Insights 11 April 2022

10-Point Checklist for Problem-Free Vendor Selection

Vendor selection is the most important factor to ensure that a program management office (PMO) can implement a project efficiently and a business organization can be an organization of digital transformation as planned.

As there are always obstacles in the path of every task, Thitiyaporn Sumetarat, Bluebik’s Strategy and Management Director, shares 10 tips for smooth and worry-free vendor selection.

1. A vendor selection team must see the big picture and thoroughly understand the work process of its organization

Those with authority to select vendors should include the people who understand the overall strategies and directions of their organization and know what kind of development their organization needs. They should be high-ranking executives and the people who understand problems at the operational level and the demand and experiences of users. The understanding belongs to the middle management or supervisors who know the functions and capabilities of software in detail and have worked with vendors. Those who have experience in vendor selection must take part in vendor selection from the start because they can help set evaluation criteria for vendor selection. If the people authorized for vendor selection have these qualifications, successful vendor selection will be likelier and project implementation and system installation can be completed as planned.

“In the past the people who selected a vendor or software were not users and the users did not make the selection. Those who selected it did not understand and the users were dissatisfied. So, vendor selection was problematic or unsuccessful. To solve the problem, the people who have decision-making authority and know strategies and the real work process must form a team and take part in consideration and decision from the beginning of a selection process that is the planning of the selection. The team must be properly structured.”

2. All requirements must be identified in detail from the start

All business and technical requirements should be identified in detail at the start of a project and used as criteria for the selection of software and its implementer. This will considerably reduce risks and problems when a system is installed and used. Many projects developed problems because there was misunderstanding between users and vendors, a system failed to function as contracted or as presented during its selection process or additional payment is required to make a system function. Unless software/solution implementers and users conclude written requirements, problems will usually occur because there are no business and technical requirements for reference.

There should be clear business and technical requirements which must also relate to other essential work processes and systems. This will let all parties have common understanding when there is an operational problem because they have the reference. Importantly, clear requirements allow both vendors and users to work conveniently. In many projects, broad requirements and the vendor selection that took only a few hours led to the operational issues that needed solutions.

3. Vendors must confirm if the solutions they propose are of standard packages or the customization packages that will require surcharges

Documents on business and technical requirements must have details and require vendors to confirm the types of their proposed solutions. They must state if the solutions are of standard packages or will need a surcharge for customization. Vendors must also declare the levels of their customization complexity. Many projects omitted such details and subsequently resulted in conflicts because their programs must be adjusted after implementation and require additional fees. Such extra costs that were not assessed could raise a project price to as much as tens of millions of baht.

“Many people may think that it is easy to change from one software system to another. In fact, it is not as easy as ‘copy and paste’. The longer an old system has been used, the more a solution of its standard package must be customized. Besides, users have been familiar with their old work system. If there is a software replacement, the whole work process should be transformed. Strategies for the selection and implementation of a new system must be laid down clearly from the start. Users often seek subsequent changes after experiencing difficulties or inconveniences with a new system. That will raise costs and exceed budgets because programs must be additionally written. Plans will be delayed and there can be impacts on the goals and business opportunities of companies.”

4. Do not forget to check and evaluate system performance and scalability

There are many incidences of new software being selected without being checked or evaluated for its system performance to find out what is the maximum number of users that the software can serve at a time and whether the speed of processing and the number of processed transactions meet demand. For example, is data transmission acceptable for business at peak times? If these are not checked or evaluated, there can be problems about the scalability of the new software in the future. Tentative use and processed transactions to test software efficiency can reduce risks at a certain extent. Besides, vendors should conduct the proof of concept and prepare enough infrastructures for software application.

5. Consider both on-cloud and on-premise solutions

Some vendors may have either on-could or on-premise software/solutions. Other vendors may have both kinds but there are limitations which must be considered carefully. Users should consider pros and cons and select the choices that suit their business requirements and budgets. Some organizations may want to shift from on-premise (server-based) solutions to on-cloud ones but are not ready in terms of infrastructures. They must work out plans to cope with the situation. Users must also see if their vendors have experience or expertise in on-cloud or on-premise implementation to guarantee the smooth implementation of software/solutions.

6. There must be good plans to further develop products or solutions (product roadmaps)

One good criterion for vendor selection is that there must be a clear plan to further develop software or solutions to effectively and continuously support business growth. Such a plan will let users see how a system or solution can be improved to cope with changes or technologies in the next few years. Some projects do not have the criterion and some vendors do not focus on developing a good system or solution. The users of such systems will not have any opportunity to use new features, functions or technologies because they will always have to use the same old system or solution for years.

7. Attach importance to the scope of data-related work

In many projects, users think that they can discuss and settle the scope of data-related work after signing contracts with vendors. The idea is wrong. Normally users already have considerable data stored in their old system over the past 5-20 years. When they must move data from an old system to a new one, they must clearly set a data migration scope and approach to prevent risks. The scope may cover the types and amounts of important data and transaction data and the years of historical data. Besides, users and vendors must also agree on processes, duties and responsibilities in relation to data cleansing, data mapping, data transformation and data validation. Unless they clearly communicate and have a memorandum of understanding, implementation can be very problematic. Under such a circumstance, many projects either cannot implement a new system or can be delayed for a year because they lack clarity in the scope of work and data migration.

8. Vendors must be highly experienced and capable

Users should consider the experiences and structures of vendors’ teams to ensure that a selected team will have sufficient and experienced experts to handle their tasks. For some projects, users consider vendors’ records of work but do not interview vendors to seriously evaluate their capabilities. Rigorous evaluation, especially that of the key members of vendors’ teams, will build up the confidence that projects will be successfully implemented as planned.

“Problems normally surface during system implementation. If selected teams have extensive expertise, considerable strength and great teamwork, there will also be high chances to quickly turn around and solve problems. If selected teams do not have the qualifications and are slow and insufficiently capable, projects will definitely be delayed and their quality will be compromised.”

9. Do not make cost-based selection which could cost both time and opportunities

Vendor selection should be based on evaluation scores and the explained strong and weak points of each vendor. Vendor selection should be based on all criteria (including prices), not mainly on prices. Some users attached too much weight to prices compared with other criteria and found that selected vendors were unable to accomplish their tasks or their solutions did not produce good results. Such users then had to redo vendor selection or change solutions and their time, money, resources and business opportunities went to waste. Therefore, executives with decision-making authority should take vendor selection seriously. Its process may take 4-6 months. The selection should be based on suitable criteria and due weight to each criterion for each project. This is important to organizations. 

10. Agreements on post-project services (service support models) must be clear

A common mistake happens to agreements on the types and conditions of services after system implementation and the period of “go live support”. In some projects, such agreements were not concluded with clear details before project implementation. Consequently, service quality suffers or there are surcharges. There should be clearly written service level agreements on the types and conditions of post-project services for different degrees of problems including deadlines for service deliveries. The services should cover both on-site and off-site users. The agreements should describe how problems will be solved if systems are out of order, what communication channels will be used and when problems of different degrees will be eliminated. There must also be clear details on whether solutions will be available as originally contracted or will result in additional charges.

 If service users consider the 10 tips on vendor selection, they can reduce risks and their goals can be achieved without major difficulty.