Dear Arnold,
Regarding should one make a business case / ROI statement for each of the vendors being considered... Most of the PMOs we work with have a vendor selection process and vendor selection scorecard that serves to rank the best choice vendor amongst a number of key selection criteria. No doubt, financial criteria weighs in, but there are also other criteria important to the overall rank. The purpose of the scorecard is to facilitate selecting the best vendor, not to be the business case for the project. If management would like to change the vendor selection scorecard to provide additional financial metrics, then that is fine. However, this is a vendor selction effort, not the business case for the project. Typically, vendor selection scorecards are most effective when the number of criteria is not too many nor not too few. If there are too many criteria, say 15 points of analysis, then each of the criteria tend to be of little importance to the overall weighting. Likewise, if there are too few criteria, say 3 points of analysis, then any single criteria can potentially out weigh the other two. Typically, most organizations employ five to seven criteria in their vendor selection scorecard such as:
- Overall costs of vendor solution
- Vendor understanding of needs
- Vendor technical capability
- Vendor management approach
- Vendor financial capability
There could be other and/or different criteria. The idea is that all the vendor alternatives are evaluated fairly and against criteria most important to the company for a successful vendor selection, procurement, and implementation. If you were to add NPV, IRR, and Payback to your vendor selection criteria, you might run the risk of having the collective financial criteria dominant all of the other vendor selection criteria. Again, if this is what management wants to do, then that is their call. But it seems that management simply liked your financial analysis and would like to see it done for the other vendors. Hence, that is the value of having an agreed to vendor selection process and scorecard, even a simple one. You save time by not having to re-think your analysis approach for each project and you eliminate waste by not having to rework and/or redo your analyses. Cheers.
Mark Perry
VP of Customer Care
BOT International
