Chapter 9:
Evaluating Responses to Requests for Proposals

Overview

When a company decides to buy a product or a system (specifically a complex system like a PBX) it must decide which vendor is providing the most value. The best way to determine which product or system will be the most beneficial is through a process of evaluating requests for proposal (RFP) responses. Also by computing life-cycle costs with the use of a life-cycle analysis, the company will be able to justify its purchase decision.

Overview of the Product Selection Process

1.     Eliminate proposals that fail to meet mandatory requirements- impossible to compare products that don't conform to the evaluation criteria

2.     Create a response matrix - a chart is used to compare proposals in order to eliminate the least likely to be chosen

3.     Review features in detail - determine which elements add value to your company compared to the other proposals

4.     Perform a life cycle analysis

5.     Review technical performance of the top proposals - tests and evaluations are conducted on equipment, operations, maintenance: administration and support

6.     Weight desirable features - evaluate how well the features are implemented

7.     Develop a final product evaluation - after summarizing the elements in the product evaluation a final evaluation is created using factors such as:

• Life-cycle cost
• Vendor’s qualifications and experience, with particular emphasis on references
• Evaluation of mandatory features
• Evaluation of desirable features
• Vendor’s support plan
• Financial stability of the vendor
• Technical status of the proposed product

Steps in Conducting a Life-Cycle Analysis

1.     Determine your organization’s requirements- know your company's objectives

2.     Determine your specifications - know the technical limitations of your system

3.     Identifying life-cycle factors - determine all recurring and nonrecurring costs; omit common factors like telephone line charges because they will have no effect on the outcome

4.     Obtain life-cycle cost information - request the vendors to include information like price, floorspace, maintenance costs

5.     Evaluate life-cycle economics - values are assigned and calculated for each factor corresponding to the vendor; the steps are:

• Determining the length of the study - high initial product cost can be offset by a products long life
• Determining the cost of money- the average cost of equity, debt and retained earnings
• Deciding on expectations regarding inflation - certain purchases made in an inflating economy can pay for themselves over time
• Determining cost for each product - vendors can provide reliable costs for each factor
• Determining income tax effects -deductions are made for depreciation and annual operating costs
• Conducting the analysis -evaluate costs from the time it is acquired to the time it is retired, calculate the net-present value (NPV) and the internal rate of return (IRR)
• Interpreting the results - determine which product will reduce future expenses and will return the most on your initial investment

Life-Cycle Analysis: A Case Study

A case study was conducted using a life cycle analysis. A company named example.com issued an RFP for a PBX equipped with 60 ACD agent positions.

·        Sensitivity analysis – change questionable figures in the product comparison chart and observe the outcome; factors that don’t have an effect on the outcome can be ignored; those factors that do call for more research before a decision is made

·        Lease vs. purchase analysis - all vendors should submit lease and purchase proposals; a product comparison chart can be used in making the decision to lease or purchase

Technical Evaluation

The most involved and time consuming stage of evaluation; this stage should be reserved for the finalists

Factors to be considered are:

1.     Status of the technology- new or old technology; will there be maintenance support, product updates, etc.

2.     Capacity - can it support unexpected growth; can it handle activity peaks; how much space is available until a new unit is required; how easy is it to create more capacity

3.     Documentation - is it fully documented (manuals); are they in logical order keeping with industry standards; does the vendor refuse to provide documentation; how much training is required to understand the documentation

4.     Technical support - how close is the service force; what is the average response/repair time; can it be repaired remotely; how much does repair cost; how difficult is it to trouble shoot; does the product perform self-diagnostic services; what kind of back up does the product have in case of failure

5.     Reliability- does the system have a back up or redundancy feature; are reliability reports available; what kind of field experience is available; what do other users say about reliability

6.     Administrative functions- how easy is it to make station changes; does the product provide data about use (traffic, load, daily values); how easy is it to interpret/use data; how easy are program updates

^7.        Transmission performance- are there any design flaws; how does the product handle complex features (conferencing, remote access, off premise stations)

8.     Environmental- how will you have to rearrange space to fit the product; will you have to increase air flow, air conditioning)

9.     Wiring plan - do you have to re-wire your site; will the product accept the wiring plan currently in existence; what kind of wiring is required for expansions; is the wiring easy to use

10. Range - what is the maximum distance a station can effectively operate from the PBX

Dealing with intangibles - features that cannot be quantified like ease of use

Ease of feature use – many employees receive little training on the equipment; it is best to observe operational features on a working machine; the following factors should be evaluated:
·        Console operation
·        Maintenance plan
·        Documentation
·        Vendor’s reputation for product and support

Choosing the Product

In your product selection:
·        Select the product that is best for your company
·        Have the tentative vendor come in to answer any questions
·        Negotiate any differences in the contract before it is awarded

Summary

In summary, evaluating responses to requests for proposals is:
·        A systematic evaluation of all of the objective information about a product
·        To view the intangible and uncertain information as values that aid in making a decision
·        Greatest value of the process - to obtain information that would normally be disregarded in choosing a product

Glossary

·        Automatic call distributor (ACD) - a specialized phone system originally designed simply to route an office’s incoming calls to all available personnel so that calls are evenly distributed

·        Internal rate of return (IRR) - is a financial evaluator that expresses the amount of money that an investment returns to the enterprise, it is determined by finding the discount rate at which the NPVs of two alternatives are equal (Green, 78)

·        Life-cycle analysis (LCA) - a systematic process for evaluating both financial and intangible differences between products (Green, 155)

·        Life-cycle - a test performed on a material or configuration to determine the length of time before failure in a controlled, usually accelerated, environment (Newton)

·        Net present value (NPV) - the sum of the discounted cashflows minus the original investment (Green, 74)

·        Request for proposal (RFP) - a detailed document prepared by a buyer defining his requirements for service and equipment sent to one or several vendors (Newton)