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5 Tips for Creating an Effective RFP for Business Application Software

Over the past few months we have seen a dramatic increase in organizations using RFPs and RFIs as part of their evaluation process. So, to help your organization meet the new demands of this process, we have put together a few points that will help you see around some of the pitfalls and make your project a success.

Many large (and some small) nonprofit organizations and most state and local government agencies have formalized procurement policies that require the use of an arm’s length, competitive bidding process for purchases over a particular amount, also known as a Request for Proposals (RFP).  Regardless of the rationale for the policy or the desired outcome, poorly executed RFPs cost their issuers considerably in the form of time, project cost and opportunity cost.  RFPs can work well for getting competitive bids for commodities, but can be problematic when procuring unique, customized products and services.  If you know what you want and are simply looking for a low bidder for identical products/services, an RFP can work well.

If you are in position where you are either considering or compelled to use an RFP as part of your procurement of a new application software solution (finance, CRM, HR, etc.), we recommend keeping the following in mind:

  1. Research first.  Don’t use the RFP as a means for gathering requirements and market information.  If you are unsure of “what’s out there”, go look.  Engage help.  Do internal business analysis to clearly understand your own processes and why you have them.  Once you have done the necessary information gathering, sharing clear requirements with potential vendor partners will be a lot easier and provide better results.
  2. Be clear about what Point B looks like.  Don’t ask for a laundry list of features or capabilities in no particular order.  Describe your utopian vision for where your organization will be once the project is complete.  This means clearly describing your current situation and the rationale for the project.  It also means describing and prioritizing the capabilities that you believe are most relevant to project success.  By its very nature, the RFP process limits the amount of discovery a potential vendor can perform, so don’t make them guess.
  3. Share your project budget.  Yes, give vendors a ballpark of what your organization is willing to spend so vendors that can’t deliver an appropriate solution in that price range disqualify themselves and save both of you time and money.
  4. Avoid complex “scoring” models.  Some organizations employ vendor solution scoring as a means of enforcing “objectivity” on the process.  While these are created with good intentions, the models themselves can be flawed and yield results that are completely different than the intuition of the majority of the selection team.  This is especially true if those scores are applied primarily to application features and functionality.  Further, it can result in disqualification of the best solution based on what amounts to an unintended “technicality”.
  5. “Who” matters.  In projects where a material portion of the project budget is services, give appropriate weight to the qualities of the vendor and don’t understate the importance of execution to the overall success of the project.  Two implementation partners with arguably similar technical solutions and prices will only be differentiated by their organizational qualities:  vertical expertise, experience in similar projects, references, business philosophy, project methodology and culture.

I wish I had room in this blog post to share some of the more ridiculous anecdotes and examples from RFPs we have received in the past (“accounting software must be able to print checks”, “score this list of >3,500 un-prioritized features on a scale of 1-5”).  Those types of requests simply push out some of the top talent, so lets move forward to what will make your project more successful.

Here are some things to keep in mind as you compose your next RFP:

  • Vendors weigh the cost of responding against their perceived probability of winning the business.  The smartest solution providers will avoid responding in cases where the cost to respond is too high or the probability of winning the business is difficult to determine.
  • Hiding your decision criteria (i.e. your priorities and budget) from the vendors hurts you.  Vendors will not have a clear understanding of how to respond or will unintentionally omit relevant information from their proposal.
  • RFPs very often result in a purchase decision being made based on incomplete information.  This is a natural byproduct of the restricted communication flow common to the procurement process.

RFPs will continue to be a fact of life for many agencies, but your approach to them will make all the difference.

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