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An Introduction to SOW Management, Part 1
Billions of dollars are spent annually on Statement of Work (SOW) projects. Yet, despite this considerable financial investment, many organizations are attempting to manage this area through overburdened internal resources and/or ill-fitting ERP, SMS or HRM systems – if they’re capturing the details of SOW spend at all.
As a result, many stakeholders and influencers across the contingent workforce management ecosystem are faced with the daunting challenge of not only trying to centralize SOW management, but also to capitalize on benefits such as enhanced visibility and reporting, risk mitigation, rate benchmarking, improved cost control, etc.
In many cases, the best solution is to partner with a Managed Services Program (MSP) and Vendor Management Software (VMS) provider that can help organizations take a methodical, results-driven approach to SOW management. In part 1 of this 2-part series, we will examine the following:
- What is SOW management?
- What are the current challenges of SOW management for organizations?
What is SOW Management?
A SOW is a formal document used to detail the expectations, work activities, deliverables, timelines and payments for the work that is to be performed by an external labor provider. The SOW is a legal contract that details the scope of work to be performed. These are the three separate types of SOW:
- Design or detail SOW: This formal document defines the exact requirements that are needed, and includes the precise measurements, materials to be used, necessary tolerances, quality control requirements and any other specifications that a worker might need to perform his/her role.
- Level of effort, time and materials or unit rate SOW: This SOW document, which is used for almost any kind of service, highlights the type of resource needed to complete the work, number of hours allowable by each resource, and the materials needed for the role.
- Performance-based SOW: A performance-based SOW does not provide details about how the work needs to be accomplished. However, it clearly describes the performance objectives and standards that are expected of the service provider, as well as the dates for delivery of each objective. This is the preferred SOW for most companies; more commonly known as a milestone or deliverable SOW.
What are the current challenges of SOW management for organizations?
SOW Services Procurement remains an area of significant pain due to the high volume of projects and vendors. Those pain points include:
- Teams are often short staffed and ill-equipped to identify and govern rogue staff augmentation spend
- Limited resources lead to limited involvement with non-strategic vendor bids, impacting oversight
- No competitive bidding process, reducing cost savings opportunities
- Form and workflows are retrofitted for SOW purposes, creating a disjointed experience, decreasing collaboration and leading to costly delays
- Catalog e-procurement solutions, blanket orders, A/P automation, etc. offer limited visibility, governance or compliance support for Professional Services engagements
- Multiple systems without a centralized repository for all elements of an engagement create challenges for stakeholders looking to manage rogue spend, create efficiencies and gain visibility across the enterprise
- Limited or no visibility to benchmarks for costs, terms and timelines for project-driven work. Alternatively, incurring material costs to consultants for this type of information.
- Difficulty in assessing vendor performance for projects and leveraging data to know which vendors to include for future projects
In part 2 of this series, we will consider the benefits of outsourcing SOW management from an organization-wide perspective and from the point of view of the many involved stakeholder groups.