Using Metrics to Evaluate Vendor Bids and Proposals

29 October 2003

by Michael Mah, Senior Consultant, Cutter Consortium

Using objective metrics puts IT executives in an excellent position to succeed when outsourcing IT projects. At the project level, the executive managing the request for proposal (RFP) process can use metrics to empower negotiations by:

  • Requiring core metrics for past projects in the RFP data requirements package and assessing both historic and implied productivity
  • Generating an independent “should cost” estimate and risk assessment
  • Benchmarking supplier cost and schedule estimates
  • Implementing “in-flight radar” tracking of supplier-built projects
  • Maintaining a knowledge database of suppliers’ historic projects

The core metrics I refer to in the first bullet are minimum industry- standard project measures that any capable organization in the business of IT should have. In fact, keeping metrics records of past projects’ size, elapsed time, expended effort, and defects (both during testing and in the first 30 days of service) is so elementary that one should be suspicious of any supplier that does not have this information.

Indeed, since keeping these elementary metrics is mandatory for an organization seeking to rise from the Software Engineering Institute’s (SEI) Capability Maturity Model (CMM) Level 1, then any vendor/supplier that claims to be CMM Level 5 must, by definition, be able to supply this information. If the vendor cannot provide this information, it certainly should cast doubt on whether the vendor is truly CMM Level 5 or whether its actual practices are consistent with the claimed certification.

As in all negotiations, having other items such as an independent “should cost” estimate and industry productivity benchmarks empower the negotiating executive. They provide leverage so that the executive can assess proposed bids for merit, fairness, and legitimacy using independent, objective criteria. If a vendor is low-balling a bid, then historic projects will help flush that out. This is similar to identifying a low or high price for a car by using the Kelley Blue Book or Multiple Listing Service (MLS) listings for real estate. Roger Fisher and William Ury, coauthors of the landmark negotiation work Getting to Yes, Negotiating Agreement Without Giving In , describe the use of objective standards in the following way:

If relying on objective standards applies so clearly to a negotiation between a house owner and a contractor, why not to business deals, collective bargaining, legal settlements, and international negotiations? Why not insist that a negotiated price, for example, be based on some standard such as market value, replacement cost, depreciated book value, or competitive prices, instead of what the seller demands? In short, the approach is to commit yourself to reaching a solution based on principle, not pressure.
Using metrics as objective criteria shifts the debate. It creates wise and efficient outcomes. In doing so, it aligns expectations at the start of an outsourcing relationship by focusing on striking a fair deal — not one that’s the result of low-balling, gamesmanship, and posturing.

— Michael Mah, Senior Consultant, Cutter Consortium

© 2003 Cutter Consortium. All rights reserved.