“What does controlling SOW-based services spend mean to you?”
That was the seemingly straightforward question I asked of two separate audiences at a procurement conference recently. However, the responses I got were not straightforward; in fact, they were totally different — as different as chocolate and peanut butter.
- Group One (chocolate): This audience focused their responses on budget compliance and invoice and payment accuracy. In other words, group one’s concept of control was geared almost exclusively toward compliance with the terms agreed upon in the statement of work.
- Group Two (peanut butter): In contrast, group two didn’t even mention invoices or payments. Rather, they placed all of their control emphasis on selecting the right vendor for the underlying project or service and thoughtful development of strong, relevant contractual terms (i.e. scope, deliverables, and requirements).
Was either group’s response wrong?
No, both chocolate and peanut butter are very good – there are polls to prove it!
Both groups’ responses offer excellent insight to how procurement professionals think about controls. And both provide good commentary on how controls can improve an organization’s overall experience with third party service providers. The distinction lies in how the two groups (indeed how we all) contextualize the term control as a single, narrowly defined term, which it clearly is not, based on our own unique perspectives. Control by itself does not adequately depict the breadth, scope and complexity contained in these two responses, nor in the different perspectives, that clearly exist when talking about controlling SOW-based services spend.
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A Better Working Depiction of Control
The different perspectives from which the groups responded is basic yet instructive to how we can all better think about designing and deploying effective controls going forward. Plainly stated, group one was focused on post award controls while group two emphasized pre award control activities. The critical transition point – where the objectives of the control efforts unmistakably change – is at SOW execution. Once the contract is in place, the emphasis of the third party management process shifts from sourcing and contract negotiations to delivery of the underlying service or project and the facilitation of invoicing and payments.
Figure 1 – Control Landscape Map for SOW-Based Services
In the Control Landscape Map for SOW-based services (Figure 1) we see how a typical third party management environment is broken out into its logical control landscape components. This is a useful tool to highlight and distinguish pre award and post award activities and the risks they uniquely present relative to the organizational environment. It also paints a clearer picture of what controlling SOW-based services looks like. Specifically, the Control Landscape Map enables the following:
- Determine relevancy of controls;
- Identify gaps in control coverage; and
- Understand the interconnectivity and data dependency betweentransactional processes and organizational functions.
What about the chocolate and peanut butter, you ask?
Combine them for the best taste – perfect!
Despite our ability to decompose the control landscape and to target controls to one point of the process or the next, the optimal solution is a comprehensive one that incorporates and leverages all types of controls, on both sides of the contract, transactional and organizational, and across the entirety of the third party management and governance process.
Group one is right. Group two is right.
The remainder of this series will further unpack the Control Landscape Map. So, part 2 of the series will serve up a tasting of the peanut butter controls — eh hem, make that Pre-Award and Pre-Sourcing controls. Later parts will take us on a deep dive into the chocolate (doesn’t that sound like fun!) or Post-Award and Post-Engagement controls. And can you guess what the conclusion of this series will be about???
mmmm… perfect!
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[…] the opening post of this series, I discussed how two independent groups of sourcing and procurement professionals, when queried […]