Let’s Face It — Risk Happens: Pay a Little Now, or a Lot Later

Congratulations!  After an exhaustive (and probably exhausting) selection process, you’ve finally chosen the Systems Integrator (SI) who is going to lead you to the ERP promised land.  Now the only thing standing between “vision” and “success” is signing the Statement of Work (SOW).  And since you’ve already sifted through countless pages of RFP responses, sat through hours of oral presentations, and debriefed multiple reference accounts, the SOW should be little more than a formality, right?

Unfortunately, in a world where projects can run off the rails and actually destroy value, a vague, high-level SOW simply isn’t going to cut it.  And even in the best-case scenario, where your project delivers the expected benefits both on-time and on budget, it’s going to take more than a handshake to get you there.  Why?  Because as your project progresses, things are going to change:

• You are going to learn things about your business you didn’t know before
• You are going to realize that some of the things you thought you knew…you actually didn’t
• Business imperatives can shift mid-stream due to changing competitive and economic conditions

In any case, the best way to ensure success is a detailed, thorough SOW that does more than lock-in negotiated hourly rates.

So, what constitutes a good Statement of Work?  This is literally the million-dollar question that you only get one shot to answer.  Here are some key considerations that should be part of every SOW for large-scale, transformational projects.

Scope, Scope, Scope

Just as location is “king” when it comes to real estate, a clear definition of scope is the primary purpose of the SOW.  You want to ensure that what you heard during the proposal phase is what you are paying for during the implementation phase, so aside from establishing the expected benefits, high-level timeline, and project costs, the SOW should also include sufficient detail to answer these questions:

• Which business units will be affected? Approximately how many users will be impacted?
• Which business processes will be addressed? Which sub-processes are included? Which sub-processes are excluded?
• How many workflows, reports, interfaces, conversions, extensions, and forms (WRICEFs) are expected?
• Which activities will be performed by the SI, by your company, or by a third party (for example, who is responsible for training materials)?
• What deliverables are included? And can the SI provide samples of deliverables that have been effective on other projects?

By asking your SI to itemize the list of deliverables and development objects, to provide a clear RACI matrix, and to list the major planning assumptions that went into constructing the estimate, you go a long way to aligning expectations up front and ensuring transparency down the road.

Talent

In addition to defining what will be accomplished, your SI should be able to provide the anticipated resource plan / staffing model that supports the estimated project cost.  Before signing any SOW, make sure it clearly defines the roles / skillsets that will be required from the SI as well as from your company.  This includes:

• Identifying the key resources and their expected roles
• Time-phased levels of participation for all resources / role
• Any 3rd party resources required
• Estimating standards for WRICEF objects. How many hours does your SI plan to consume in the design / development / testing of each object?  What about differing standards by complexity: Simple, Medium, Complex?

Not only will this information help you to identify potential gaps in the SOW with respect to assumptions, deliverables, or services, but it also establishes the baseline you will need to evaluate and process change orders later on.

Commercial Incentives

Let’s face it: risk happens.  As such, adopting a straight time and materials commercial agreement is tantamount to giving your SI a blank check.  Conversely, you can try to “buy certainty” up front with a fixed-price contract, but not only are you going to pay a steep premium for this, in reality there’s still no guarantee.  Finding the middle ground that both incentivizes your SI while limiting your exposure is the hallmark of a solid SoW, and this can be accomplished through a variety of commercial constructs like:

• Holdbacks
• Slide-scale fee structures
• Not-to-exceed clauses

In summary, the SOW is your company’s primary means of bringing accountability and objectivity to your ERP project.  Accordingly, taking the time to ensure a robust SOW is an investment that pays big dividends later on; conversely, trying to take shortcuts will almost certainly cost you.

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