It depends on the intent for which data will be used.
CPI measures inflation as experienced by consumers in their day-to-day living expenses whereas ECI indicates whether employment cost changes are rising or falling
If the 'change in labor rate' data is used for, to adjust compensation so that purchasing power is maintained, then the CPI would be a good source. However, if data will used to compare salaries so that it remain competitive within the labor market, then the ECI could be used.
BlueCross BlueShield of South Carolina
It is a good topic to talk about. I struggle with what metrics to report on. It only takes one bad contract to cost the organization lots of money but it is hard for people to grasp it. How do you report on that? Currently, I report on the number of contracts the organization has and the amount of money expected to spend under a contract. Cost savings and cost avoidance is reported by my department through our category managers. I believe the category managers take the first offer from a vendor and then subtract the final number after negotiations to calculate cost avoidance. Cost savings is calculated if the organization will contractually pay less under this contract than it historically has for that same commodity. These definitions were agreed to by both our CFO and our Director.
• Century 21 Vanguard
Patrick, are you familiar with IACCM's "10 Pitfalls" research? This study looks at the top value erosion areas. Flip the erosion perspective and you'll quickly find key areas where by improving your capabilities you will improve ROI. Please reach out to me if you wish to discuss this in detail.
• BlueCross BlueShield of South Carolina
Thank you for the excellent recommendation. I've reviewed the research in the "10 Pitfalls" and it has provided me with concepts that I will research further internally.
Patrick, in addition to this first part of the "ROI of Contract Management", I'd also recommend to continue reading Tim's part two of that blog: blog.iaccm.com/commitment-matters-tim-cummins-blog/the-roi-of-contract-management-part-2 You may have already read how the article describes how the Contract Management role has evolved. Now, in this new section, you will have the chance to identify the benefits that can be achieved when creating and demonstrating value from such a role.
I think you are confusing two points here, one is transparency in cost base as a fundamental basis to developing the trading relationship, understanding cost drivers and risks (and hence contigencies) for both parties, and one is the commercial basis of pricing.
By agreeing a baseline through open book (as means of auditing that baseline and hence adjustmets from it) you can then start to bring in incentivisation for better performance, for cost improvements etc through gainshare provisions.
Supplier X may have a target margin of Y%, and the pricing may be firm, but there is no reason why the parties cannot agree open book with a stated target margin for the supplier, and have a gainshare provision that rewards and therefore shares any upside.
Conversely, if a Supplier has a genuine issue and can demonstrate an emerging situation through open book, it should produce a more collaborative engagement to address the matter sooner rather than later.
Open Book does not mean "If you get any more above your target margin I want it all" - question the basis of the trading relationship if it is!
Human resources may be considered as a liability from the accounting/financial reporting point of view because of the overhead costs associated with its upkeep and maintenance. However in my opinion and from an overall business point of view - the skills, capabilities, experience and IP of the company's human resources can be considered an asset. No company can run efficiently and generate revenue without a competent pool of staff.
• Century 21 Vanguard
Perhaps you can elaborate on your post. Are you talking specifically about contract management and its value?
• Management Web
Thanks Katherine Kawamoto for your kind help,
The topic is elaborating for better understanding.
We know goodwill is considered as an asset but we can't calculate the exact value of it. We consider it as an asset because goodwill enhances the profitability of the organization.
We also consider preliminary expense as an asset for the contribution to gain profit.
At the same way skilled manpower also helps the organization to gain profitability. And it is the most valuable and productive factor for the organization. So why human resources or skilled manpower aren't consider as an asset to calculate the total assets in the balance sheet?
You don't own your human resources. So you cannot present them on your balance sheet as an asset because your employees can quit any time they like. You can argue that it is different if you have labor contracts that bind people to your company for a certain period of time (football clubs do it), but if an employee wants to leave you should write off a lot of the value (motivation to deliver results will be gone) and it will not be easy to find a metric for that :-)
You are right in linking HR to goodwill. In practice, goodwill can hinge on one person (think: Steve Jobs). But then again, if you are a company whose goodwill is linked to one person, then you have a problem to fix.
You might consider questions that allow you to determine whether the scope of how you might utilize the contractor/supplier is consistent with how the referring organization has utilized the contractor/supplier. Unless your firm and the referring organization have that common ground, the relevance of the subsequent questions might be sub-optimized.
Also, please consider the option of finding references without the assistance of the contractor/supplier. In many instances, the feedback which you receive might be skewed or biased in the favor of the contractor/supplier.
If you are in the US, definitely check vendors against various federal lists (such as Denied Parties List) which can be found at the U.S. Commerce Dept.'s Bureau of Industry and Security (Lists of Parties of Concern).
And, you will want to know if the vendor has been terminated by a client and if so why.
One question you might consider asking: What problems did you run into while VendorX provided the services/products and how did VendorX resolve them?
This should help determine how they will behave AFTER the "sale".
What is the nature of the business your firm conducts? The types of reference information will vary based on your industry and possibly the type of services you are obtaining from vendors. For example, a financial firm might ask more questions about compliance with certain laws related to finance. If your firm has a global ethics policy, you might be required to get your clients to comply with certain standards. A US business would want to know about a vendor's FCPA violations. And so forth. I would suggest sitting down to map our the various standards
Your first example strikes me as a saving, and if budget has been set for activities that are then postponed then assuming it isn't diverted elsewhere or money spent to bredge any delta - i could also see that being classed as a saving.
Key for me is tracking the money back to the budget and getting validation from the FD CFO etc.
What has happened to the requirement(s):
If you no longer have the need for the service/product you were intending to purchase then in my view it isn't a saving: you have simply avoided wasted expenditure.
If you require an alternative product/service, or are extending existing contracts then you could consider the delta between the new contracts/purchases and the extended/current contracts as a saving: this would apply to either cancellations or postponements.
Yes I agree, please share with me, I would like to see the legislation and I have recently observed the change in contractor's attitude in negotiation from UK.
• Ministry of Justice
The most recent change is the implementation of the European Directives into UK Law, through the issue of the 2015 Public Contracts Regulations. This dictates Government procurement rather than standard commercial arrangements. Section 83 indicates a minimum contract record retention of the contract duration where they are over a certain value: As most contracts have an extended liability life of at least 6 years and as we have a wider obligation to maintain public records, then policy in my government Department is to err on the side of caution and retain for 6-7 years. The legislation is found HERE www.legislation.gov.uk/uksi/2015/102/pdfs/uksi_20150102_en.pdf
• Foreign and Commonwealth Office
I'm not sure what the change of law mentioned could relate to - other than what Shaun is referencing.
I would look to follow i) your organisations own information management policy (if it exists - as they should have taken account of relevant law/regulations for your company); or ii) if there is no records policy - then as Shaun says, capturing information and storing information based on the potential risk of claims which would be capped based on the Limitations Act 1980.
The only thing I'd add to point below (for England and Wales jurisdiction) is anything executed as a deed has a limitation period of twelve years rather than six.
In what position is your company in this example? One super critical piece is determining whether you have secured a sufficient commitment to support the application over time. The time period for support should be clearly specified and the responsibilities of both parties should be clear. If the application is basically built to your specs by a partner, the developer is going to produce an application that provides the specified functionality within those parameters. How will you address changing needs? Do you have the ability to raise changes based on future integrations and interoperability needs? Who pays for (what) changes?
One area of potential oversight is aligning the responsibilities as far as rollout of the application is concerned. Once the application is developed, it needs to be deployed in the client's system. The SOW should specify who is supposed to do what to install and integrate the application.
If the application is being developed for a third party (your customer, for example), then the agreement should take into account what responsibilities the developer will have with respect the application once deployed at the third party site or in the cloud. Who takes the lead in managing services with respect to the end customer?
I think you can see that a precise SOW with a responsibility matrix can be very useful. It should go without saying that you need to be sure the contract handles intellectual property rights and responsibilities correctly. You also should think about the wind down of support and potentially source code.
• Rio Tinto
The "must haves" are those things that are designed to mitigate the risks generally associated with these types of agreements. Those risks are cost and time blow outs. Because we all know that bespoke software ccan be inherently risk (ie it might not actually work....like ever!). I am also assuming you are advising from a customer (not supplier) perspective. In my view, the "must haves" are:
- clear specifications describing what the software will do. The reason will become clear shortly. If (like most customers) the commercial team doesn't quite know what they want the software to do then consider implementing the project via phases with the first phase involving the development of the specifications.
- ensure that you have a robust acceptance testing regime which will test the software and ensure that it works. The testing regime is generally linked to the specifications (so the better the specs, the more chance of being able to confirm that the software does what you want it to do).
- if the software doesn't pass the acceptance tests, then you have to think about what you want to happen. Ideally, customers should not have to pay for defective software. If customers do have to pay, then it is shifting the risk of the software working to the customer - and this is not what the customer is paying for (ie the supplier's skill at being able to create software). But before you get to that point, you would want to see a rectification scheme - giving the supplier a few chances at fixing it up before it is required to give up and refund cash.
- ideally, you want fixed fees for each project. There have been numerous examples of time and materials contracts getting out of control as good money is thrown after bad in trying to get the software working.
- you would also want the project to be delivered by a specific date and, if not, consider if you want to include a liqudiated credit regime. Fixed fees, milestones and liquidated credits are all designed to mitigate cost and time blow outs.
- also, if the project is large, then you might want to consider rolling it out in phases. That way you can ensure that earlier (potentially critical phases) can be achieved and you are not waiting to until the end to find out
- The "M" stands for support. Nothing new here. You want to see clear obligations to correct defects supported by service levels and service credits.
Of course, there are different types of ADM contracts. The must haves I have described above are where the customer intends to shift the risk of the software development to the supplier. If, however, the software development is being done as a "staff supplementation" type arrangement where the supplier is merely providing staff to create software at the direction of the client on the client's site then some of the above must haves are not always appropriate. It will depend on the nature of the engagement.