There is a reason contingent workforce managers’ interest in managing statement of work continues to grow. Enfolding it is a step toward a more comprehensive and transparent contingent workforce program. It can also begin the journey toward total talent management, the idea that all talent across a company is visible and can be leveraged to fully maximize varied types of human capital resources across an organization.
But the fact is that SOW only supported by approximately 60% of the managed service providers in the marketplace. Regardless, SOW services have been growing at approximately twice the rate of the wider MSP in terms of spend. In 2016, the share of SOW across the wider MSP market was about 25% of spend, up from about 19% of spend the year prior. Comparatively, SOW-related services had a greater share of the VMS market (approximately 33%). This reflects the fact that SOW is more likely to be managed internally than through a third-party MSP.
So what does managing SOW do for companies?
Managing SOW more fully will give most companies transparency in several key areas, four of which are featured often in this publication as the standard framework of QCER (quality, cost, efficiency & risk).
Quality. In terms of quality, a well-defined SOW gives subject-matter experts (typically skills outside a company’s core competency) a deliverable with milestones that must be met. They provide the plan, management, materials and talent to deliver a very specific outcome. Most SOW projects involve experienced professional teams that must deliver a quality product each step of the project or risk financial consequences. Because quality is a key factor in getting repeat business, an SOW provider’s reputation and livelihood depend on delivering it.
Cost. SOW costs are known and approved at the outset of the project and are typically allocated at key deliverable points. Any exceptions must be approved and added to the SOW formally. Because of this, the costs can be pre-budgeted and planned for, enabling managers to have more control at the start and through the life of the project. This requires the project be well-conceived from the outset, however, or scope creep can lead to significant budget overruns in the form of change orders.
There is also potential for cost savings to be found in terms of eliminating rogue use of higher-markup SOW engagements when staff augmentation would suffice. However, according to Staffing Industry Analysts’ report “Pricing SOW Engagements [1],” in practice the labor-intensive process of uncovering and recategorizing this type of rogue spend tends to largely offset any savings, at least in the early years.
Efficiency. The true beauty of SOW is in the scope of service description and delivery mechanism that keeps a project running on time and with few delays, if any. The provider must meet the deliverables to be paid and is financially rewarded for their efficient use of time, materials and talent to meet the tenets of the SOW.
Risk. Businesses deal with risk every day and a well-designed SOW should include parameters that establish the SOW provider as a legitimate business should the unexpected occur. Risk management often is the primary rationale for bringing SOW under a contingent program, though this can differ in other countries. Knowing exactly who a supplier has deployed to work on your behalf and for how long, ensuring those individuals are actually employed by that supplier (eliminating “layered staffing”). Enforcing standards in areas such as credentialing and access to facilities and systems is of primary importance in this era of increased scrutiny on worker classification and third-party employment relationships.