A guide to statement of work engagements and how to manage them effectively
$1.1 trillion. That's how much the statement of work market is worth a year. In comparison to other outsourced resourcing models, it's huge – roughly worth three times the size of the traditional agency temporary workers market, for example.
This guide looks at what the 'SOW' is and how smarter technology can help improve the management of this critical resourcing model.
In this guide:
- What is an SOW engagement?
- Roles and responsibilities in the SOW process
- $500 billion of risky SOWs
- Practical tips: smarter SOW technology
What is an SOW engagement?
A SOW engagement is where an organisation engages an external supplier through a statement of work. A statement of work is a formal document, which defines the scope of the work involved for a supplier for any given engagement. The statement of work (SOW) document details and clarifies deliverables, costs, and the work's timeline.
Expressed in simple terms an SOW is like an organisation saying to a supplier, "In exchange for delivering X, you will be paid Y".
However, SOW is a relatively complex topic due to its wide range of applications. In other words, every SOW is unique.
The complexity arises because the SOW can define an almost infinite number of variables around the deliverables, costs or timings. For example, an SOW could equally be used to document the provision of external consultants, or the provision of software.
However, all SOWs detail two common elements:
- The vendor is providing an outcome, optionally expressed in milestones
- The vendor is providing resources (e.g., people, software, data) and expertise
Roles and responsibilities in the SOW process
There are three typical roles associated with the SOW process. For simplicity, in the examples below they are portrayed as people but in larger organisations these could be departments or teams:
This is the person who is seeking the outcome provisioned by the SOW. For example, this would be the business unit looking to outsource a project to an external provider.
This is the person who holds responsibility for the budget being used to pay for the project detailed in the SOW. In many instances, this is the same person as the Buying Manager.
Sourcing & Procurement Manager
The Sourcing & Procurement Manager is responsible for running the SOW process – from sourcing potential vendors, to evaluating proposed SOWs and recording SOW progress against outcomes and milestones.
$500 billion of risky SOWs
For enterprise-sized organisations, working with very large projects, the SOW process is well established and procurement teams provide the necessary checks and balances to keep budgets and suppliers under control.
However, issues arise when the value of an SOW isn't high enough to warrant procurement oversight.
Even with a conservative estimate that 50% of the $1.1 trillion SOW market is spent on projects large enough to need Procurement's involvement, it leaves $500 billion being spent on SOW resources with very little involvement from a centralised procurement function.
This creates a number of issues for an organisation:
- No complete visibility of budget versus spend
- No formalised process for managing vendor performance against budget or timelines
- No formalised process for controlling costs against milestones and outcomes
In addition, when an organisation agrees to an SOW, they don't always appreciate they are buying talent (skills and experience) in the shape of an individual or group of individuals. The uncontrolled 'hiring' of external resources creates a hidden workforce epidemic
, resulting in knock-on cost, security and regulatory risks.
Practical tips: Smarter SOW technology
The key to solving the big problem with small SOW engagements is technology. There are some very well established technology solutions to help procurement teams manage large statement of work engagements (for example, projects valued over £1 million). However these systems do not suit the decentralised, direct models typically found in smaller SOW engagements.
For smaller statement of work projects where there is a direct engagement with the buying manager, modern, cloud-based, extended workforce management systems like TalonFMS
can provide an effective, integrated, solution.
The key features to consider when choosing an SOW management tool are:
Supplier search & project matching
Being able to find the right service providers for any given project in seconds is important for large organisations who have diverse and extensive preferred supplier lists.
Being able to configure agreed milestones for each project helps to control budgets and project progress.
There are two main reporting requirements for effect SOW supplier management: Reporting on budget versus cost and reporting on achieving deadlines.
An effective SOW management tool will also be able to integrate with your existing VMS, HR, Procurement and Finance systems.