Posted in Project Management, Why Projects Fail | Posted on 18-01-2010 | 7,004 views|
In part four of Why Projects Fail series, we will examine the procurement root cause and see how it can cause the project failure, procurement involves establishing a relationship with a vendor to build the project’s deliverables, if a wrong vendor is selected, the entire project will be threatened, the project manager has to have robust knowledge and vast experience with the procurement process, in this post I will discuss procurement mistakes and how to avoid them.
Procurement is one of the most crucial stages for any project, in which the vendor is selected and sometimes the technology is getting selected or recommended by the vendor, if you do not select the right vendor, chances are your project will be a failure, I always say “If you start wrong, you will end wrong” unless you do real effort to get the project back on track, let’s have a look at the causes under the procurement process
1. Fragile Procurement Process
Never jump into selecting a vendor without planning how you will select a vendor, while some project managers may ignore the process for small projects, following a process is not some kind of bureaucracy as many people claim, a process has always to be there but the depth and complexity of the process can vary, for small project it has to be a lightweight one but for large projects it has to be a solid process, each and every organization has its own scale that defines the level of the project whether small, medium, or Large/Enterprise (SME).
Most of procurement processes are quite comprehensive, you start by formulating what you want to buy/build, then you build procurement documents which you will need during the procurement process such as Statement of Work (SoW), Request for Proposal (RFP), evaluation criteria, etc. then you submit the RFP and any other supporting documents to the shortlisted vendors, vendors take some time and revert back with proposals, you clarify, ask for changes, negotiate, evaluate proposals, and eventually you select a vendor and sign a contract or send a Letter of Intent (LOI), as soon as the project is started, you will be managing the contract, possibly with help of procurement or finance department, as the project is qualified for closure the contract is getting formally closed as well
You can implement PMI’s procurement process (above process is based on Project Management Body of Knowledge version 4, aka PMBOK 4, PMBOK is a registered trademark of Project Management Institute PMI), and if you seek more pragmatic approach, I recommend using templates rather than starting form scratch, Microsoft Project offers a great RFP template for a Request For an extensive RFP process, it will almost cover all your requirements and you can add to it as per your needs, just to set expectations, using a template will just ensure nothing will slip through the cracks and it will help you be structured, however it does not teach you how to run the procurement process itself, I personally believe that the procurement process requires more soft skills rather than hard skills, you can download Vendor RFP Solicitation Microsoft Project file (not plan!) here
2. Poor Due Diligence
Unfortunately, many project managers do not know what Due Diligence means! Due Diligence is one of the most important activities you will need to do in order to avoid project failure, alas, the PMBOK guide is not addressing this area, or in other words it is referring to it in a very subtle way as sub-activities of the procurement process, I strongly recommend PMI to start elaborating on this important topic, in fact the term is quite popular in leading realms such as law, real estate, environment, information security, etc.
Due Diligence is described at the set of activities to be conducted in order to ensure the success of a business venture, you need to have a 360 degrees of the vendor you are dealing with, you need to investigate the vendor you are dealing with from all aspects, if you conduct a proper due diligence, failure chances will be greatly minimized, the following categories can help you with due diligence:
- Capabilities: Ensure the vendor is capable of delivering what he claims to deliver, you can ask for a POC (Proof of Concept)
- Skills: Many vendors promise top notch resources and when they win the deal, they give mediocre resources, you will need to ask about resumes of team members and ensure that same profiles will be carrying out the work
- Readiness: Ask about whether the vendor can start the project within a given time frame or not, while you cannot control this aspect, make sure to clearly get it mentioned in the proposal and contract
- Credibility: Verify all the promises given by the vendor, and prior engagements accuracy
- Case Studies: Ask for similar case studies, read those ones thoroughly, try to understand how the vendor could deliver the solution, often times case studies tend to take happy path, and this would definitely mislead you, so you will need to ask some tricky questions in order to see the real image, ask about constraints imposed by project sponsor, challenges faced with stakeholders and how they could be tackled, ask about the technology limitations encountered while building the product of the project, some vendors will claim that the technology is perfect and it can solve all business problems, this is untrue, there is no such a thing, all technologies have glitches, you can simply challenge this by opening your favourite browser, and google “brand name technology limitations”
- References: Ask about references, preferably ones whose the case studies, initiate communication with contact persons through different channels, email, phone conversation, meetings, etc. you may face some resistance at the beginning but don’t give up!
- Technical Abilities: Ask about POT (Proof of Technology), here you can verify the robustness of the vendor in the technology you are going to use to build your project, herein a secret tip, some vendors hire independent consultants to conduct proof of technology and they claim that the consultant is a staff member! You can ask some questions like “may I have your business card?”, “how long have you been with the vendor?”, etc. you will need to have an insight to realize that the consultant is an outsider! However if the consultant is lying that would be another story!
- Regional Market Size & Business Continuity: you will need to ensure that the vendor is strong enough to survive until the project is complete, it would be catastrophic if the vendor gets out of business before your project is complete, you can ask about the local or regional market size, number of staff members local and world wide, you will notice that some vendors inflate the number of worldwide staff members number!
The above categories are just to help you do a robust due diligence, while you can get about 80% of the information you need to evaluate a vendor, you will have to get the other 20% yourself via effective communication and independent research, the above list can also expand to include some categories such as legality, financial, reputation, integrity, etc. one of the effective ways you can do to examine the financial and business health of one vendor is to get credit & business information reports from an credit information provider such as The Dun & Bradstreet Corporation (aka D&B), each and every company is identified by a unique number known as DUNS (Data Universal Numbering System), the business information report covers many categories and it will help you understand the vendor you are dealing with, you also need to know that these reports are not free, however this small fee will help you make a better decision that in turn will save you too much money in the future.
If you are not familiar with this term yet, it is time to know about it and indeed you will need to understand the tricks vendors do to win projects in order for you to avoid being mislead, you need to know that vendors focus on getting the deal by touting their products, vast experience, and singular skills, much more than they do to solve your business problem, you will need to protect your project and ensure delivery of effective solution that really solves the business problem rather than adding to it! You can read my post 10 Ways to Avoid Marketecture Trap, it explains what Marketecture is and how to avoid it, I also have created, for the first time, a cartoon strip that shows real life Marketecture incident.
4. Inaccurate Evaluation Criteria
Evaluation criteria is one of the pillars of procurement management process, you need to be very cautious while building it, you will need to have top level category for each area of concern such as cost, scope, timeline, strategy, etc. and for each category you will have to assign a weight, there is no hard and fast rule for weight value assignment, it will vary from one project to another, you will need to build an accurate evaluation criteria by assigning real weights based on sponsor and key stakeholders’ inputs, you need to know what is important and what can be given less priority, this will influence the weight value you assign to each sub-category and category, if you develop a wrong evaluation criteria, you will be evaluating/assessing vendors against a wrong scale, and eventually you may find yourself selecting the wrong vendor, this is likely to happen with complex evaluation criteria that are used with mega projects.
You can minimize the risk of having a wrong evaluation criteria by reviewing it several times and getting someone else to review it, you will also need to avoid bias while filling the evaluation criteria and try minimizing the natural subjectiveness that is always associated with evaluation, make sure to identify key stakeholders who will be evaluating vendors, you will need to teach the stakeholders how to assign scores for different evaluation items without being subjective.
5. Selecting Incapable Vendor
Selecting incapable vendor can put your project at big risk, if you do not conduct a proper due diligence you are very likely to select a vendor that may not have enough technical experience with to deliver the project, even though you do an elaborated due diligence the vendor may turn out to be incapable, the vendor may inflate its experience, resources, stability, ability, dedication, etc. and you may get into a deceptive situation and select the wrong vendor, there is no specific activity to be done to avoid selecting a wrong vendor, the vendor can start the project very well and then changes its attitude during the project execution, to avoid this situation, you can make the project’s cash flow based on milestones rather than time, selecting incapable vendor can occur due to using inaccurate evaluation criteria or subjectiveness of evaluators, your most important duty during evaluation is to instruct evaluators how not to be subjective.
6. Inadequate Contract Type
Selecting a wrong contract type can make your project fail, if you select a time and material (T&M) contract type for a project that has to be a fixed price contract this can use up your budget, if you are a project manager who is at the buyer side it is always good to use a fixed price contract, in contrast if you are at the seller’s side, the best contract type is Cost Plus contract, however the Cost Plus contract is rare in today’s business, whether you are a buyer or a seller, you will need to impose the proper contract type, for example if you are a buyer you should use fixed price contract for big projects, however if you want to augment your team with certain skill, you can hire a consultant on T&M basis.
A vendor can win the deal due to some politics played by some key influencers, and actually this is one form of subjectiveness, the entire selection process can take a completely different track because of an influencer, the influencer may play some kind of black politics to award the deal to specific vendor, apparently this is a clear abuse to integrity, you will need to have open communication policy with the sponsor and vendor evaluators, you also need to enforce transparency in the all aspects of the procurement process, while the influencer can do this with good intentions! you will need to be objective and ensure everyone’s objectiveness as well.
If the procurement process is not conducted properly it can jeopardize your project, you will need to conduct a structured due diligence to ensure you select the right vendor, you will also need to have transparency and open communication with all stakeholders to avoid the power that an influencer can exert to award the deal to a certain vendor.
Share Your Experience
Do you have any other reasons under procurement that can cause the project failure? Do you have tips and tricks that you use during the procurement stage? I am sure you have! Procurement is a critical stage that needs all the skills of the project manager to be used in order to ultimately ensure the project success, please share your experience!