avasant-outsourcing vendor selection webinar 04-21-11 v4-2

Outsourcing Vendor Selection Best Practices

Strategic Advisors for the Global EconomyApril 21, 2011

Page 1 Confidential - Not For Distribution

Topics

Avasant Background Vendor Selection - Avasant Key Lessons Learned Sourcing Lifecycle Overview Overview of Sourcing Strategy and Its Impact on the Vendor Selection Process Outsourcing Vendor Selection Steps and Best Practices Q&A


Avasant BackgroundBased in Los Angeles, California, Avasant experts have performed over 1,000 engagements since 2001 across 40+ countries within three primary disciplines: Enterprise Optimization, Sourcing Advisory and Globalization Advisory servicesEnterprise Optimization Services

Enterprise Optimization Avasant assists organizations with managing critical internal IT and Operations initiatives to drive efficiency and effectiveness of service delivery, capabilities acquisition and optimal cost savings Sourcing Advisory Avasant assists public and private sector clients with navigating the complex transaction lifecycle of securing critical IT , Operations and Analytics managed services from global Tier 1 3 service providers by leveraging best practice contracts, service level frameworks and financial analysis Globalization Advisory Avasant assists the governments and the supporting provider ecosystem of emerging markets with targeted economic development solutions designed to foster job growth, education, policy optimization, infrastructure development and global market awarenessAvasant Headquarters

Globalization Advisory Services

Sourcing Advisory Services

Avasant Offices & Client LocationsPage 3 Confidential - Not For Distribution

Avasant Background (contd)Within Avasants primary disciplines: Enterprise Optimization, Sourcing Advisory and Globalization Advisory; are comprehensive solutions sets which have been hailed across the industry in recent years

Avasant Ranks as the #1 Global Sourcing Advisor for BPO and as a TOP Ranked ITO Advisor . . .2008 1. Avasant 1. Avasant2. 3. 4. 5. 6. 7. 8. 9. 10. Hackett Group Nelson Hall Everest Group Gartner PricewaterhouseCoopers TPI PA Consulting KPMG McKinsey

2009 1. Avasant 1. Avasant2. 3. 4. 5. 6. 7. 8. 9. 10. neoIT TBI Equaterra TPI NelsonHall PA Consulting PricewaterhouseCoopers AT Kearney Global Equations

IAOP Worlds Best - Avasant has also been the recipient of several awards for excellence in Management Consulting and Sourcing Advisory. Avasant has been designated among the Worlds Best Outsourcing Advisors by the International Association of Outsourcing Professionals (IAOP) in 2009, 2010 and for 2011.Page 4 Confidential - Not For Distribution

Avasant Background (contd)Underlying comprehensive Avasant Solutions are industry-facing experts, proprietary tools and best practices methodologies steeped in requisite IT, Operations & Analytics domain knowledge

Enterprise Optimization Services Sourcing Advisory ServicesITITo IT Help Desk o Desktop o o

Operations & Business ProcessesCustomer Supply Chain Management & Logisticso Customer o o o o o o o

Research & AnalyticsHRo Recruitment o Compensation o Perf ormance

Finance & Accountingo Procure to Pay o Order to Cash o Record to

Procuremento Source to Pay o Sourcing o o o o o o o

Knowledge Processingo Data o o o o o o

Legal Processingo Law Firm Back

o o o o o o

Support Data Center Operations Server & Storage Management Network Ops Voice Services Application Development Application Maintenance ERP Systems Co-Location

Service Customer Relations Customer Acquisition Operations Support CRM Support Outbound Telemarketing Specialty Help Desk eCommerce

o Forecasting o Sales &

o

o o o

Operations Planning Capacity & Demand Planning Sequencing & Scheduling Distribution Planning Logistics & Transport

Report AP/AR Collections Fixed Assets Treasury Cash Mgt. Financial Planning o Analytics o Tax & Compliance o Expense Mgt.o o o o o o

Support Supplier Research Supplier Training Contract Mgt. Market Intelligence Procurement Analytics Spend Analysis Perf ormance Reporting

o o o o o o

Evaluation Management Workf orce Management Benef its Administration Training Payroll Employee Data Management Travel Management

o

Management Business Intelligence Market Research Insurance Financial Services Industry Analytics Consumer Goods Analytics Marketing Support

Of f iceo Corporate

Legalo Document

Reviewo Intellectual

Propertyo Contract

Managemento Compliance

&

Regulatory Management

Strategy Development

Risk Management

Transaction Management

Change Management

Transition & Transformation Management

End-to-End Solution Lifecycle ManagementPublic Sector Engineering & Construction Financial Services Life Sciences Manufacturing High Technology Retail Energy

Industry Focus & ExpertisePage 5 Confidential - Not For Distribution

Vendor Selection - Avasant Key Lessons Learned

The sourcing lifecycle phases of strategy, vendor selection, transition and ongoing management must be tightly integrated The vendor selection process begins with a well defined sourcing strategy The vendor selection process must address all expectations of the future client/vendor relationship (services,SLAs, legal and regulatory requirements, level of scope flexibility etc.)

The vendor selection process should be as interactive as possible There is an increasing number of vendors and services solutions but the fundamentals of vendor selection remain the same


Sourcing Advisory Services Full Lifecycle MethodologyThe recommendations and best practices covered in this Webinar are based on Avasants comprehensive sourcing methodology that has supported cross-industry operations and IT initiatives such as Shared Services, Consolidation, Transformation or Managed Services. An outsourcing approach that is comprehensive and that addresses the full sourcing lifecycle in an integrated way helps to ensure long-term successful vendor/client relationships.PHASE 2: PREPARATION

PHASE 1: STRATEGYGATHER INFORMATION & STRATEGY DRIVERS

CONFIRM TARGET SCENARIOS & OPPORTUNITIES DEVELOP COMPARATIVE FINANCIAL MODEL

SHARED SERVICES & CONSOLIDATION PLANNING

INITIATE MANDATE & PROGRAM FRAMEWORK

DEVELOP CHARTER & ORG MODEL

DETERMINE TARGET PROCESSES & ACTIVITIES

DEFINE STAFFING MODEL & POSITIONS

IDENTIFY TECHNOLOGY ENABLEMENT REQS

VERIFY FUNDING & FINANCIAL DISCIPLINE

CREATE METRICS & PERF MGMT DISCIPLINE

RATIFY MODEL & EXECUTION ROADMAP

RFP RELEASE GATE CONFIRM STRATEGY & COLLECT BASELINE REQS PREPARE SOWs, CONTRACT TERMS & KEY SCHEDULES

CONTRACT APPROVAL GATE NEGOTIATE FINAL CONTRACT TO EXECUTION

ANALYZE OPERATIONS, MANAGEMENT & TECHNOLOGY ASSESS MARKET MATURITY & SERVICES FIT COMPARE TARGET SCENARIOS & ANALYZE RISKS FINALIZE SERVICE DELIVERY STRATEGY

SOURCING TRANSACTION EXECUTION

CONDUCT PROVIDER MARKET SCAN

PREPARE RFP BID PACKAGE & SCORING MODEL

MANAGE PROVIDER SELECTION PROCESS

FACILITATE DUE DILIGENCE

PREPARE NEGOTIATION STRATEGY

MGT CHKPT

PHASE 3: IMPLEMENTATION AND MANAGEMENTIMPLEMENTATION & TRANSITION SUPPORT CREATE INITIATIVE PROGRAM OFFICE DEVELOP DETAILED TRANSITION /EXECUTION PLAN SERVICES MANAGEMENT PERFORM SERVICES MGMT HEALTH CHECKS

FACILITATE RISK & CHANGE MANAGEMENT

VALIDATE VERIFY DEFINE VERIFY CRITICAL PERFORMANCE FINANCIAL SERVICES DELIVERBLES MEASURMENT PROCESSES & MGMT & & MILESTNS & REPORTING BILLING GOVERNANCE

CONFIGURE

AvaSenseTMSUPPORT TOOL

DEVELOP SERVICE STRATEGY ROADMAP


Outsourcing Vendor Selection Best Practices Overview of Sourcing Strategy and Its Impact on the Vendor Selection Process

Strategic Advisors for the Global Economy


Sourcing Strategy OverviewGather Information & Strategy Drivers and Confirm Target Scenarios & BenefitsPHASE1: SOURCING STRATEGYGATHER INOFRMATION & STRATEGY DRIVERS CONFIRM TARGET SCENARIOS & BENEFITS ANALYZE DEVELOP OPERATIONS COMPARATIVE MANAGEMENT FINANCIAL & MODEL TECHNOLOGY ASSESS MARKET MATURITY & SERVICES FIT COMPARE TARGET SCENARIOS & ANALYZE RISK FINALIZE SERVICE DELIVERY STRATEGY DEVELOP SERVICE STRATEGY ROADMAP

What are the key strategic drivers that will guide the sourcing strategy and ultimately the field of vendors that will participate in the vendor selection process? For example: Reduce cost Reduce operational risk and focus on core competencies Deliver services in new regions Speed up time to market Reduce geographical risk Transform how services are delivered

Based on the strategic drivers what service models are available and are there vendors in the marketplace that support each model? For example:

Shared services Managed services SaaS, public cloud, private cloud services Single vendor/multiple vendors


Sourcing Strategy OverviewDevelop Comparative Financial ModelPHASE1: SOURCING STRATEGYGATHER INOFRMATION & STRATEGY DRIVERS CONFIRM TARGET SCENARIOS & BENEFITS ANALYZE DEVELOP OPERATIONS COMPARATIVE MANAGEMENT FINANCIAL & MODEL TECHNOLOGY ASSESS MARKET MATURITY & SERVICES FIT COMPARE TARGET SCENARIOS & ANALYZE RISK FINALIZE SERVICE DELIVERY STRATEGY DEVELOP SERVICE STRATEGY ROADMAP

What is our cost baseline that will be used to compare vendor proposed costs? What is the potential market cost for each plausible sourcing scenario?Outsource Scenario Outsource Scenario Total Vendor ChargesTotal Vendor Charges Total Retained Operation Expenses

Capital $ $ 130,000 -

Year 1

Year 2

Year 3

Year 4

Year 5

5-Year Total5-Year Total

Capital Year 1 Year 2 Year 3 Year 4 Year 5 $ 1,848,180 $ 1,918,800 $ 2,353,800 $ 2,693,400 $ 2,863,800 $ 11,677,980

$ 130,000 $ 1,848,180 $ 1,918,800 $ 2,353,800 $ 2,693,400 $ 2,863,800 $ 11,677,980 $ 2,895,792 $ 3,000,000 $ 3,100,000 $ 3,300,000 $ 3,500,000 $ 15,795,792

Total Retained Operation Expenses Vendor Management Function

Cost / Pricing Comparison3,100,000 $ 3,300,000 - Total $ 2,895,792 $ 3,000,000 $ 92,409 $ 95,940 $ 117,690 $ 134,670 $ 143,190 $ Cost / Pricing Comparison - Total$ $

$ 3,500,000 $ 15,795,792 583,899 583,899

Total Expenses Income Taxes Paid

Vendor Management Function Total Expenses

$ 92,409 $ 95,940 $ 117,690 $ 134,670 $ 143,190 $ $ 4,836,381 $ 5,014,740 $ 5,571,490 $ 6,128,070 $ 6,506,990 $ 28,057,671 $ 4,836,381 $ 5,014,740 $ 5,571,490 $ 6,128,070 $ 6,506,990 $8,000$ (1,257,459) $ (523,832) $ (642,587) $ (735,298) $ (781,817) $ (3,940,994) $7,000 $8,000 $ (1,257,459) $ (523,832) $28(642,587) $ (735,298)$28 (781,817) $ $ $7,487 $ 2,092,772 $6,000$ 3,578,922 $ 1,490,908 $ 1,828,903$6,706 $ 2,225,173 $ 11,216,677 $7,000 $26 $26 $7,487 $ 3,578,922 $ 1,490,908 $ 1,828,903 $Client $5,829 2,092,772 Case $5,000 $6,000 $ (3,578,922) $ (1,490,908) $ (1,828,903) $ (2,092,772) $ (2,225,173) $Base $ 2,225,173 (11,216,677) $6,706 $24 $24 $4,000 $5,829 $5,000 $ (3,578,922) $ (1,490,908) $22 $ (1,828,903) $ (2,092,772)$22 $ (2,225,173) $3,000 $4,000 $2,000 $3,000 $ 424,334 $ 600,000 $ 600,000 $ 600,000 $ 600,000 $ 2,824,334 $20 $20 130,000 $ 130,000 $1,000 $ 424,334 $ 600,000 $ 600,000 $ 600,000 $ 600,000 $2,000 $18 $18 130,000 $1,000 $0$$ (3,154,588) $ (1,490,908) $ (1,828,903) $ (2,092,772) $ (2,225,173) $ (10,662,343) 130,000 $16 $16 Current Cost Market Price Mkt w/Max $0 $ 130,000 $ (3,154,588) $ (1,490,908) $ (1,828,903) $ (2,092,772) $ (2,225,173) Offshore ($9,525,413) Current Cost Market Price $14Mkt w/Max $14 Leverage Offshore ($9,525,413)$12 $12

$ 28,057,671 $ (3,940,994)Client Base Case Projected Savings Projected Savings (15% - 18%) Range of Actual Savings Range of Actual Savings (25% - 37%)

Annual $000's Annual $000's

Income Taxes Paid Total Expenses (After-Tax) Total Expenses (After-Tax) Operations Cash Flow for Argo

$ 11,216,677

Non-Cash Expenses Depreciation Non-Cash Expenses Capital Paid Depreciation Capital Paid Net Cash Flow (After-Tax) NPV

Operations Cash Flow for Argo

$ (11,216,677) - 18%) (15%

$

$

$ 2,824,334 $ 130,000 $ (10,662,343)

(25% - 37%)

Net Cash Flow (After-Tax) NPV

Leverage Cost / Pricing Scenarios Cost / Pricing ScenariosStradling Projected Pricing

2008

2009

2008 2010$ $ 24.5 22.4 $ $ 20.0 19.5 $ $ 17.8 20.2 $ $ 15.0 19.2 $ $ 15.4 18.3

2009 2011$ 23.4 $ 25.8 $ 19.8 $ 20.3 $ 20.2 $ 16.6 $ 16.2 $ 14.2 $ 16.7 $ 15.2

2010 2012$ $ 27.1 24.5 $ $ 20.5 20.0 $ $ 16.2 17.8 $ $ 13.6 15.0 $ $ 15.5 15.4

2011 Totals$$123.2 25.8 $$100.1 20.3 $$ 91.0 16.6 $$ 78.2 14.2 $$ 81.1 15.2

2012$ 27.1 $ 20.5 $ 16.2 $ 13.6 $ 15.5

Totals $123.2 $100.1 $ 91.0 $ 78.2 $ 81.1

$ 22.4 Client Base Case W/O Change Client Base Case W/O$ 23.4 Change $ 19.5 $ 19.8 Stradling Projected Pricing

$ 20.2 $ 20.2 Service Provider X Pricing Service Provider X Pricing $ 19.2 $ 16.2 Service Provider Y Pricing Service Provider Y Pricing $ 18.3 $ 16.7 Service Provider Z Pricing Service Provider Z Pricing


Sourcing Strategy OverviewAnalyze Operations Management & TechnologyPHASE1: SOURCING STRATEGYGATHER INOFRMATION & STRATEGY DRIVERS CONFIRM TARGET SCENARIOS & BENEFITS ANALYZE DEVELOP OPERATIONS COMPARATIVE MANAGEMENT FINANCIAL & MODEL TECHNOLOGY ASSESS MARKET MATURITY & SERVICES FIT COMPARE TARGET SCENARIOS & ANALYZE RISK FINALIZE SERVICE DELIVERY STRATEGY DEVELOP SERVICE STRATEGY ROADMAP

What is the baseline of our operational capabilities, management capabilities and technology? Where do we want to go, what is the gap, and what will be required of us and our vendor(s) to help us get there?Operational ProcessesIncident Management Problem Management Availability Management Configuration Management Change Management Release Management IT Service Continuity Mngement Service Desk Capacity Management Service Level Management IT Financial Services Mgt.

Compliance RatingFails Meets Exceeds

Data Center ArchitectureElementEnterprise Database Storage Mainframe Application Server Application Server OS Server Virtualization Physical EnvironmentSourcing Program Management Transition Management Sourcing Mgt & Governance Relationship Management Performance Management Delivery Demand Mgt Contract Management Finance Management Compliance & Risk Management License Management

Best Practice ComplianceNone 100% Key Deal Mgt Process

Compliance RatingFails Meets Exceeds


Sourcing Strategy OverviewAssess Market Maturity & Services FitPHASE1: SOURCING STRATEGYGATHER INOFRMATION & STRATEGY DRIVERS CONFIRM TARGET SCENARIOS & BENEFITS ANALYZE DEVELOP OPERATIONS COMPARATIVE MANAGEMENT FINANCIAL & MODEL TECHNOLOGY ASSESS MARKET MATURITY & SERVICES FIT COMPARE TARGET SCENARIOS & ANALYZE RISK FINALIZE SERVICE DELIVERY STRATEGY DEVELOP SERVICE STRATEGY ROADMAP

Based on strategic drivers, sourcing scenarios and requirements, who are the most appropriate vendors available in the marketplace? It is often helpful to conduct informal vendor solution presentations with a select group of vendors prior to the RFP to assist in refining strategies, requirements and RFP participants.Historic Market Perspective Weighting Pr ovider 1 Provider 2 Score Summary P rovider 3 Provider 5 Provider 4 Provider 5 5.0 3.0 4.0 5.0 4.0 4.0 4.0 3.0 4.0 3.0 5.0 4.0 5.0 5.0 3.0 61.0 45

Selection Criteria*

Strategic Plan & Vision Green Data Center Green Power Management Systems Financial Stabilit y Customer Satisfaction Contract Management Capabilities Flexibility & Adaptability Contract F lexibility Retention Rate / Resourcing Pricing and Resource Weighting Management Practices, Methodology, Quality Geographic Delivery Capabilities (NA Only) Offshore IT Infrastructure Offshore Applications (Development and Maintenance) Business Process Outsourcing

1 3 3 1 1 1 2 1 2 1 2 2 3 1 3

3.0 3.0 5.0 5.0 2.0 5.0 1.0 1.0 5.0 1.0 4.0 5.0 4.0 5.0 3.0 52.0 37

4.0 3.0 5.0 5.0 4.0 5.0 3.0 2.0 4.0 1.0 4.0 5.0 2.0 3.0 5.0 55.0 40

4.0 3.0 4.0 4.0 4.0 4.0 4.0 4.0 3.0 4.0 5.0 4.0 5.0 5.0 4.0 61.0 45

3.0 3.0 2.0 2.0 2.0 3.0 5.0 4.0 3.0 4.0 3.0 3.0 4.0 5.0 4.0 60.0 37

5.0 3.0 4.0 4.0 5.0 5.0 3.0 2.0 5.0 2.0 5.0 4.0 5.0 5.0 4.0 61.0 45

Total Score Weighted Score Ranking

3

2

1

3

1

1


Sourcing Strategy OverviewCompare Scenarios, Analyze Risks and Finalize StrategyPHASE1: SOURCING STRATEGYGATHER INOFRMATION & STRATEGY DRIVERS CONFIRM TARGET SCENARIOS & BENEFITS ANALYZE DEVELOP OPERATIONS COMPARATIVE MANAGEMENT FINANCIAL & MODEL TECHNOLOGY ASSESS MARKET MATURITY & SERVICES FIT COMPARE TARGET SCENARIOS & ANALYZE RISK FINALIZE SERVICE DELIVERY STRATEGY DEVELOP SERVICE STRATEGY ROADMAP

Based on strategic drivers, operational-management-technology impact, cost and risks what is the model we will go forward with? What will be our vendor selection approach, participating vendors and additional requirements to be addressed in the vendor selection process (e.g., risk mitigation requirements).Servers Network Desktop Help App App Comp & Recruit Payroll Train Procure Accts Sourcing Ability Servers Network DesktopDesk Dev Maint Benefits & Recruit Payroll Train ProcurePayable Help App App Comp Accts to Sourcing Ability Improve: Desk Dev Maint Benefits Payable to Improve: 1. Scalability 1. Scalability 2. Cost (1) (1) 2. Cost 3. Cost Variability 3. Cost Variability 4. Service 4. Service 5. Risk Profile 5. Risk Profile 6. Meet Current Avg Comp Wt % High AC*WHR% Category Risk (AC) 6. Meet Current Requirements Com 3.2 3.1 3% Legal Risk Requirements 7. Future Fin 3.4 15% 3.9 7. Future Requirements 2.9 3% 3.0 Requirements LegalPeo 3.3 13% 3.7

People Risk 5 Performance Risk 4 3 2 1 Technology Risk 0

Financial Risk

Perf

3.5

15%

4.0

Sec

2.8

0%

2.8

Tech

3.1

3%

3.2

Communication Risk Transition Risk

Security Risk

Trans

3.4

13%

3.8

Legend

Lo 1

Med

Hi 5

Status Quo New Model Scenario A New Model Scenario B


Sourcing Strategy OverviewDevelop Service Strategy RoadmapPHASE1: SOURCING STRATEGYGATHER INOFRMATION & STRATEGY DRIVERS CONFIRM TARGET SCENARIOS & BENEFITS ANALYZE DEVELOP OPERATIONS COMPARATIVE MANAGEMENT FINANCIAL & MODEL TECHNOLOGY ASSESS MARKET MATURITY & SERVICES FIT COMPARE TARGET SCENARIOS & ANALYZE RISK FINALIZE SERVICE DELIVERY STRATEGY DEVELOP SERVICE STRATEGY ROADMAP

What will be our roadmap for the vendor selection process and transition to vendor services? The RFP should contain key requirements from the roadmap and the vendors ability to meet these requirements should be part of the proposal evaluation criteria.


Outsourcing Vendor Selection Steps and Best Practices

Strategic Advisors for the Global Economy


Vendor Selection Steps and Best PracticesPrepare SOWs, Contract Terms & Key SchedulesRFP RELEASE GATE CONTRACT APPROVAL GATE NEGOTIATE FINAL CONTRACT TO EXECUTION

PHASE 2: SOURCING TRANSACTION EXECUTION

CONFIRM STRATEGY & COLLECT BASELINE REQS


PREPARE SOWs, CONTRACT TERMS & KEY SCHEDULES





Lesson Learned: The RFP should contain a comprehensive, client developed global outsourcing contract for the vendors to respond to. The contract should consist of all key contract documents (e.g., MSA, SOWs, SLAs, Incentives and Fee Reductions Schedule, Relationship Management Schedule, Pricing Schedule). This approach helps to ensure that 1) all vendors are responding to the same baseline of services and other contractual requirements, 2)vendor proposals can be compared on an apples to apples basis and 3) there are no unexpected issues & pricing increases during contract finalization.Global Master Services Agreement

1Schedules Master Services Agreement Global Terms and Conditions

2Country Agreements Local Terms and Conditions United States Spain Portugal United Kingdom Ireland Germany

3MSA Attachments Performance-Based Mgmt. Fee Reductions Benchmarking Pricing Security Exhibits Change Management Relationship Management Lists: Key Personnel, Etc.

4Statements of Work Schedules Travel Management SOW Expense Management SOW Credit Card Services

Attachments

Most vendors today operate on a global basis, therefore the MSA must addressed global terms and conditions.

An SOW with roles and responsibilities matrices is required for each service area. Vendors will propose their solutions around these core service Page 16 requirements. Confidential - Not For Distribution

Vendor Selection Steps and Best PracticesPrepare RFP Bid Package & Scoring ModelRFP RELEASE GATE CONTRACT APPROVAL GATE NEGOTIATE FINAL CONTRACT TO EXECUTION









Lesson Learned: The RFP must clearly articulate the clients outsourcing objectives and key requirements and must elicit vendor responses in a clear and structured manner. In addition to the outsourcing contract, the RFP should contain the following key components designed to inform vendors of your underlying strategy and key requirements. The RFP should also extract detailed information regarding each vendors services solutions and pricing.RFP Cover Letter RFP Instructions Provider Proposal Response Template Pricing Instructions and Pricing Template Master Services Agreement Relationship Management Schedule Statements of Work with Detailed Technology Appendices Fee Reduction Schedule Definitions Benchmarking Procedures HR Attachments Assigned and Managed Contracts SAS 70 Compliance Standards Other Contract DocumentsInitial Contract Agreement Is Included In RFP Bid Package

Proposal response template requesting: Client information from the sourcing strategy, including: Client Background Sourcing Strategy Drivers Key Business, Technical and Service Requirements Acceptance and exceptions to the contract contained in the RFP Pricing proposal response template aligned to the baseline structurePage 17 Confidential - Not For Distribution

Provider background and direction Similar references Responses to questions and solution descriptions for transition, risk mitigation, technology, management, operations and staffing approach

Vendor Selection Steps and Best PracticesPrepare RFP Bid Package & Scoring Model (contd)RFP RELEASE GATE CONTRACT APPROVAL GATE NEGOTIATE FINAL CONTRACT TO EXECUTION









Lesson Learned: Key stakeholders should be involved in defining proposal evaluation criteria using a model that aligns to the RFP.Prepare a vendor evaluation and scoring model aligned to the RFP and its key components. Avasant recommends using a weighted, hierarchical model that contains major criteria and sub elements. The evaluation criteria should also align to strategic objectives and service requirements developed as part of the sourcing strategy. Key client stakeholders should participate in establishing evaluation criteria and weighting factors through a consensus-based process. This same group of key stakeholders should form the proposal evaluation and scoring team and should ultimately select the vendor based on a consensus decision process.

Offshore Provider 1 Offshore provider 2 Offshore Provider 1 Offshore provider 2 Offshore Max % 5% 1% 15% 10% 1% 3% 35.0% 18% 8% 2% 2% 30.0% 10% 10.0% 12% 12% 1% 25.0% 100%

Category A) BUSINESS 1) RFP Process Management Capability 2) Provider Profile

2.8% 0.5% 7.8% 6.0% 0.6% 1.2%

2.7% 0.5% 9.8% 7.0% 0.6% 1.8% 22.4% 13.7% 4.8% 1.2% 1.2% 20.9% 6.2% 6.2% 7.2% 7.5% 0.6% 15.3% 64.7%

3) Relationship Management Services and Provider Staffing 4) Human Resources Approach and Acceptance 5) References - Business view 6) Site visit - Business view Business Points: B) TECHNICAL 1) Application Maintenance and Support Services 2) Alternative Approaches 3) References - Technical view 4) Site visit - Technical view Technical Points: C) COST 1) Pricing Cost Points: D) RISK 1) Conformance with Contract Requirements 2) Transition 3) Exit Plan Risk Points: TOTAL POINTS:

18.9% 10.8% 4.8% 0.8% 1.2% 17.6% 5.4% 5.4% 6.0% 5.8% 0.6% 12.4% 54.3%


Vendor Selection Steps and Best PracticesManage Provider Selection ProcessRFP RELEASE GATE CONTRACT APPROVAL GATE NEGOTIATE FINAL CONTRACT TO EXECUTION









Lesson Learned: Interaction with vendor proposal teams throughout the selection process helps to improve vendor proposals and helps to gauge vendor commitment and corporate culture compatibility. Following RFP release, Avasant recommends the following pre and post-proposal activities: Pre-proposal submittal: Vendor Introduction Meetings Conduct informal introduction meetings between the clients RFP executive sponsors and the senior leadership team from each vendor. This is the initial opportunity for the client to gauge vendor commitment to the deal and it provides the vendor an opportunity to inquire about the clients overall vision for the future services relationship. One-on-one Q&A Sessions or Bidders Conference Depending on procurement rules, conduct one-on-one Q&A sessions with each vendor or conduct a bidders conference for all participating vendors. These interactions again allow the client to gauge vendor engagement and cultural compatibility potential.Page 19 Confidential - Not For Distribution

Vendor Selection Steps and Best PracticesManage Provider Selection Process (contd)RFP RELEASE GATE CONTRACT APPROVAL GATE NEGOTIATE FINAL CONTRACT TO EXECUTION









Post-proposal submittal: Proposal Evaluation and Scoring The proposal evaluation team should conduct a consensus-based proposal scoring process supported by the pre-defined scoring model. Vendor Presentations Vendor presentations can be conducted to clarify vendor proposals and they provide an additional opportunity to interact with proposed delivery teams and to gauge commitment and cultural compatibility. The agenda of the presentation should be planned for each vendor so that it is a focused interaction and not a sales-based activity. Vendor Down Selection Following proposal evaluation and scoring, and vendor presentations, the evaluation team should have enough information to down-select to the top two vendors. The top two vendors will move on to due diligence activities and best and final offers.Page 20 Confidential - Not For Distribution

Vendor Selection Steps and Best PracticesFacilitate Due DiligenceRFP RELEASE GATE CONTRACT APPROVAL GATE NEGOTIATE FINAL CONTRACT TO EXECUTION









Lesson Learned: Due diligence is a key activity that is often underemphasized or treated superficially. It is extremely important to perform due diligence activities on the finalist vendors as a part of the overall evaluation. The vendors will present a glowing account of their capabilities in their proposals so it is important to verify these capabilities with visits to each vendor facility that will be performing services for the client. A typical agenda for site visits should include review of the following:Management and operational processes with concrete examples Physical and logical security processes with concrete examples Provider support infrastructure and support facilities Technology used in the delivery of services Interviews with key executives Interviews and walkthroughs with service delivery managers Interview with proposed account executivePage 21 Confidential - Not For Distribution

Vendor Selection Steps and Best PracticesPrepare Negotiations Strategy and Negotiate Contract to ExecutionRFP RELEASE GATE CONTRACT APPROVAL GATE NEGOTIATE FINAL CONTRACT TO EXECUTION









Lesson Learned: Managed competition throughout the vendor selection process improves vendor proposals and keeps vendors focused on client requirements. Negotiations Strategy: The client team should prepare a negotiations strategy for each finalist vendor. The negotiations strategy will guide parallel negotiations discussions that focus on priority proposal issues. Parallel Negotiations: Parallel negotiation discussions focus on clarifying priority issues such as vendor contract exceptions and proposed solutions and pricing. The objective is to reduce the number of contract issues and settle on service solutions prior to selection of the preferred vendor. The finalist parallel negotiations approach keeps vendors competitive and focused on meeting client requirements. Best and Final Offers - Following parallel negotiations, each finalist vendor should provide a best and final offer (BAFO) proposal based on the initial proposal with updates and a reduced number of contract exceptions resulting from parallel negotiations. BAFO Evaluation and Preferred Vendor Selection - After receiving BAFO responses from the finalists, the evaluation team should conduct a consensus-based BAFO scoring process to revise initial proposal scores to reflect the BAFO responses, findings of the site visits and customer reference calls. As before, the evaluation team should reach a single overall evaluation score resulting in the selection of the preferred vendor.Page 22 Confidential - Not For Distribution

Vendor Selection Steps and Best PracticesPrepare Negotiations Strategy and Negotiate Contract to Execution (contd)RFP RELEASE GATE CONTRACT APPROVAL GATE NEGOTIATE FINAL CONTRACT TO EXECUTION









Lesson Learned: Including the outsourcing contract in the RFP, interaction with vendors, proposal clarification/pre-negotiation discussions and managed competition can significantly reduce the amount of final contract negotiations required. Final Contract Negotiations: By the time the preferred vendor reaches this point only a small number of issues should remain to be negotiated. If final contract negotiations break down, the runner up vendor can be quickly teed up as the BAFO proposal should be a completely plausible alternative.

Q&APage 23 Confidential - Not For Distribution

Contact Information: Henry [email protected] Voice: 818-314-5987 3601 N Aviation Boulevard, Suite 3000, Manhattan Beach, CA 90266 Strategic Advisors for the Global Economy


The Outsourcing Institute Gateway to the Outsourcing Marketplace Located at outsourcing.com Trends, Best Practices, Case Studies Training Through OI University Outsourcing RFP Builder Software and Related Tools Outsourcing Jobs and Recruiting Services Through CMS Inc. Local, Intimate and Interactive Outsourcing Road Shows Coming to a City Near You Sponsorship and Business Development OpportunitiesFor more information contact us at: [email protected] or 516-279-6850 ext. 712

Outsourcing Institute Local 'Road Show' Events Los Angeles / Southern California & New York "Executive Insights: Enhancing Results Through Innovation in Outsourcing" The road show events will link buyers, providers and advisors of outsourcing services in collaborative, learning environments. Attendees will discover how innovation creates incentives that encourage providers to deliver value beyond price. They'll hear case studies from seasoned players navigating a maturing industry. They'll see how a geographically diversified portfolio of offshore, near-shore and domestic providers can help manage risk and aid in continuity planning. Roadshow Locations: Los Angeles/Southern California May 20, 2011 New York June 9, 2011 To Register: www.outsourcing.com/roadshow To learn more about the road shows, visit outsourcing.com/roadshow

Thank you for joining Outsourcing Vendor Selection Best Practices

Frank Casale Founder, CEO The Outsourcing Institute

Henry Guapo Partner, IT Sourcing Practice Lead Avasant

This webinar was hosted by Avasant in conjunction with The Outsourcing Institute.

avasant-outsourcing vendor selection webinar 04-21-11 v4-2

Documents

o order

o record

avasant experts

management consulting

ongoing management

global sourcing advisor

defined sourcing strategy

analytics managed services