STATEMENT OF WORK RISK OVERVIEW
Statements of work (SOW), the purchase orders used to define the services being performed by a vendor, are the single most important document within a services engagement. A SOW defines what services will be completed, who does them, and at what cost.
Without a clear and detailed SOW, you leave yourself susceptible to long-term cost risk. In this eBook, ClearEdge details the risks that are hidden within a SOW and the best practices to mitigate them to set yourself up for success with any services engagement.
This IT Services Report focuses on key statement of work (SOW) review techniques to mitigate IT services purchase risk and maximize your knowledge on best practices when executing professional services engagements:
1. Checklist for Reviewing Statements of Work
A statement of work (SOW) is a formal document between a Customer and Service Provider that describes the scope of work required to complete a specific project or engagement. An effective SOW will define the methodologies, processes, and timelines of a project or agreement. Unfortunately, not all projects are created equal, with some needing much more detail to scope services than others. Every SOW will be customized to your project and supplier, with no one-size-fits-all template for competitive terms, conditions, or scoping. To ensure that you have a competitive SOW that won’t lead to additional costs over the course of the project, this section includes a 5-point checklist that highlights the most important terms and sections to review before executing an IT services statement of work.
2. Professional Services Price Structures
Understanding the differences between IT services deal structures is essential in figuring out which one is appropriate for your business. We examine each of the following common professional services deal structures:
Time and Materials (T&M) Services Price Structure: Costs consist of the fees for hourly or daily resource labor and any materials that are required to perform the work. Many customers have the fear that paying hour by hour will result in the highest total cost for a project, especially if delays occur within the planned timeline. However, this model has considerable pricing benefits due to its transparency. We detail when it’s appropriate to use this IT services pricing structure and the best practices in validating T&M proposal competitiveness.
Fixed Fee Services Price Structure: This is the services equivalent to a bundled deal. Though this structure provides a lack of transparency, it can be useful in limiting unexpected costs. Its effectiveness depends on your ability to communicate scope and responsibilities in the SOW. This section highlights the potential risks hidden in this IT services pricing structure and ways to mitigate risk if executing a fixed-fee deal.
A statement of work can make or break your services engagement. In the services world, having a competitive price is only half the battle. A poorly written statement of work will leave room for additional fees during the project, eroding any favorable discount you may have achieved initially. Use the tips included in this IT Services Report as a reference for what should be included in your next statement of work to ensure that you stay competitive over the course of your engagement.