Costs and Risks to Consider with Vendors
Using contractors and other vendors can be a great option if you need more people or people with specific skills. However, cost goes beyond the hourly rate you pay. And vendors introduce risks to your project. Here are things to consider before bringing on vendor personnel.
- Examining alternatives, negotiation, contracting, and performance monitoring. Hiring a contractor or vendor takes time. You have to find a person with the right combination of technical and business skills and a personality that fits into the culture of your organization. Then, there’s negotiating the contract and monitoring the vendor’s performance against that contract. Note: Pre-negotiated contracts with vendors make it easier, but you still have to review candidates to find the right person.
- Stakeholders relying too much on vendors. With vendors who have technical and industry experience, business stakeholders might presume that the vendor understands the project requirements in detail. The vendor might use the correct local business vernacular and anticipate the organization’s needs, which lulls stakeholders into feeling they don’t have to participate in the project. They step back and rely on the vendor to represent them. But in most cases, the stakeholders’ requirements and needs of the stakeholder can differ greatly from the vendor’s perception. Be sure to take time and care to verify the stakeholder needs directly, which means conducting in-depth interviews with stakeholders.
- Preventing IP from leaving the building. Vendors are often exposed to and help craft new processes or configure technical tools for the organization. But think about the cost if that intellectual capital walks out the door and is permanently lost. To avoid this, assign in-house personnel to mirror their vendor colleagues. That way, they understand the processes and technical changes a vendor creates for the business and keeps the IP in the house.
- Mitigating risks. Vendor personnel might see confidential information and misuse it or report it to other entities. In addition, vendor personnel can leave at any time to take work for a different client or to change jobs. Of course, in-house personnel can change jobs, too. But you have no control or detailed knowledge of the vendor’s team members and their personnel plans. To avoid these issues, prepare backup staff alternatives and be ready to implement them on a moment’s notice. The costs of mitigating these risks, such as keeping other contract personnel on standby, can be significant.
Many project managers simply calculate the delta for vendor pay rates against in-house personnel costs. That often underestimates the financial and risk impacts on their organization. Be sure to evaluate all these possibilities in hiring a contractor to produce more accurate project costs and risks.
Have a vendor challenge or success tip for the rest of us? Share in the comments section.
For more about vendor management, check out Oliver Yarbrough’s Project Management Foundations: Procurement course.
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My course Project Management Foundations has been updated with several text-based entries in the Table of Contents. You can read up on the hybrid project management lifecycle, get tips on creating a project information system, review a checklist for effective meetings, and more.
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