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Why Vendor Due Diligence Is a Must in IT Solutions Selection

Posted by Ho Nguyen

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Companies that are either planning to purchase an IT software or in the process of implementing one cannot overlook the Due diligence process. Many organisations either underestimate the importance of conducting due diligence or fail to gather all the relevant information to support their decision making.

Committing to implementing a new IT solution can present certain hidden threats if all the relevant aspects of the vendor aren’t checked from the beginning. Conducting due diligence when choosing a new IT solution or service provider means evaluating all associated risks before coming to a business arrangement.

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Why Vendor Due Diligence is a must in IT solutions selection

Why Due Diligence process must be executed

Due diligence is the business term for the process of systematically investigating and verifying the accuracy of a statement. Conducting due diligence is crucial to ensure that all stakeholders associated with the financial endeavour have the information they need to assess risks accurately.

Specifically, it is the CIO’s decisions that are able to keep themselves and the business afloat with the ever-changing trends in the IT industry. They would aim to equip their organisation with the latest, efficient and add values to the business. However, the instability of the software industry can backfire the organisation bottom line. Most IT solution deals are summed up in a lengthy contract that bound the two parties together. Therefore, if your vendor messed up, it’s likely that your business will encounter major hardships as well, especially if the solution is meant to support a key function of the organisation.

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For example, a breakdown in the codes, contaminated or unpatched software are the underlying failures that can influence the viability of the software, which, can be avoided easily with a proper vendor examination.

Factors to consider in your due diligence process

Technical Validation

A clear and throughout check of the system capabilities allows you to break down the functions and operations of the solution. A reputable vendor would be happy to deliver a thorough demonstration of its product so that the prospect can have a glimpse of how the software functions, processes data and how much values it can add to the business.

This phase is the ideal time to evaluate how much the solution can satisfy the needs of your organisation. Try to find the answers to these questions: How technical problems can be solved, how training is provided, is there any hidden expense for updates and replacements, and finally, what the details of its capabilities and performances are.

Read more: 3 key features of any financial management software

Different solutions will focus on solving specific problems or some specific features, therefore, make sure you ask the right questions to gather all key information about the product. Additionally, the demo process is the ideal chance to see the software in action, this helps ensure the solution you choose has the exact capabilities your company needs.

Besides reviewing the functionalities of the solution, check out the company’s references is a must. Your final choice should be a name that has a strong customer base, as well as their relationships and customer satisfaction. Do they have any former customer in your specific business line? Reach out for them and ask for their feedbacks if theirs are not provided in the first place. Moreover, conduct a background check is also necessary. A company’s stability will be proven through their fiscal status, employee turnover rate and possible major changes, if any.

Read more: A Simple Guide to Enterprise Performance Management (EPM)

Contract Agreements

Once you have decided to take the further step, assistance from an attorney and their legal guidance is what you’ll need to fully understand the terms and agreements in the coming lengthy contract. First, it’s the Statement of Work, or SOW to define the tasks needed to be delivered. The SOW’s content outlines the plans for deliverables and costs as well as milestone plans, dates and costs to support the implementation of project tasks and expectations. 

Try not to mistaken the SOW with the Service Level Agreement or SLA, it is the document in which the vendor will describe the acceptable levels of operation and maintenance you will accept. The SLA clarify the ‘uptime’ or the duration of the offline period that is consented by both parties. This document is a crucial agreement explaining what minimum performance requirements are acceptable, the maintenance expectations, escalation processed, and the level of severity for certain issues and penalties that can be assessed against the vendor for failure to perform.

Read more: Hit Or Miss – Lessons Learned from ERP Implementations

Another critical area in the due diligence process is the Escrow Agreement. This document will ensure your control over the software code in case of an “event” happens to the vendor. For example, if the vendor goes bankrupt, merges or acquired by another company, your access to the software code can be compromised. Therefore, you might want to seek legal counsel in defining and negotiating an escrow clause that is ultimately beneficial to your organisation. 

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Project & Implementation Management 

Finally, after you’ve reviewed your proposal, completed your case review and negotiated the contract, it’s time to focus on the project management and implementation processes. Conducting Due Diligence in this process mainly focus on the initial features such as project portals; the structure of the project team and the measures of the performance. Details such as timelines and milestones; how are risks defined and managed and mitigated must be clarified beforehand. Keep in mind that the entire project implementation involves much broader terms, tasks and personnel that should be explained in a separate blog.

Read more: [Infographic] 9 Steps to a Successful ERP Implementation

The vendor due diligence must be carried out comprehensively and effectively to mitigate the risks and forefend the negative outcomes. The paperwork can be daunting to carry out at times, yet having a checklist and consistently evaluate the software vendor is vital to get yourself an authentic and beneficial IT service. With a thorough research process, you’ll end up with a business partner that not only deliver a system that works but also elevates your business to the next level.

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Topics: Cloud Computing, Technology trends, Enterprise Resource Planning ERP

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