Tuesday, August 24, 2010

Why I love RFPs

Dave Bressler has a wonderful post about fixing the RFP process.  He looks at it from the vendor perspective.  While I agree with many of Dave's suggestions, I'd like to offer my reasons for loving RFPs.  Of course, I'm predominately looking at it from the client perspective.

Clearly Defined Project Purpose
RFPs force the stakeholders to think about, write out, order and agree what the goals are for the project/software/etc.  Companies will often have very vague reasons for wanting to do something and even less understanding of how to evaluate if its successful.  Forcing executives to agree to and state the purpose of the exercise is critical.  Believe it or not, RFPs are a great way of doing this, if for no other reason than the fact that stakeholders usually have to go to the CFO or Board to get approval to spend that kind of money.  (Note: The longer I've worked in software, the more I've come to love CFOs.)

Checklist for Decision Making
RFPs provides a checklist that stakeholders have to agree to and then use to justify why they want to go with a particular solution.  Many times on the client side, you only get limited amounts of time from critical stakeholders.  Whatever they profess, key stakeholders rarely devote the type of time a major project needs.

First having the meeting to agree to the checklist and discuss the importance of different items is key from an education perspective.  Then when it comes for vendor evaluations, which is often months later, the checklist provides structure from which to have discussions and make evaluations/decisions.

Lacking the structure of a checklist with which to evaluate multiple solutions, stakeholders will often latch onto the first solution they see that seems to address their needs. **please see note below.

Understanding what You're Buying
RFPs go a long way towards addressing the asymmetries in understanding and product expertise.  Vendors know infinitely more about the products and market space than prospective clients.  Hearing different vendors answer the same questions is extremely educational for stakeholders.  For example, often times a stakeholder won't understand answers being given, but if three vendors answer a question in one way, while one vendor provides a completely different answer; one gets an opportunity to have real discussion about why.

Determing the Price to Pay
Price is rarely a deciding factor, but having multiple bids is critical for getting a good price from the vendor you do select.  Especially if the selection period covers one vendor's year-end or quarter-end.  Often times one vendor will drop their price to a ridiculous level because that salesperson needs the sale for some reason.

There's a great line from Warren Buffett: "You can't be any smarter than the dumbest competitor you're competing against."  When there are equivalent products and one vendor is willing to drop their price by say 80%, even if you'd never select that vendor, other vendors have to drop their price to an equivalent level.

Understand, price has nothing to do with selecting who you're going to go with, but having multiple bids has everything to do with how much you pay for the product you've selected.

I hope this helps you understand why I love RFPs so much.

**Note: I don't think people working for vendors fully understand the importance of presenting first.  Most often in client firms, there's really only one way discussed to do something.  So the first person who can suggest a viable way to do it gets to do it that way.  So managers/executives are "trained" to go with whatever way they see that works first and move forward rapidly with it.  There is a huge advantage to being the first vendor who presents.

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