As a vendor or a client, we have all, at some point, experienced a situation where the RFP (Request for Proposal) became a tedious process instead of an important tool for finding effective solutions to solve business challenges. Procurement should be the process. So there,s no reason an RFP has to be a laborious, dreaded process.Based on our best practices and expertise, we share our insights for how to determine when issuing an RFP is the right thing to do and how to make it an effective, productive undertaking any organization.
1. Determine the Potential ROI the Purchase would have for the Company
RFPs are expensive for both the vendor and the client. Is the problem you`re trying to solve worth issuing an RFP? To find out, you need to account for the actual and associated vendor and client costs, not just the out of‐ pocket vendor costs.The amount of effort spent on the procurement process should relate to the strategic importance of the acquisition. For insurance, if the procurement is for a benefit of less than $500,000 annually, issuing a full RFP is too costly. Conversely, if the program will add $2 million to the bottom‐line, expending $100,000 is a good value for the clarity an RFP provides.
2. Gain Internal Consensus before issuing an RFP
This is the dirty secret of RFP processes—the game may be more about creating internal consensus and signaling the project is ‘real` rather than selecting a vendor. If learning is going to take more than 20 percent of the time spent on the RFP, then carriers and brokers should do without the RFP tool.If necessary, clients should consider using a RFI (Request for Information) approach to create consensus and winnow the number of prospective suppliers. This is less costly and won`t frustrate the suppliers. Product demonstrations, interaction with key vendor thought leaders and the selective use of advisory services helps greatly here.Once a RFI is completed, a RFP can be issued to two or three prospective suppliers. This approach shortens the timeline for project initiation, signals that the project is funded, and leads to better contract language.
3. Narrow the Field of Directly comparable Suppliers
In our practice, we rarely recommend a client issue RFPs to more than five suppliers. Why? As with an auction, you only need two to play to get a high quality offer. Asking more vendors to respond indicates you don`t really know what you need and the RFP may be more of a search for free consulting than a funded initiative. Furthermore, as with all mathematics that involve combinations, the marginal cost per unit goes up, rather than down, as you add prospective suppliers.
4. Consider the impact of needing to Stop and Start over with the tool/supplier/project
An RFP creates a clear historical reference to what a client and a vendor thought was needed at a point in time. If the investment may stop, and will be difficult to restart, then an RFP provides a viable means of going back to the key vendors without losing too much time or money. In addition, an RFP provides a clearer way to hold client and vendor staff accountable for the original goal and their performance in achieving it.
5. Pursue an RFP only if the contract for the service/product/result has potential for significant ROI
If the contract and its associated service is a one‐time cost and is simple, an RFP isn`t necessary.When they are complex, the RFP (and the RFI that may precede it) is an on‐ramp to the contract and ensures a higher quality statement of the results expected. In these scenarios, observant vendors recognize their answers will become legal language and are very attentive to assuring the quality of their proposal.Bottom line Carriers, brokers and agents should avoid RFPs unless the purchase will be for a complex program that involves significant time and money. Buyers must avoid letting the tool become the process. The result should be an investment that creates value while addressing risk and the ability of both parties to meet their obligations.Russ Bostick and Donn Vucovich are the managing partners of MVP Advisory Group, a management consulting firm focused on developing and executing superior strategies for business and IT.