225,173$ 11,216,677$

Operations Cash Flow for Argo (3,578,922)$ (1,490,908)$ (1,828,903)$ (2,092,772)$ (2,225,173)$ (11,216,677)$

Non-Cash Expenses

Depreciation 424,334$ 600,000$ 600,000$ 600,000$ 600,000$ 2,824,334$

Capital Paid 130,000$ 130,000$

Net Cash Flow (After-Tax) 130,000$ (3,154,588)$ (1,490,908)$ (1,828,903)$ (2,092,772)$ (2,225,173)$ (10,662,343)$

NPV ($9,525,413)

$7,487$6,706

$5,829

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

An

nu

al $000's

Current Cost Market Price Mkt w/Max

Offshore

Leverage

Cost / Pricing Scenarios

Cost / Pricing Comparison - Total

$26

$24

$22

$20

$18

$16

Client Base Case W/O Change

Stradling Projected Pricing

Service Provider “X” Pricing

Service Provider “Y” Pricing

Service Provider “Z” Pricing

2008 2009 2010 2011 2012

$ 22.4

$ 19.5

$ 20.2

$ 19.2

$ 18.3

$ 23.4

$ 19.8

$ 20.2

$ 16.2

$ 16.7

$ 24.5

$ 20.0

$ 17.8

$ 15.0

$ 15.4

$ 25.8

$ 20.3

$ 16.6

$ 14.2

$ 15.2

$ 27.1

$ 20.5

$ 16.2

$ 13.6

$ 15.5

ProjectedSavings

(25% - 37%)

Totals

$123.2

$100.1

$ 78.2

$ 91.0

$14

$28

$12

$ 81.1

Client Base Case

Range of Actual

Savings

(15% - 18%)


What is the baseline of our operational capabilities, management capabilities and technology? Where do we want to go, what is the gap, and what will be required of us and our vendor(s) to help us get there?


CONFIRM TARGET


GATHER INOFRMATION

& STRATEGY DRIVERS

DEVELOP COMPARATIVE

FINANCIAL MODEL

ANALYZE OPERATIONS

MANAGEMENT &

TECHNOLOGY

ASSESS MARKET

MATURITY & SERVICES

FIT

COMPARE TARGET

SCENARIOS & ANALYZE

RISK

FINALIZE SERVICE

DELIVERY STRATEGY

DEVELOP SERVICE

STRATEGY ROADMAP

Sourcing Strategy Overview Analyze Operations Management & Technology

Incident Management

Problem Management

Availability Management

Configuration Management

Change Management

Release Management

IT Service Continuity Mngement

Service Desk

Capacity Management

Service Level Management

IT Financial Services Mgt.

Compliance RatingOperational Processes

Fails Meets Exceeds

Enterprise Database

Storage

Mainframe

Application Server

Application Server OS

Server Virtualization

Physical Environment

None 100%

Best Practice ComplianceElement

Data Center Architecture

Sourcing Program Management

Transition Management

Sourcing Mgt & Governance

Relationship Management

Performance Management

Delivery Demand Mgt

Contract Management

Finance Management

Compliance & Risk Management

License Management

Compliance RatingKey Deal Mgt Process

Fails Meets Exceeds


Based on strategic drivers, sourcing scenarios and requirements, who are the most appropriate vendors available in the marketplace? It is often helpful to conduct informal vendor solution presentations with a select group of vendors prior to the RFP to assist in refining strategies, requirements and RFP participants.

Sourcing Strategy Overview Assess Market Maturity & Services Fit


CONFIRM TARGET


GATHER INOFRMATION

& STRATEGY DRIVERS

DEVELOP COMPARATIVE

FINANCIAL MODEL

ANALYZE OPERATIONS

MANAGEMENT &

TECHNOLOGY

ASSESS MARKET

MATURITY & SERVICES

FIT

COMPARE TARGET

SCENARIOS & ANALYZE

RISK

FINALIZE SERVICE

DELIVERY STRATEGY

DEVELOP SERVICE

STRATEGY ROADMAP

113123Ranking

45 45 37 45 40 37 Weighted Score

61.061.060.061.055.052.0Total Score

3.04.04.04.05.03.03Business Process Outsourcing

5.05.05.05.03.05.01Offshore Applications (Development and Maintenance)

5.05.04.05.02.04.03Offshore IT Infrastructure

4.04.03.04.05.05.02Geographic Delivery Capabilities (NA Only)

5.05.03.05.04.04.02Management Practices, Methodology, Quality

3.02.04.04.01.01.01Pricing and Resource Weighting

4.05.03.03.04.05.02Retention Rate / Resourcing

3.02.04.04.02.01.01Contract Flexibility

4.03.05.04.03.01.02Flexibility & Adaptability

4.05.03.04.05.05.01Contract Management Capabilities

4.05.02.04.04.02.01Customer Satisfaction

5.04.02.04.05.05.01Financial Stabilit y

4.04.02.04.05.05.03Green Power Management Systems

3.03.03.03.03.03.03Green Data Center

5.05.03.04.04.03.01Strategic Plan & Vision

Selection Criteria*

Score SummaryHistoric Market Perspective

113123Ranking

45 45 37 45 40 37 Weighted Score

61.061.060.061.055.052.0Total Score

3.04.04.04.05.03.03Business Process Outsourcing

5.05.05.05.03.05.01Offshore Applications (Development and Maintenance)

5.05.04.05.02.04.03Offshore IT Infrastructure

4.04.03.04.05.05.02Geographic Delivery Capabilities (NA Only)

5.05.03.05.04.04.02Management Practices, Methodology, Quality

3.02.04.04.01.01.01Pricing and Resource Weighting

4.05.03.03.04.05.02Retention Rate / Resourcing

3.02.04.04.02.01.01Contract Flexibility

4.03.05.04.03.01.02Flexibility & Adaptability

4.05.03.04.05.05.01Contract Management Capabilities

4.05.02.04.04.02.01Customer Satisfaction

5.04.02.04.05.05.01Financial Stabilit y

4.04.02.04.05.05.03Green Power Management Systems

3.03.03.03.03.03.03Green Data Center

5.05.03.04.04.03.01Strategic Plan & Vision

Selection Criteria*

Score SummaryHistoric Market Perspective

We

ighti

ng

Prov

ider

1

Pro

vid

er

2

Pro

vid

er

3

Pro

vid

er

4

Pro

vid

er

5

Pro

vid

er

5


Based on strategic drivers, operational-management-technology impact, cost and risks what is the model we will go forward with? What will be our vendor selection approach, participating vendors and additional requirements to be addressed in the vendor selection process (e.g., risk mitigation requirements).


CONFIRM TARGET


GATHER INOFRMATION

& STRATEGY DRIVERS

DEVELOP COMPARATIVE

FINANCIAL MODEL

ANALYZE OPERATIONS

MANAGEMENT &

TECHNOLOGY

ASSESS MARKET

MATURITY & SERVICES

FIT

COMPARE TARGET

SCENARIOS & ANALYZE

RISK

FINALIZE SERVICE

DELIVERY STRATEGY

DEVELOP SERVICE

STRATEGY ROADMAP

Sourcing Strategy Overview Compare Scenarios, Analyze Risks and Finalize Strategy

Sourcing Ability to Improve:

Servers

Network Desktop Help Desk

App Dev

App Maint

Comp & Benefits

Recruit Payroll Train Procure Accts Payable

1. Scalability

2. Cost (1)

3. Cost Variability

4. Service

5. Risk Profile

6. Meet Current Requirements

7. Future Requirements

CategoryAvg Comp

(AC)

Wt % High

RiskAC*WHR%

Com 3.1 3% 3.2

Fin 3.4 15% 3.9

Legal 2.9 3% 3.0

Peo 3.3 13% 3.7

Perf 3.5 15% 4.0

Sec 2.8 0% 2.8

Tech 3.1 3% 3.2

Trans 3.4 13% 3.8

Lo Med Hi

1 5Legend Lo Med Hi

1 5

Lo Med Hi

1 5Legend

New Model – Scenario A

Status Quo

0

1

2

3

4

5

Legal Risk

Financial

Risk

Security Risk

Transition Risk

Communication

Risk

Performance Risk

Technology Risk

People Risk

New Model – Scenario B



CONFIRM TARGET


GATHER INOFRMATION

& STRATEGY DRIVERS

DEVELOP COMPARATIVE

FINANCIAL MODEL

ANALYZE OPERATIONS

MANAGEMENT &

TECHNOLOGY

ASSESS MARKET

MATURITY & SERVICES

FIT

COMPARE TARGET

SCENARIOS & ANALYZE

RISK

FINALIZE SERVICE

DELIVERY STRATEGY

DEVELOP SERVICE

STRATEGY ROADMAP

Sourcing Strategy Overview Develop Service Strategy Roadmap

What will be our roadmap for the vendor selection process and transition to vendor services? The RFP should contain key requirements from the roadmap and the vendors’ ability to meet these requirements should be part of the proposal evaluation criteria.



Outsourcing Vendor Selection Steps and Best

Practices


PHASE 2:SOURCING TRANSACTION EXECUTION

CONDUCT PROVIDER

MARKET SCAN

CONFIRM STRATEGY &

COLLECT BASELINE

REQS

PREPARE SOWs,


SCHEDULES


& SCORING MODEL

MANAGE PROVIDER

SELECTION PROCESS

FACILITATE DUE

DILIGENCE

PREPARE NEGOTIATION

STRATEGY

NEGOTIATE FINAL

CONTRACT TO

EXECUTION


Lesson Learned: The RFP should contain a comprehensive, client developed global outsourcing contract for the vendors to respond to.

The global outsourcing contract should consist of all key contract documents (e.g., MSA, SOWs,

SLAs, Incentives and Fee Reductions Schedule, Relationship Management Schedule, Pricing Schedule). This approach helps to ensure that 1) all vendors are responding to the same baseline of services and other contractual requirements, 2)vendor proposals can be compared on an “apples to apples” basis and 3) there are no unexpected pricing increases during contract finalization.

Vendor Selection Steps and Best PracticesPrepare SOWs, Contract Terms & Key Schedules

Germany

Ireland

United Kingdom

Portugal

Spain

United States

Country AgreementsLocal Terms and Conditions

Lists: Key Personnel, Etc.

Relationship Management

Change Management

Security

Pricing

Benchmarking

Performance-Based Mgmt.Fee Reductions

MSA Attachments

Exhibits

Credit Card Services

Expense Management SOW

Travel Management SOW

Statements of Work Schedules

Master Services AgreementGlobal Terms and Conditions

1Global Master Services Agreement

Schedules

Attachments

2 3 4

An SOW with roles and responsibilities matrices is required for each service area. Vendors will propose their solutions around these core service requirements.

Most vendors today operate on a global basis, therefore the MSA must addressed global terms and conditions.


Lesson Learned: The RFP must clearly articulate the client’s outsourcing objectives and key requirements and must elicit vendor responses in a clear and structured manner.

In addition to the outsourcing contract, the RFP should contain the following key components designed to inform vendors of your underlying strategy and key requirements. The RFP should also extract detailed information regarding each vendor’s services solutions and pricing.

Client information from the

sourcing strategy, including:

Client Background

Sourcing Strategy

Drivers

Key Business,

Technical and Service

Requirements


CONDUCT PROVIDER

MARKET SCAN

CONFIRM STRATEGY &

COLLECT BASELINE

REQS

PREPARE SOWs,


SCHEDULES


& SCORING MODEL

MANAGE PROVIDER

SELECTION PROCESS

FACILITATE DUE

DILIGENCE

PREPARE NEGOTIATION

STRATEGY

NEGOTIATE FINAL

CONTRACT TO

EXECUTION


Vendor Selection Steps and Best Practices Prepare RFP Bid Package & Scoring Model

Proposal response template requesting:

Provider background and direction

Similar references

Responses to questions and solution

descriptions for transition, risk

mitigation, technology, management,

operations and staffing approach

Acceptance and exceptions to the

contract package

Pricing proposal response template aligned to

the baseline structure

RFP Cover Letter

RFP Instructions

Provider Proposal Response Template

Pricing Instructions and Pricing

Template

Master Services Agreement

Relationship Management Schedule

Statements of Work with Detailed

Technology Appendices

Fee Reduction Schedule

Definitions

Benchmarking Procedures

HR Attachments

Assigned and Managed Contracts

SAS 70 Compliance Standards

Other Contract Documents

Initial Contract

Agreement Is

Included In RFP

Bid Package



CONDUCT PROVIDER

MARKET SCAN

CONFIRM STRATEGY &

COLLECT BASELINE

REQS

PREPARE SOWs,


SCHEDULES


& SCORING MODEL

MANAGE PROVIDER

SELECTION PROCESS

FACILITATE DUE

DILIGENCE

PREPARE NEGOTIATION

STRATEGY

NEGOTIATE FINAL

CONTRACT TO

EXECUTION


Vendor Selection Steps and Best Practices Prepare RFP Bid Package & Scoring Model (cont’d)

Lesson Learned: Key stakeholders should be involved in defining proposal evaluation criteria using a model that aligns to the RFP.

Prepare a vendor evaluation and scoring model aligned to the RFP and its key components.

Avasant recommends using a weighted, hierarchical model that contains major criteria and sub elements. The evaluation criteria should also align to strategic objectives and service requirements developed as part of the sourcing strategy.

Key client stakeholders should participate in establishing evaluation criteria and weighting factors through a consensus-based process. This same group of key stakeholders should form the proposal evaluation and scoring team and should ultimately select the vendor based on a consensus decision process.

Offshore Provider 1

Offshore provider 2

Category Off

sh

ore

Off

sh

ore

Pro

vid

er

1

Off

sh

ore

pro

vid

er

2

Ma

x %

A) BUSINESS

1) RFP Process Management Capability 2.8% 2.7% 5%

2) Provider Profile 0.5% 0.5% 1%

3) Relationship Management Services and Provider Staffing 7.8% 9.8% 15%

4) Human Resources Approach and Acceptance 6.0% 7.0% 10%

5) References - Business view 0.6% 0.6% 1%

6) Site visit - Business view 1.2% 1.8% 3%

Business Points: 18.9% 22.4% 35.0%

B) TECHNICAL

1) Application Maintenance and Support Services 10.8% 13.7% 18%

2) Alternative Approaches 4.8% 4.8% 8%

3) References - Technical view 0.8% 1.2% 2%

4) Site visit - Technical view 1.2% 1.2% 2%

Technical Points: 17.6% 20.9% 30.0%

C) COST

1) Pricing 5.4% 6.2% 10%

Cost Points: 5.4% 6.2% 10.0%

D) RISK

1) Conformance with Contract Requirements 6.0% 7.2% 12%

2) Transition 5.8% 7.5% 12%

3) Exit Plan 0.6% 0.6% 1%

Risk Points: 12.4% 15.3% 25.0%

TOTAL POINTS: 54.3% 64.7% 100%

0

0.2

0.4

0.6

0.8

1

1.2


Lesson Learned: Interaction with vendor proposal teams throughout the selection process helps to improve vendor proposals and helps to gauge vendor commitment and corporate culture compatibility.

Following RFP release, Avasant recommends the following pre and post-proposal activities:


CONDUCT PROVIDER

MARKET SCAN

CONFIRM STRATEGY &

COLLECT BASELINE

REQS

PREPARE SOWs,


SCHEDULES


& SCORING MODEL

MANAGE PROVIDER

SELECTION PROCESS

FACILITATE DUE

DILIGENCE

PREPARE NEGOTIATION

STRATEGY

NEGOTIATE FINAL

CONTRACT TO

EXECUTION


Vendor Selection Steps and Best Practices Manage Provider Selection Process

Pre-proposal submittal:

Vendor Introduction Meetings – Conduct informal introduction meetings between

the client’s RFP executive sponsors and the senior leadership team from each

vendor. This is the initial opportunity for the client to gauge vendor commitment to

the deal and it provides the vendor an opportunity to inquire about the client’s

overall vision for the future services relationship.

One-one-on Q&A Sessions or Bidders Conference – Depending on procurement

rules, conduct one-on-one Q&A sessions with each vendor or conduct a bidder’s

conference for all participating vendors. These interactions again allow the client to

gauge vendor engagement and cultural compatibility potential.



CONDUCT PROVIDER

MARKET SCAN

CONFIRM STRATEGY &

COLLECT BASELINE

REQS

PREPARE SOWs,


SCHEDULES


& SCORING MODEL

MANAGE PROVIDER

SELECTION PROCESS

FACILITATE DUE

DILIGENCE

PREPARE NEGOTIATION

STRATEGY

NEGOTIATE FINAL

CONTRACT TO

EXECUTION


Vendor Selection Steps and Best Practices Manage Provider Selection Process (cont’d)

Post-proposal submittal:

Proposal Evaluation and Scoring –The proposal evaluation team should conduct

a consensus-based proposal scoring process supported by the pre-defined scoring

model.

Vendor Presentations – Vendor presentations can be conducted to clarify vendor

proposals and they provide an additional opportunity to interact with proposed

delivery teams and to gauge commitment and cultural compatibility. The agenda of

the presentation should be planned for each vendor so that it is a focused

interaction and not a sales-based activity.

Vendor Down Selection – Following proposal evaluation and scoring, and vendor

presentations, the evaluation team should have enough information to down-select

to the top two vendors. The top two vendors will move on to due diligence activities

and best and final offers.


Lesson Learned: Due diligence is a key activity that is often underemphasized or treated superficially.

It is extremely important to perform due diligence activities on the finalist vendors as a part of the overall evaluation. The vendors will present a glowing account of their capabilities in their proposals so it is important to verify these capabilities with visits to each vendor facility that will be performing services for the client. A typical agenda for site visits should include review of the following:

• Management and operational processes with concrete examples

• Physical and logical security processes with concrete examples

• Provider support infrastructure and support facilities

• Technology used in the delivery of services

• Interviews with key executives

• Interviews and walkthroughs with service delivery managers and the proposed account

executive


CONDUCT PROVIDER

MARKET SCAN

CONFIRM STRATEGY &

COLLECT BASELINE

REQS

PREPARE SOWs,


SCHEDULES


& SCORING MODEL

MANAGE PROVIDER

SELECTION PROCESS

FACILITATE DUE

DILIGENCE

PREPARE NEGOTIATION

STRATEGY

NEGOTIATE FINAL

CONTRACT TO

EXECUTION


Vendor Selection Steps and Best Practices Facilitate Due Diligence



CONDUCT PROVIDER

MARKET SCAN

CONFIRM STRATEGY &

COLLECT BASELINE

REQS

PREPARE SOWs,


SCHEDULES


& SCORING MODEL

MANAGE PROVIDER

SELECTION PROCESS

FACILITATE DUE

DILIGENCE

PREPARE NEGOTIATION

STRATEGY

NEGOTIATE FINAL

CONTRACT TO

EXECUTION


Vendor Selection Steps and Best Practices Prepare Negotiations Strategy and Negotiate Contract to Execution

Lesson Learned: Managed competition throughout the vendor selection process improves vendor proposals and keeps vendors focused on client requirements.

Negotiations Strategy: The client team should prepare a negotiations strategy for each finalist vendor. The negotiations strategy will guide parallel negotiations discussions that focus on priority proposal issues.

Parallel Negotiations: Parallel negotiation discussions focus on clarifying priority issues such as vendor contract exceptions and proposed solutions and pricing. The objective is to reduce the number of contract issues and settle on service solutions prior to selection of the preferred vendor. The finalist parallel negotiations approach keeps vendors competitive and focused on meeting client requirements.

Best and Final Offers - Following parallel negotiations, each finalist vendor should provide a best and final offer (BAFO) proposal based on the initial proposal with updates and a reduced number of contract exceptions resulting from parallel negotiations.

After receiving BAFO responses from the finalists, the evaluation team should conduct a consensus-based BAFO scoring process to revise initial proposal scores to reflect the BAFO responses, findings of the site visits and customer reference calls. As before, the evaluation team reaches a single overall evaluation score resulting in the selection of the lead vendor.



CONDUCT PROVIDER

MARKET SCAN

CONFIRM STRATEGY &

COLLECT BASELINE

REQS

PREPARE SOWs,


SCHEDULES


& SCORING MODEL

MANAGE PROVIDER

SELECTION PROCESS

FACILITATE DUE

DILIGENCE

PREPARE NEGOTIATION

STRATEGY

NEGOTIATE FINAL

CONTRACT TO

EXECUTION


Vendor Selection Steps and Best Practices Prepare Negotiations Strategy and Negotiate Contract to Execution (cont’d)

Lesson Learned: Including the outsourcing contract in the RFP, interaction with vendors, proposal clarification/pre-negotiation discussions and managed competition can significantly reduce the amount of final contract negotiations.

Final Contract Negotiations: By the time the preferred vendor reaches this point only a small number of issues should remain to be negotiated.

If final contract negotiations break down, the runner up vendor can be quickly teed up as the BAFO proposal should be a completely plausible alternative.

Q&A

Avasant - Outsourcing Vendor Selection Webinar

Documents

Transcript of Avasant - Outsourcing Vendor Selection Webinar