Best value procurement : research about the impact of best value procurement on the performance of outsourcing ICT projects

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(1)BEST VALUE PROCUREMENT. RESEARCH ABOUT THE IMPACT OF BEST VALUE PROCUREMENT ON THE PERFORMANCE OF OUTSOURCING ICT PROJECTS. Strategy track. Supervisor: Dr. ir. J. Kraaijenbrink University of Amsterdam. Fall term 2015. by. Rachid el Bardai Student Number: 10499253 Rachid.elbardai@uva.nl Utrecht, June 2015. Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 1.

(2) Statement of originality This document is written by Rachid el Bardai who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.. Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 2.

(3) Content 1. INTRODUCTION ........................................................................................................................ 5 1.1 Overview........................................................................................................................................ 5 1.2 a.s.r and the application of BVP .................................................................................................... 7 1.3 Scientific relevance........................................................................................................................ 8 1.4 Practical relevance ........................................................................................................................ 9 1.5 Problem statement...................................................................................................................... 10 1.6 Research Question ...................................................................................................................... 11 1.7 Structure of the study ................................................................................................................. 12 2. THEORETICAL BACKGROUND .................................................................................................. 13 2.2 Best Value Procurement Method................................................................................................ 15 2.3 Traditional Procurement method and comparison to BVP method ........................................... 17 2.4 ICT projects and other projects ................................................................................................... 19 Conceptual framework...................................................................................................................... 24 3. METHODOLOGICAL DESIGN .................................................................................................... 26 3.1 Research methodology description............................................................................................. 26 3.2 Data-collection ............................................................................................................................ 26 3.3 Data-analyses .............................................................................................................................. 29 3.4 Strengths and limitations of the research design ....................................................................... 30 4. RESULTS ................................................................................................................................. 31 4.1 The projects compared ......................................................................................................... 31. 4.2 Analysis of the results ........................................................................................................... 32 Other findings ............................................................................................................................ 37 5. DISCUSSION & CONCLUSION ................................................................................................... 41 Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 3.

(4) 5.1 Main findings............................................................................................................................... 41 5.2 Implications ................................................................................................................................. 45 5.3 Practical Implications................................................................................................................... 45 5.4 Limitations and further research................................................................................................. 46 6 BIBLIOGRAPHY ........................................................................................................................ 48 Appendix A - Interview Questions…....………………………………………………………………………………………….50 Appendix B - Interviews Results……....………………………………………………………………………………………….59. Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 4.

(5) 1. INTRODUCTION 1.1 Overview Dutch companies and governments purchase annually for many billions of works, services and supplies. Every year the amount is between the 100 and 130 billion euro. An important part of this procurement process occurs through a tender. Experience shows that a vast majority of the contracts are awarded to the lowest price. In the tender of a client, what is also named as a request for proposal, a clear and detailed description is stated about what the question is and the market may determine itself what price it wants. In the past, proposals showing the lowest costs were deemed to be selected. This is also called the traditional procurement approach. According to Cox (2006) a traditional procurement approach is when the purchasing party specifies in detail what they exactly wants with the assumption that it is clear to the potential providers what they are supposed to provide. The client is seen as the expert and the supplier has only the freedom to come up with a price. However, a trend seems to come up showing slowly that price is not the deciding factor for all cases anymore. In 2009 and 2010 more than 5000 tenders were analyzed that took place in the constructions industry according to a research from ‘Economisch instituut voor de Bouw’, and the research shows us that there are over 4000 awarded to the lowest price and 1.000 tenders are based on EMVI (economisch meest voordelige inschrijving)1. EMVI stands for "most economically advantageous tender ', or a weighted combination of price and quality2. The contracts that are awarded based on EMVI represent in euro’s the most of all tenders, with 60%. This award method offers clients the possibility to take also other aspects, like quality, into account in the assessment than just the price. In the traditional procurement approach is that the client will get what he asks, but does not provide the maximum revenues from the market. Suppliers are limited challenged to demonstrate their added value. They deliver what is asked from their client and will thereby provide actually tend cost- at the required minimum level. The potential gain (meerwaarde) for the client that could be achieved at little extra cost are excluded. This, while suppliers often know how they can add value to the customer and the customer does not always see. 1. Publiceerde het Economisch Instituut voor de Bouw in 2011. 2. http://www.crow.nl/vakgebieden/aanbesteden/emvi-gunnen-op-waarde Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 5.

(6) all the solutions in the market. Internationally and in the Netherlands, this leads to a different perspective on the procurement processes. Another way of tendering seems to gain a strong foothold in the market. This method offers more chances for tenders to have more influence in the purchasing process and to align it more to the interests of the client. This new mindset is called Best Value Procurement (BVP)3. A large number of companies in the Netherlands have been working according to BVP and this seems to keep increasing. This method seems to provide also opportunities for the insurance company a.s.r. The American professor Dean Kashiwagi is the founder of Best Value Procurement (BVP). This method was developed and refined by him and his staff at the Performance Based Studies Research Group (PBSRG) at Arizona State University (ASU) (Kashiwagi, 1991; Kashiwagi, 2010). Best value procurement is a process that focuses on obtaining the highest value for the lowest price (or at least to fit in the budget) (Chan, 2004; Egan, 1998; PBSRG, 2010; Kashiwagi, 2010). Best Value Procurement became very popular in contracting services and purchasing of large companies. Some providers are enthusiastic, because it is not necessary anymore to produce as much paper as a traditional quotation. But many companies experience also some difficulties. Best Value Procurement is a shift from "monitor and control" to "let go and trust ' and from' send by the client" to "be guided by the contractor’’. In addition, the client makes maximum use of the knowledge and expertise of the suppliers. The client only facilitates the experts and the contractor takes the lead. The client focuses on the expertise of the contractor and the transparency of the results of both the client and the contractor. According to professor Kashiwagi, the Dutch firms are one of the early adopters of this new way of thinking, which is also called "performance procurement" (prestatie-inkoop). Rijkswaterstaat4 has been advised by Kashiwagi personally and his ideas were enthusiastically embraced and applied in the construction projects that took place in the framework of the Road Widening Emergency (Spoedwet wegverbreding). Organizations that Best Value Procurement is also known as PiPS (Performance information Procurement System) / PIRMS (Performance Information Risk Management System) 4 The executive arm of the Dutch Ministry of Infrastructure and the Environment 3. Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 6.

(7) used his method are positive about it, with over 98 percent being satisfied with the method (Kashiwagi, 2011). Meanwhile, there are more than nine hundred projects in six different countries performed according to the method of procurement performance of Kashiwagi. In the approach of Kashiwagi it is not the price but the quality of the performance that is important. The choice to win a tender is based on performance. This does not mean that the price is less important. Best Value Procurement is specifically intended to create the highest value: the highest quality at the lowest price (or at least fit in the budget). By tendering and giving more space to quality and involving the knowledge and ability of the market participants (suppliers) in the selection and award process, clients can almost always make a better 'deal' (Kashiwagi, 2010). But this way of thinking requires a different mindset to the procurement process and the involved stakeholders. 1.2 a.s.r and the application of BVP A.s.r. is one of the largest Dutch insurance company in the Netherlands and offers all types of insurance products and services. a.s.r. has more than 4,000 employees and a turnover of € 4.3 billion. A.s.r. has several brands including Ardanta, De Amersfoortse, Europeesche Verzekeringen and Ditzo brands. The insurance company offers a wide range of financial products in the field of non-life, Life and Disability insurance, collective and individual pensions, health insurance, travel and leisure insurance and funeral insurance. Besides insurance products a.s.r. also provides investment -and bank savings. Additionally the firm is also active in the real estate industry.5 BVP is becoming more and more an important method for a.s.r. and the successful results supports this growth within the company. The firm has completed last year an outsourced project based on BVP. The IT-organization has outsourced last year the service "Security Monitoring", which provides the assurance of the security guidelines for a.s.r. This project was done based on the guidelines of BVP and was finished successfully. Now a.s.r. is interested to apply BVP on more and different kind of projects.. 5. https://www.asr.nl/en/Organization/Paginas/ASR.aspx Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 7.

(8) 1.3 Scientific relevance In the scientific literature there is an existing body of knowledge about the Best Value Procurement methodology. BVP is a new way to deliver services, run organizations, and optimize supply chains. It forms a leadership structure that assists inexperienced project managers to get optimal results (Kashiwagi, 2011). BVP is now being used to successfully deliver commodities, professional services, non-construction services, and to a lesser degree Information Technology (IT) services (Sullivan, et. al., 2010; deyemi, et. al., 2009; Kashiwagi, J., et. al., 2009). In the previous research the use BVP has been tested over 700 times, delivering construction and other services worth over $2.3B (1994-2010). Kashiwagi has been developing BVP for the last 16 years and the lessons learned on the 700+ tests have resulted in simplifying the process, and making the BVP method more sustainable. The method has shown to be successful for several areas, however no studies have shown yet that this method is also effective for ICT projects, and yet more specifically, the ICT projects in the Netherlands. Despite the numerous studies showing that BVP is successful in several areas, it does not necessarily mean that BVP could be as successful for ICT projects. ICT projects differ from other kind of projects and while the studies performed have shown numerous reasons why ICT projects fail, some have noted this relates to project management, poor planning, unclear objectives and goals, inappropriate skills, failure in communication and other reasons (Al Neimat, Tamour; 2005). Most of these reasons are connected to the selected procurement method. By selecting specific procurement methods, you can choose in which degree you would like have the supplier to be involved (room to provide expertise in designing and planning), allowing not to be driven by cost (buy cheap and waste money) and other factors. BVP allows this more playing room in several of these factors. Therefore, it is an interesting question, whether BVP can be a successful method to reduce the number of failures of ICT projects, by not only minimizing costs, but also increase the value and quality (performance) (Al Neimat, Tamour; 2005). The outsourcing of ICT projects has been mainly performed through traditional procurement methods, such as RFP, and several articles have shown that what reasons underlie the failure of outsourcing the ICT projects. BVP seems to be a method to overcome this obstacles. As stated before, BVP has shown to be an effective Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 8.

(9) procurement method in several fields, but no research conducted yet has shown this should also be the case for the ICT industry. The ICT industry has been characterized as a struggling industry (Kashiwagi, D. and Egbu C., 2011). Could BVP be the procurement method that could decrease the number of failures, especially since it has proven to be a success in several other fields? What is so different about the ICT projects that makes it struggle with performance and how could BVP help in this?. This offers from the scientific relevance. reason to further investigate the application of Best Value Procurement on the performance of outsourced ICT projects. Furthermore, the Best Value Procurement theory focuses mainly on the selection phase in a purchasing process. The steps that have to be taken in the clarification phase and during the execution are also described well in different researches (D. T. Kashiwagi, 2013). But the applicability and impact of BVP in ICT projects is under researched and there is insufficient knowledge about the relation on the performance of these kind of projects (D. T. Kashiwagi, Kashiwagi, Kashiwagi, & Sullivan, 2012). This research therefore highlights the further development and use of Best Value Procurement in ICT projects. Main BVP projects known in the Netherlands showing positive results are outside the ICT sector. Currently it is unknown whether BVP would also yield to such tremendous positive results for ICT projects. We note that there is a significant gap in the literature on this specific sector. Quint Wellington (2004) notes this gap too as BVP has not yet been able to prove itself within the ICT domain. As noted above, several factors affecting the reasons of the failures are related to the selected procurement method. BVP method shows in its design some important factors to overcome some of the mentioned reasons in relation to the failures listed. A.s.r. has changed its procurement method for the ICT projects, abandoning its traditional method and implementing the BVP method. By researching the results within a.s.r. some light could be shed on this matter. 1.4 Practical relevance The strategy of a.s.r. is strongly focused on cost reductions and quality performance. One of the key activities to achieve these goals is through outsourcing. Currently the administrative processes and parts of the IT landscape are outsourced to reduce costs and focus more on the core business (Leiblein 2003, Gilley and Rasheed 2002). The coming years, a.s.r. intends Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 9.

(10) to implement Best Value Procurement approach further in their outsourcing ICT projects. The BVP is a new way of thinking for a.s.r. and requires a different mindset. A.s.r. has the desire to know how to implement this new development of BVP in their procurement process, attitude and in the behaviour of their employees according to their ICT projects.. 1.5 Problem statement The above described events in section 1.3 and 1.4 lead to the following problem statement: The evaluations of the outsourcing projects within a.s.r. shows us that there are quite some frustrations and problems in the traditional procurement approach (internal a.s.r. evaluations). The experience of the traditional procurement approach within a.s.r. has taught us that the good ideas from suppliers are often not identified or appreciated. That is because it does not fit within the predetermined specifications of the procuring organization. In a traditional contract it cost the client a lot of time to specify their needs. Getting acquainted and contacted with all suppliers is also a very time consuming process that usually takes months. Moreover, a.s.r. is often not satisfied about the delivered performance after a tender process based on the traditional procurement approach (evaluation Service Books, BPO pension programs). Now a.s.r. wants to gain more experience with the use of BVP on their outsourcing projects. As stated earlier in section 1.1 this might be a good alternative and BVP can provide a solution here. A.s.r. started using BVP on its ICT projects and this has become more and more important for the firm. In section 1.2 is described that a.s.r. completed successfully its first ICT project (Security Monitoring) last year based on BVP instead of the traditional procurement approach. Furthermore, the insurance company has started at the beginning of 2015 a new project to outsource its ICT workstations (ICT werkplekken) according to BVP. However, a.s.r. is still relatively unfamiliar with this method and wants to know when BVP is applicable to their outsourced ICT projects and when BVP will lead to success and when it leads to a failure in order to improve the performance by reducing project costs, shorten the project duration (doorlooptijd) and increase the customer satisfaction. In responding to this, Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 10.

(11) the research topic is: ‘’Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects’’. The scope of this research is limited to the purchase / tendering process, more precisely from supplier selection to the signing of the agreement. BVP has 4 phases which is further outlined in the literature review on BVP. The variables are also scoped to the following: . Time: duration of the process;. . Cost: monetary costs related to project and effort by involved employees;. . Performance: satisfaction regarding outcome for the main stakeholders.. The four phases are essential and crucial for the procurement method to be a success. 1.6 Research Question Research goal The goal of this research is to provide recommendations and suggestions for contractors and a.s.r. on the performance of ICT projects based on Best Value Procurement in order to refine or design the strategy (approach) and implement actions in their procurement process. The research question is stated as follows: What is the impact of the Best Value Procurement approach on the performance (time, cost and customer satisfaction) of outsourced ICT-projects in the Netherlands?. In the research question it seems to be that there is one BVP approach. However, the research is based on several possible approaches that could have an impact on performance. This also means that the different elements of BVP are investigated that may have an impact on the performance. In order to be able to answer the question, several sub questions have been formed. BVP is a procurement method showing benefits that can overcome some of the reasons why IT projects fail as outlined above. In order assess the impact of the BVP method on ICT projects, we will outline the more traditional method, showing the differences in relation to BVP. This should get us closer as to whether BVP indeed could lead to a higher success rate and Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 11.

(12) performance on ICT projects. However, one must define how success is perceived by parties involved in the ICT projects and moreover has the use of BVP indeed led to a higher performance and why. Gaining insight on this matter, we should be able to have a clearer view on what impacts the BVP method has or can have on ICT projects and how this affects the perceived performance by the stakeholders directly involved in such a project. Sub-questions:. 1. Is BVP as applicable to ICT projects as to other projects where it has been proven to be a successful concept? 2. What effects has the use of BVP to ICT projects in relation to previous used methods? 3. Do the stakeholders have different expectations on the BVP and how does this affect their assessment on the performance? 1.7 Structure of the study The remainder of this thesis is structured as follows: a closer look to previous studies on BVP and other main purchase methods is given in chapter 2 ending with propositions. The methodological design of the research is centered in chapter 3, while chapter 4 will provide the empirical results of the study. The final chapter contains the conclusions, implications and limitations of this research.. Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 12.

(13) 2. THEORETICAL BACKGROUND The literature review is based on the aspects mentioned in the research question, and describes the existing theory of best value procurement and other related theories from different perspectives. In paragraph 2.1 a general understanding is given of the term procurements methods within organizations, followed by an understanding of the BVP method in paragraph 2.2, and for the traditional procurement method in paragraph 2.3. In paragraph 2.4 an overview is provided of why ICT projects that are outsourced seem to fail and what elements are the cause of it. The chapter concludes with a conceptual model and propositions. 2.1 Procurement Before outlining the several procurement methods that have been developed over the history, one is sure to obtain a general understanding of the term procurement methods within organizations. A procurement method is used in order to convert requirements or requisitions into purchase orders or contracts. It is the acquisition of goods, services or works from an external source. The goal of most firms is to procure at the best possible cost to meet the need of the acquirer in terms of quality, quantity, time and location. Processes are defined to promote fair and open competition while minimizing exposure to fraud and collusion (Weele, Arjan J. van, 2010). The methods for procurement can be competitive and non-competitive. There is a preference for using competitive methods of procurement given that they tend to promote transparency, economy and efficiency, and limit favoritism. A decision to use a particular procurement method must be based primarily on the stipulations of the procurement guidelines, manuals and procedures within the organization. Important factors affecting the type of procurement are the complexity of the requirement, market availability, the need to have prospective bidders to participate in finalizing the specifications of the requirement (Nicola Dimitri, Gustavo Piga and Giancarlo Spagnolo, 2006). Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 13.

(14) Successful procurement becomes more complex as all parties involved in the project need to comply with their respective obligations, and identify and deal with risk appropriately from the outset. Depending on the type of requirement one can ascertain the choice of procurement type will shift to more open competitive bidding if the complexity of the requirement increases (Nicola Dimitri, Gustavo Piga and Giancarlo Spagnolo, 2006). The IT projects are considered to be more customer specified and complex due to their nature being quickly unique. The procurement strategies maintained for these projects have not been studied in detail thoroughly. Dean Kashiwagi and Isaac Kashiwagi (2014) expressed in their article (The best value ICT Industry) a summary of the results of the studies performed on the success of IT projects. The results show that the failures of IT projects were more common than successes. Money on IT projects tended to be wasted. The article also included the results of a parliamentary inquiry that was held to address the poor performance of IT projects. During the inquiry it was reported an amount of 1-5 Billion was wasted with ICT-project annually. The United States has also experienced failures, spending money on failed projects. A serious overview of reasons why projects fail are given, mostly related project complexity or the lack of expertise. 3 solutions were given to solve the nonperformance of the IT projects: 1. Make projects smaller; 2. Break up project into smaller milestones to get the final project deliverable; 3. Use the BVP approach to deliver the project. The center of my research focuses on the third solution given in the article. The use of Best Value Procurement. The Best Value Procurement is a relatively new procurement method becoming more and more popular. The remainder of this chapter consists of the traditional procurement method used for IT projects, comparing the procurement method to BVP. Please note that regarding the traditional procurement method the most used method is explored. We will also take time to describe the ICT projects in comparison to other projects. Paragraph 4 will recap the methods and show the main differences and expectations with respect to the ICT projects.. Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 14.

(15) 2.2 Best Value Procurement Method Best Value Procurement (BVP) or, as it is called in the Netherlands ‘Performance Procurement (prestatie inkoop) is becoming very popular in contracting services and purchasing projects. The purchasing procedure is described in detail in the book "Purchasing Power" by Jeroen van de Rijt and Sicco Santema (2009). Best Value Procurement is a philosophy about working together. It is an emerging method where the focus is not on lowest price, but on the best price-value. It is a procurement, project management, and risk management approach, based on the concepts of win-win, less management, direction and control, and transparency between the client and the contractor. According to Kashiwagi and Byfield (2002) the approach consists of four phases: selection, clarification, pre-award phase and execution. To achieve Best Value Procurement is important that clients restructure their position regarding the contractors. With traditional procurement is the client that determines among other all the conditions and requirements, but with BVP the contractor will determine the requirements because he is the expert. According to Kashiwagi and Byfield (2002) the process of Best Value Procurement exists of the following four phases: 1. Preparation of the procurement project; 2. The selection phase: the supplier is the expert; 3. The pre-award phase (award stage): the client performs the expert role; 4. Execution: the supplier fulfils the expert role. Below some figures are showed how the phases are followed in a BVP process.. Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 15.

(16) The first phase is the preparation of the project. The client defines the objectives and scope of his inquiry. Important here is the focus on what should be reached, rather than how. Especially within IT projects, this approach is essential since the contractor is the expert. The client formulates the basic core of the question, based on its own internal expertise. The key question is presented objectively and measurable, well adapted to the wider organizational issues, so without stepping into pitfalls, technical requirements or performance indicators.. Preparation 1st filter (selection). Sent proposition by suppliers. Past performance. Risk file. Assessing risk and file by team Assessing value added by team. Assessing files by client. Pre-award phase. Risk files. Value added file. Value added files Interviews. Interviews. Price contract. Execution. Figure 1. BVP process phases. The second phase according to is about the selection (selection phase). In this phase the client starts with a meeting for contractors where they will concise and concrete their proposals. The client selects based on the scope, the risks, and the opportunities and planning. Within ICT projects, it remains a question whether and to what extent the (technical) solution contributes to the objective and scope of the question. Finally, there are interviews with key figures of the contractor to get things clearer in order to define their proposals. This phase is the realization phase where the chosen contractor will deepen the offer with the client deepen. Also in this phase it is essential that the contractor must accompanied the complex (ICT) projects and assessing the development of the proposals of the contractor. This includes also the risks, measures management and reports that are arranged for starting the implementation. At fourth and last phase is the implementation phase. The contractor reports weekly the progress regarding money, planning and 'undesirable events'. The contractor optionally Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 16.

(17) reports on performance, KPI’s or SLA’s. It is important to know that the influence of BVP does not stop here. Indeed, thanks to the intensive coordination in the previous stages, there is now is a good relation between the client and contractor for further cooperation that is based on trust.. 2.3 Traditional Procurement method and comparison to BVP method The most traditional method for IT projects has been the RfP procedure. The RfP stand for request for proposal and in its simplest form the organization posts to elicit bids from potential vendors. It specifies what the customer is looking for and establishes criteria for the assessment of proposals (Blake G. and Bly R.W., 1993). The RfP is especially used for a complex IT project, the organization can then benefit from multiple bidders and perspectives when issuing a RfP. Some organization, such as government agencies are usually even required to issue RfPs to provide full and open competition. Other organizations can have other incentives to use RfPs, such as driving cost down and boost the competition. However, this illustrates immediately that the success depends on the skills of the customer to create the RfP. For example, if the specified requirements are vague the bidder can design the wrong solution. Overly drafted RfPs, being to detailed and restrictive, limit the bidders’ creativeness and innovative techniques the customer might not have thought of. The RfP process can start with a draft RFP which bidders will review and give suggestions for improvement. The customer can then create the final RfP and issue it to the bidders for proposals. The customer can drill down the number of bidders and enter negotiations on pricing and other details. The final stages will consist of that the remaining bidders will submit a best and final offer and the customer can award the contract to their choice of bidder (Blake G. and Bly R.W., 1993). The RfPs do have advantages and disadvantages. If the organization is sure and knows already specifically what it wants and decides to use the RfP, the RfP can require extensive descriptions of the services needed. On the other hand, RfPs can also be written poor. In both cases leading to possible unexpected effects further down in the process. Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 17.

(18) Some variants have been developed and have a different process. RFQ (request for quotation) is especially used when discussion with bidders is not required and the customers is mainly interested in price. A RFQ can also be used prior to a RfP, in these cases it is used to determine price ranges and in order to write a more fully RFP (Phillips, J. 2010). RFI (request for information) is used when a customer requests from a potential seller or a service provider to determine what products and services are potentially available in the marketplace to meet the buyer’s needs and to know the capability of the seller in terms of offerings. The RFI is mainly used on major procurements. It is not an invitation to bid, and may or may not lead to a RFP or RFQ (Hanna, A., Tadt, E., and Whited, G., 2012). The BVP method is winning ground over the world including The Netherlands. Based on the study performed by Kashiwagi, D. and Egbu C. (2011), it is showed that The Netherlands is the country where BVP is applied on the largest scale behind the USA. Differences between BVP and the traditional RFP procurement method have been explored and stated here below. BVP is less time consuming for the procurement specialists as it requires no full out written proposal. Parties that do not want to bid or lose in the bid do also have not a significant investment in relation to RFP or other tender methods, suggesting also less time consuming for the suppliers. The BVP also allows the organization to make use of the expertise of the bidders by not dictating the requirements in a RFP (Kashiwagi, D. and Egbu C., 2011). The creativity and innovativeness of the bidders can be used. BVP also allows the bidders (the selected bidder) to have a larger accountability as the bidder has filled in his own assignment, the bidder is the one who has to think over the risks and cannot hide behind “the client wanted this way, it is not my fault” (Kashiwagi, D. and Egbu C., 2011). Another important aspect, which is probably overlooked is that procurement specialist within the organization has to change in his role. He does not decide anymore what the company needs or wants, but becomes a process manager. BVP also seems to fit in within the modern supply chain management. Transparency, creating durably relationships with suppliers are more fit within the BVP method (Kashiwagi, D. and Egbu C. 2011). Other aspects showing the RFP is Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 18.

(19) more attractive is that the customer can dictate exactly what it wants based on the literature described above. A shift in risks does not mean it is positive for the organization. The organization must accept to transfer the risks to an outside party and the question is whether the bidder really wants the responsibility. One can only state that the use of BVP also needs a mind change between the stakeholders involved (Kashiwagi, D. and Kashiwagi, T., 2015). The success of BVP of a project can be of course specified in detail to which factors a positive effect will have or a negative. Considering this research focuses on the procurement process the factors that will affect the positive assessment of the procurement specialist is the time invested (being less) and having the perception the costs were lower than through a traditional method. In addition, the procurement specialist would like to receive the feedback that delivered services were a success in order to have a total positive assessment on the process. The expectations of the customer would be in line with the procurement officer, however, maybe not be aware of what procurement method was used. 2.4 ICT projects and other projects The IT industry has struggled with performance since its origins. NATO held in 1968 a conference due to the number of failing ICT projects. However studies since then still showed that project failure was high (Grossman, 2003). Even in the Netherlands a parliamentary inquiry was held, it was reported that 1-5 billion Euros was wasted with ICT project annually (Kashiwagi, D. and Kashiwagi, T., 2015). Several studies have researched by what key reasons are why projects fail. Kashiwagi, D. and Kashiwagi, T., (2015) summarize these studies and the top reasons, which include: . lack of top management / executive commitment and support;. . incomplete user requirements;. . misunderstanding between parties;. . lack of client involvement;. . poor planning and project management;. . inadequate resources and skills;. Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 19.

(20) . project complexity;. . lack of quality control;. . making an unrealistic tender or agreement;. . lack of understanding of the needs of the customer.. This list is not complete as I have left out several other reasons. Kashiwagi, D. and Kashiwagi, T., (2015) argue that ICT projects are complex and expertise is not fully utilized by parties. As with any other project a certain level of risk is present. However, Kendrick (2009) states while risk can be found in any project, being it an ICT project or a building project due to always uncertainty of the occurrence of risks in a project. An IT project is more risky to manage than other real life projects because of its unique aspects, objectives and changing environment of the project (Kendrick, R., 2009). Gichoya D. (2005) argues that ICT projects are complex and management often do not have the requisite skills to make decisions for such projects as they lie on rational decision making. This prevents them from using the expertise of the suppliers. Gichoya goes a step further and suggest decision makers for such projects should be reskilled. Foselius P. (2005) states that ICT projects should not be run as a single project which is appropriate for other projects, but divide the project into smaller parts. In practice, the subdividing starts always too late in ICT projects, after the problems already have occurred. ICT projects are often too unique within organisations as every organisation is already unique in its own way and the processes within that organisation. This difference with other projects as in construction for example suggest that ICT projects also need more flexibility. Construction projects have well and better established process, while this cannot be an objective for ICT projects. ICT projects have a certain immaterial aspect to their projects requiring a more flexible approach (Royal Academy of Engineering workgroup, 2004). BVP in The Netherlands has been mainly applied in the construction industry (Kashiwagi, D. and Egbu C., 2011). The application in the construction industry is due to the fact that the industry has all the features of a low-bid arena with specified qualifications, standard-based items and the visible inspection of the project (Kashiwagi, D. and Egbu C., 2011). The construction industry also has elements making it easier to identify the project as a whole Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 20.

(21) singe projects, while ICT project the advice is mostly that it should not be run as a single project. The research suggests based on their results that the procurement method to be used needs to be more flexible. This allows the client more flexibility to tailor the requirements, requests and the needs of the project to be successful which is especially essential for ICT projects. BVP allows the bidders to use their expertise to their fullest by not limiting their scoping. Based on the analysis of the studies performed in the past, BVP seems the procurement method to be available to increase the success rate of the ICT project which have been characterized as a failing industry. ICT projects seem to be more complex as they are quickly unique and the unavailability of sufficient expertise from the client to be able to identify timely all risks and set out the project in detail. Suppliers however often also operate within the boundaries set out by the client. This is quicker the case in the RfP method than the BVP method, with the latter one allowing the supplier to provide their expertise and views to a fuller extent and also increases their accountability (Kashiwagi, D. and Egbu C., 2011). Due to the higher average of the complexity of ICT projects BVP can assist the clients and the success rate in the projects as it: . Transfers the risk and responsibility to the supplier, who in turn will aim to utilize their expertise and experiences;. . Allows the contract to become a performance based contract instead of a specified contract using standards;. . Minimizes the need of the client to have technical expertise;. . It can increase the value and performance of the service to be performed by the supplier and how it is perceived by the client in terms of cost, time and quality;. . Forces the suppliers to differentiate themselves from each other by utilizing their expertise.. These factors seem to be relevant factors to increase the success rate of ICT projects taking into account the main reasons why ICT projects fail as stated above. Recapitulation of differences ICT projects and other projects Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 21.

(22) ICT projects. Other projects. High risk and complex. Low risk and complex. Changing environment. Stable environment. Lack of expertise within organisation. Expertise within the organisation. Several unique aspects (customisation). Lesser unique aspects. Need for flexibility. Less need for flexibility. Immaterial aspect present requiring a more Less immaterial aspects present obligating a flexible approach. flexible approach. Based on this assessment and the research question (including the sub questions) expectations in this study are that BVP method allows that in the relationship between the client and the supplier, the latter one will get a larger role in designing the project compared to the traditional method (this also should reflect in a lesser time consuming . This should be less time consuming for the customer and if the projects is a success, this increases the perceived performance by the client. The client however should be able and allow the loose of control in the project to a certain limit to the supplier. Expectations are that this is met with a certain scepticism for the first project. Lastly, based on experience the client should note a different attitude from the supplier who will have to contribute more to the project, including project management, expertise, ideas and so on. Based on this factors and if proven to be successful for the project, the client should have a positive attitude against the use of the BVP method in relation to the traditional procurement method. The following propositions are formed: 1. BVP method decreases the involvement of the procurement specialist in the procurement process in relation to the traditional method as he will experience less time is consumed for his part in the process.. Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 22.

(23) From most studies mentioned above with the reasoning of why IT projects fail is that organisations seem to lack the kind of experience needed for these projects. Traditional procurement methods leave the client specify every requirement for the solution they created. The supplier does only have to deliver what is requested and is not required to take responsibility on the success of the project and has no need to show its expertise. The procurement officials within the organisation of the client is involved in making in the RFP procurement methods, and is dependent on the business whether the requirements specified will indeed lead to a successful project. The BVP on the other hand allows the business not to think of the solution, but the supplier. The client only needs to state the goals it wants to achieve with the project. Hence, the time spent on writing out the RFP with all its requirements is decreased as the responsibility of filling out the requirements lies with the supplier offering the solution. The procurement specialist is then only involved in selection and managing the process. Especially, if the project is completed within time and budget (which the procurement specialist is also involved in) it should lead to a higher customer satisfaction. 2. The use of the BVP method will lead to a better utilization of the suppliers’ expertise by the procurement specialist in making his decision compared to the traditional method. As stated above as the supplier becomes more responsible for the project, by offering the solution, the use of the expertise role of the supplier becomes more evident. 3. The BVP method will lead to a higher involvement of the supplier in the process. From the role of the procurement specialist, expectations are that due to a lower involvement on the technical side and the managing of difficulties arousing during the project, the time spent should be lower for the procurement specialist. Also, by not having to be involved in writing the out the RFP and coming up with the solution within the organization, the cost through the use of human resources should be lower. Especially if the service delivered by the supplier is met with good quality, the procurement specialist should view the BVP method as a more successful one.. Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 23.

(24) Conceptual framework In this section will give an overview of the conceptual framework of this research. It shows the link between the factors that affecting the performance of outsourced IT. This is shown in a conceptual model as adapted for this research in figure 1. Figure 1: Conceptual framework. +. Involvement supplier. +. +. Use of suppliers’ expertise. +. -. Involvement procurement specialist. BVP. Project succes. + Customer satisfaction. As stated in the research question, the performance is assessed through the assessment from the procurement specialists involved in the projects. The expectations are that the use of BVP allows the client to make better use of the supplier’s expertise, the involvement of the suppliers in the project will increase and this will lead to a success of the project. On the other hand, I expect that the role of the procurement specialist to change and spend less time throughout the process but rather manage the process. Time is saved on activities such as writing out the requirements, specifications, the rfp, but is involved in meetings during the supplier and the business. This decrease in time will and the higher involvement will probably also influence the transaction costs involved within the client, to be lower. Through the use of in-depth interviews I expect to get an overview of the variables involved in the assessment of the BVP method to be a possible more successful one than the traditional methods. Customer satisfaction will mainly motivated whether the time consumed in the BVP process in relation to other procurement methods is lower (in the role as a procurement specialist). Customer satisfaction is further increased if the customer believes the costs are Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 24.

(25) lower in relation to other methods (less time could be regarded as lower costs). Based on the customer satisfaction the expectation is that the variable performance is positive if the customer satisfaction is assessed to be positive.. Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 25.

(26) 3. METHODOLOGICAL DESIGN This chapter begins with a description of the research methodology used for the study. Then there is an explanation and justification of the chosen research method which provides an overview of the research approach. Finally the collection of the data is described in the last paragraph, and what resources are used for this purpose.. 3.1 Research methodology description The nature of the research and overall design consists of a descriptive qualitative research. The aim of this qualitative study is to understand how Best Value Procurement practices are implemented in outsourced ICT projects and what the impact of BVP is on the performance of ICT project. Qualitative research provides an opportunity to collect data that reflect a thorough understanding of the context, processes, relationships and events (Yin 2009). Furthermore, qualitative research gives the opportunity to find out the motives and opinions of the participants, it goes deeper into the research and focuses on the depth and detail. The goal is to gather and analyse a lot of relevant data in a relatively short time (Eisenhardt 1989). The research approach consists of a literature review (Chapter 2) and interviews with the research group (Chapter 4). The answers from the interviews are based on practice and the theories from the literature review will give an answer to the research question.. 3.2 Data-collection To answer the research question there is chosen to take interviews with the research groups next to the literature review. The answers of the research group are based on practice and give in composition with the theory from the literature study, the answer to the research question. According to Baarda, Goede en Teunissen (2001) interviews gives the opportunity to collect information about different themes that are made transparent. The interviews are based on open questions. The most important themes are about the applicability of BVP, about outsourced ICT projects and about the impact of performance.. Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 26.

(27) The interviews were semi-structured. This means that the order of topics and questions are not necessarily fixed and there are opportunities to ask more and deeper questions. A semistructured questionnaire can also be used as a guide during the interviews to ensure that all topics are discussed (Bryman and Bell, 2011). Furthermore, the choice of semi-structured interviews is appropriate because there is a structure to the interviews while the interviewee still has his/her freedom to convey his message. For the interviews there is a prepared topic list. The topic list is a list of topics and possible subtopics that are discussed during the interviews. Each topic consists of some questions that are asked during the interview. These topics are determined for each research group as outlined below. Based on the topic list and literature study some themes are developed. Then the data is analysed based on these themes. This method of interviewing is appropriate for this research, because in the scientific literature there is not much known about the use of BVP in outsourced IT projects. Through interviews and the use of depth questions, it is possible to gain more information in an unknown field or when some subjects or answers are unclear. Research groups The research group of participants are diversified. The participants consist of three groups which ensures an equal distribution. According to Verschuren and Doorewaard (2000), there are three ways in which people can act as a source of information. The first one are respondent: "someone provide information about themselves". Second one are informants: "provides data on someone else or by his or her familiar situations, objects and processes". And the third one are experts: "A person acts as a supplier of knowledge’’. To answer the interview questions there will take place face-to-face interviews with respondents (customers), with informants (procurement professionals) and with some experts (suppliers) in the field of BVP.. Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 27.

(28) 1) Procurement professionals The first target group are procurement professionals who are specialized in outsourcing ITprojects and have experience in the use of Best Value Procurement approach within these projects. Four a.s.r. procurement professionals were personally contacted to participate for the interview. The interviewer confirmed the appointment by email and the interviews were taken at a.s.r. Furthermore, there were two external BVP-consultants who would be interviewed. These consultants can be seen as procurement professionals, because they support a number of outsourcing projects for a.s.r. and have a lot of experience in the field of BVP in the procurement fase. In total, the following five procurement professionals will be interviewed: . (Procurement professional #1 at a.s.r.). . (Procurement professional #2 at a.s.r.). . (Procurement professional #3 at a.s.r.). . (Procurement professional #4 at a.s.r.). 2) Suppliers The second target group of participants consists of three suppliers who also have experience in offering IT- projects based on BVP. The suppliers were selected based on their experience with BVP and number of IT-projects they have done in the past based on this approach. This can be also a contracted supplier of a.s.r. . Supplier 1 (Role: Business Consultant). . Supplier 2 (Role: Customer Director and Risk Officer. 3) Customers The customers (opdrachtgever) were the final target group that will be interviewed. Three customers were selected for the interview. It was also important to include the opinion of the clients about the end result of their IT projects that have been done based on BVP. . Director ICT. . Head of Infrastructure & Organization (I&O). Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 28.

(29) The total amount of interviews are 9 (1 interview consisted of 2 interviewees) of approximately one hour. The interviews were conducted in enclosed spaces in the organizations of the participants unless the participants wished otherwise. All the data is confidential and anonymous for privacy reasons. There were no persons or organizations named in this study if participants did not want this. Each research group required a different approach to achieve the desired research results. The questions were tailored to the research groups to obtain a valid and reliable answer. 3.3 Data-analyses The semi-structured interviews were recorded on a voice recorder. All interviewees agreed with this request and this enabled me to transcribe what was said during the interview. The research material from the interviews were transcribed according a verbatim style (literal word-by-word). After all transcripts were completed, the detailed interviews were compared with each other. The questions used during the interviews are included in Appendix A. The analysis started with the search for patterns and relationships in the statements of the participants. A pattern is an example or answer that appears several times by different participants (repeating answers), but a pattern may also be whether there are associations between pulling statements. Then, all the relevant findings from the transcripts that could be related with each other were labeled, so that they could be laid next to each other for comparison. After this, the results could be written into themes that were previously prepared based on the theoretical framework and the topic list. The notes with potentially interesting findings of the research will also be kept during the data collection. The findings in the transcripts were labeled on relevance for the investigation. Each drawn theme that was discussed in the transcripts was marked with a code. A code consists of a color and a number. For example, all data defining the use of BVP in the pre-procurement stage marked with the code 'yellow and number 2. All prepared codes were compared with each other and were described in the results section.. Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 29.

(30) 3.4 Strengths and limitations of the research design There is a possible bias with interviews. The greatest danger in personal interviews is that the respondents feel intimidated or uncomfortable during the interview. If the researcher does not handle this, the risk exists that respondents only give answers that the interviewer wants to hear, instead of answering the questions truthfully. This risk will be limited in this study, because the interview is informative in nature, in which the interviewer will express no opinion on the answers of the respondent. The strength is that the research group of participants are diversified. This give insights from multiple perspectives within this research. Furthermore, the relevant information from the interviews were analysed and compared with the literature to answer the research questions. The participants will get an overview of their answers after the data-analyse in order to validate their results. This allows the participants to determine whether the results are placed in the right perspective in order to reduce the risk of bias (Yin, 1981). Other elements affecting the results include the fact that this research is limited to one company. It is therefore not possible to generalise the findings of this company to other companies. Considering the method used for this research consists of interviews, the reliability of the results depend on the interviewees and is therefore a topic of discussion. See also the first paragraph the reasoning in order to try to obtain a certain level of reliability from the interviews. The study is confined to one organisation (a.s.r.) and to a few persons involved in the projects which were characterised by success. This probably will affect the overall view of the interviewees in their answers to be generally positive. Questions were asked to gain insights in possible negative experiences and concrete examples of positive experiences in the BVP process in relation to other procurement methods in the past to validity of the answers. Finally, the research depends on the willingness of the participants to participate in this study. By making known what is the purpose is of this study and to make the participants aware of their understanding and knowledge in their situation, this will anticipate more cooperation.. Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 30.

(31) 4. RESULTS One general finding of this research is that projects are difficult to compare and are indeed quickly unique as identified in the literature review. While a.s.r. has conducted two projects through the BVP method, the actors involved in both projects seem to differ on opinion between the two projects. Some background information shared by the interviewees’ shows that the first project was relatively smaller to the second one. The smaller project seemed to go fluent and was finished within time and budget. The procurement specialists are very positive of the method used, but seems to be less enthusiastic with respect to the 2nd project. However, the method is not criticised, but through more in-depth explanations it shows that the BVP method is new and for both the customer and supplier a method to still get accustomed to. This leads to some minor hiccups during the process. Before outlining the results, the two projects are compared to each other, followed by the findings about the conceptual model and its meaning. Finally, this chapter ends with a discussion about the BVP method. 4.1 The projects compared A.s.r. has outsourced two projects through the BVP method. The first project was the first time a.s.r. adapted the use of the BVP method. This project is less complex, smaller, and has a lower budget compared to the second project. Before using the BVP method a.s.r. decided to hire a consultant who managed to assist a.s.r. in the process of applying the BVP method in the right way. The BVP method is relatively new and especially in the ICT industry it has not or very limited used. This assistance seemed a great help for a.s.r. to have a better grip on the understanding of the procurement method. This was especially helpful in the first project as the number of people involved was also less than the second project. Procurement specialists also stated that due to the number of people involved in the second project minor hiccups are seen, as well within a.s.r. as with the supplier. The tendency within a.s.r. is still that employee’s act from the viewpoint they have to come up with the solution instead of letting the supplier come with the solution. Project size seems to play a role in the perceived satisfaction for the procurement professionals.. Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 31.

(32) 4.2 Analysis of the results Based on the results of the analysis I will provide below the relation with the conceptual framework and the hypotheses as described in chapter 2. Hypothesis 1: BVP method decreases the involvement of the procurement specialist in the procurement process in relation to the traditional method as he will experience less time is consumed for his part in the process. The results confirm this hypothesis. The hypothesis is based on that the BVP method will affect the time that the procurement specialist consumes in the process. These hypotheses is based on the fact that no extensive RFP’s have to be written, the client has not to think of the solution, negotiations should be decreased. The results do support this hypotheses. As argued: “less time, will not differ much, but the feeling is present as the supplier is more involved and does more, costs are lower as efforts are lower” (Interview 3). It seems as expected that the supplier is more involved and this somehow creates that the procurement specialist experiences less time spent on the project. Another interview shows less time is spent as there is less to evaluate due to the absence of RFP’s and other aspects related to traditional procurement method. “Purely from procurement, we spend less time that is because we have less to evaluate” (interview 4). This is also confirmed in the interview with the other procurement specialists. “Time is short than with traditional procurement method, money spent is also less as time is less, this increases satisfaction” (interview 5). The BVP method does indeed lessen the time for the involvement of the procurement specialists as they require to be less involved. Negotiations are not part of the BVP method and this is also confirmed as a positive factor which leads to less time.. Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 32.

(33) “You do not have negotiations with BVP, with rfp you negotiate to the last dime” (interview 7). These negotiations are experienced as time consuming and customers experience the absence of negotiations as positive. As noted, the 2nd project performed by a.s.r. is a bit larger and has some hiccups. A procurement specialists experiences the feeling that the client actually wants to negotiate which does not exist within BVP as negative: “it looks like negotiating which does not exist within BVP” (interview 5). As confirmed by the interviews the procurement specialist experiences that less time is spent in the process from their sides. It seems that the absence of negotiations is seen as a positive factor of BVP. 1. Hypothesis 2: The use of the BVP method will lead to a better utilization of the suppliers’ expertise by the procurement specialist in making his decision compared to the traditional method. The hypothesis is formed based on the fact that ICT projects in the IT industry are characterized to be failures and one of the reasons is that the lack of the expertise causes some of these failures. The traditional procurement method involved that the customers developed the solution for their problem and based on their solution they would search for the supplier who was able to implement the solution. The BVP method however, shifts the solution developer aspect to the supplier with the reasoning that the supplier has the expertise based on experience and practice. Based on the interviews I note that this hypothesis is indeed supported. “Expertise of the supplier, that is a powerful element in this method” (Interview 7) The interviewer shows that the expertise one important factor noted in the BVP method and even argues why a large company as a.s.r. has to hire a BVP consultant, these type of firms should have 1 in-house. The customer interviewed views quality as an important element in service. The other customer interviewed also shares his view on this matter and suggest that Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 33.

(34) how more you are able to let the supplier do his things, how more the supplier will show his expertise: “how more responsibility you place on the supplier, the more expertise he will use” (interview 3). This should be a logic consequence coming with more responsibility. From the point of the procurement specialists, the applicability of BVP increases with complexity of projects. Due to complexity the lack of experience becomes more visible and the more the requirement of the expertise of the supplier is needed. “the complexity is high and the expertise is not present within the organization but also becomes less important as you have to lie more on the supplier for the expertise” (interview 4). “Best value is intended for complex projects, this is because you can use the expertise of the supplier, but the client should be able to give the supplier the room to demonstrate this and this is really difficult for the client, there is a trade-off somewhere, but I don’t know where” (interview 8). The other procurement specialist notes that through the use of the supplier who comes up with the solution the control shifts more to the supplier and this requires trust from the customers’ side. “Trust is important as you have less expertise, you have to trust the supplier and you can verify it until the third phase”. (Interview 2). In order to be able to let responsibilities go, trust has to be present. This could be an interesting topic for future research in the use of BVP vs other methods. All in all, the hypothesis seems to be supported and be in line as noted in chapter 2. The supplier is able to fill in his expertise in the BVP method and this can be used by the customer, including the procurement specialist. Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 34.

(35) Hypothesis 3: The BVP method will lead to a higher involvement of the supplier in the process. Moving on to the final hypothesis, the BVP method allows the supplier to have a higher involvement. The higher involvement comes with the responsibility of coming up with the solution and implementing the solution. The supplier is responsible for the success of the project based on the goals of the customer it wants to achieve. The hypothesis is supported, as it is consequence of the 2nd hypothesis. Based on the interviews, the customers experience this as a positive element. “People involved have the feeling they are behind the wheel, which is an advantage, ….., the supplier is in the lead” (interview 5). However, the procurement specialist does also notes that not everybody is accustomed to this. BVP is relatively new and this change requires a mind shift, but this will come with time as everybody gets acquainted to the procurement method and old habits die down. It is difficult to use the expertise of the supplier and have the client at the same time lose some control over the project. This interesting point of view is shared by another procurement specialist: “Best value is intended for complex projects, this is because you can use the expertise of the supplier, but the client should be able to give the supplier the room to demonstrate this and this is really difficult for the client, there is a trade-off somewhere, but I don’t know where” (interview 8). Risk does not seem to play a role as the customer sees a split up of the risks. One could expect that the supplier is now more the risk-carrier of the project as he has come up with the solution and has to implement, but this is not fully confirmed in my interviews. However, this factor is an important topic for further research. Another viewpoint on this matter is from the suppliers. The suppliers interview do share that the supplier is more responsible and will show more involvement, but this is necessary to fulfil the expert role. Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 35.

(36) “BVP does not transfer all risks to the supplier, some risks still are the customers’ responsibility. I do not think that the procurement specialist or the supplier have a bigger role, this is due to the split-up in responsibilities and risks”. (Interview 6). The supplier works out his solution from the goals and scoping determined by the customer and does not necessarily see a larger involvement and responsibility other than the tasks involved. However, suppliers can always point out risks that the client has missed, this is the expertise of the supplier and his way to show the value-added of his relationship and expertise with the customer. If the client is positive on these matters, the supplier is then able to take the responsibility. The other supplier interviewed does not share the view that the supplier is more responsible for risks involved. The supplier shares the view that supplier has more responsibility, but not more risks. “You have more responsibility, not risks. That is a difference. This enables the supplier to control risks better, because in the end, he is the expert”. (Interview 1). The hypotheses are confirmed by the analysis of the results. However further analysis shows, there are more interesting findings. This is mainly the result as the procurement method is only used twice by a.s.r. and therefore still unfamiliar in practice how to handle issues. The first project is characterised as a success, stated by parties, that it was delivered in time and within budget. Regarding the second project which was a bit larger and more complex the results are not always confirmed. The procurement specialist note that with the 2nd project they have seen that the supplier is not always acting as it should on the BVP way. This is also noted within a.s.r. itself, the procurement specialist still has to inform his colleagues how the method works and what is expected from them and the supplier. The results stated above could change over time as BVP becomes more known in practice.. Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 36.

(37) Other findings The BVP is a relatively new procurement method. A study performed by the BVP consultant hired by a.s.r. shows that BVP is not the standard procurement method for IT projects, however considering it is a relatively new procurement method this is no surprise. The figures presented by the BVP advisor also show that the majority of the IT projects fail, the reasons stated are in line with my reasons in chapter 2 which was based on the literature review. The research stated a ‘mentality change’ is needed to overcome the majority of the failed projects. While I did not have the permission the permission to fully disclose all results, an agreement with the BVP advisor was reached to utilize some screenshots of the study. However I note, the results of this study are to my knowledge unknown whether they are conducted on such a way to be included in a scientific paper, but however, they do share some insights.. Expected ICT expenditures in the Netherlands. A total over 34 billion euros was expected to be invested in 2014 on IT projects. This is an increase of 2,1% compared to 2013. Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 37.

(38) Performance of ICT projects. The amount of failed projects (both in numbers and euro amounts) only strengthen the argument a change in procurement method is needed. Below are stated the arguments why IT projects fail. Projects are either complex, too specified, no room for the market (supplier) to provide his expertise. These arguments are all mentioned in my research on why BVP could be the solution.. Matters related to traditional procurement methods. Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. 38.

(39) Why IT projects fail. Traditional procurement methods are not the way to go based on the research. The focus of these procurement methods are price and suppliers are mostly not able to deliver the required quality due to the low price. The research also shows that while the expenditures on IT projects keep increasing, the number of projects on which the BVP method is used also increases. However, while the number of projects on which BVP is used has increased it still accounts. according. to. his. figures. only. 4%. of. the. total. Research about the impact of Best Value Procurement on the performance of outsourcing ICT projects | Master Thesis. projects.. 39.

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