Five Compelling Reasons to Ditch the RFP
Sorry RFP, it’s been a nice run, but we’re breaking up with you.
For years, like many other digital agencies, the majority of Mightybytes’ work came from projects that typically started by responding to some sort of RFP, or Request for Proposal. This year we decided to significantly cut down on the number of RFPs we respond to with a goal of dropping them altogether in 2017. So far this process is working. Billing is up, project overages are down, and we’re not wasting time on proposals we have very little chance of winning. Most importantly, clients are happy. They’re getting quality work at a fair price. Here’s what we have learned along the way.
The majority of businesses and nonprofits are still stuck in an outdated mindset that often goes against the best interests of all involved parties: In order to successfully execute a long and complicated project we need tons of documentation up front. RFPs—and the proposals that arise from them—often play a big role in project failure, but it doesn’t have to be this way. By operating under shared understanding of common goals, and embracing uncertainty, you can find success.
Here are five reasons why it’s time to say buh-bye to the RFP:
An RFP Wastes Time
Time makes up your life, so wasting it is actually a slow form of suicide.— Jeff Sutherland, author of Scrum: The Art of Doing Twice the Work in Half the Time
It isn’t efficient to spend so much time documenting the entirety of a project’s scope up front, especially when most specs will change as each party learns more about what success looks like. When it comes to project execution, unpredictability is the name of the game. The Agile Manifesto states that “Agility is all about trusting in one’s ability to respond to unpredictable events more than trusting in one’s ability to plan for them.” This is a big mindset shift for many.
Pamela Meyer, author of The Agility Shift: Creating Agile and Effective Leaders, Teams, and Organizations says that in reality preparing is much more effective than planning.
The purpose of preparing is to develop readiness for the unexpected, rather than solely to execute a plan…with a core focus on preparing, all participants [in the process] do more than adapt to change…[they] are able to leverage its opportunities for innovation.
Meyer expands on this by saying,
The illusion is that the RFPs improve efficiency, when in reality it creates a cumbersome process that actually constrains all parties’ ability to make new discoveries and adapt along the way. Tied to a plan, organizations actually cut themselves off from the most important cost-saving strategy of all, continuous learning and innovation.
We completely agree. Creating exhaustive project specs up front, especially if it’s before actually winning a contract, is a completely inefficient use of company resources. At Mightybytes, our discovery workshops not only handle the bulk of defining project parameters, but they do so in a collaborative environment with all stakeholders at the table. This allows everyone involved with the project to build consensus and set expectations for approvals, successful communication, and execution of deliverables. Expecting to do this through a few phone calls before turning in a proposal—which is commonly the case with an RFP scenario—is a lose-lose situation with all parties extending resources that could be more efficiently spent in other ways.
Finally, RFPs not only waste time for the vendors who respond to them, but for the clients who create them as well. It is admirable to spend time fleshing out project requirements, but oftentimes people on the client side don’t have enough expertise to effectively create accurate specs. While hiring a consultant to assist in the RFP process can sometimes help with this, a certain level of collaboration and knowledge transfer is required in order to get any vendor up-to-speed so the client is, in effect, paying twice for the same work. Which brings me to my next point…
An RFP Wastes Money
It’s my best guess that in Canada each year we jam about $5 billion worth of wasted time and effort into our economy because of these inefficient RFP processes.— Author and TedX speaker, Cal Harrison
Here is Canadian RFP antihero Cal Harrison’s three minute take on why responding to RFPs is a huge waste of money:
If Canada alone wastes $5 billion each year in RFP responses, imagine how much time and money are wasted around the globe on the same thing. Canada’s estimated 2016 GDP is $1.5 trillion. The United States’ GDP is just over 12 times that of Canada’s. If we apply some napkin math to Cal Harrison’s ballpark estimate, we could say that the time wasted on RFPs between the two countries is just under $62 billion. Globally, it’s $250 billion. Napkin math or not, that is a staggering amount of money.
On a smaller scale, in the first few months of 2016, Mightybytes bid on nearly $1.5 million worth of work through the RFP process. We won less than $200k of that work. That’s a return rate of less than 13%. All those proposals took our business development team countless hours to craft potential solutions and apply estimated budgets and timelines. These proposals also disrupted our production team’s existing work schedule—keeping them from billable work—to review the accuracy of estimates, proofread proposed solutions, and come to consensus on whether or not we could actually deliver what we promised in our proposals. This process cost the company tens of thousands of dollars in just a few months. This is not a sustainable practice for our business. As a Certified B Corp, we try to imbue sustainability into everything we do.
Considering that there are about 560,000 agencies around the world, it is easy to see how the amount of time and money wasted on RFP responses each year—in our industry alone—could be astronomical.
We don’t know our budget. We want you to tell us what it should be.— Common client response to budget questions
If you’re inexperienced and unsure what your project should cost, that’s understandable. However, your organization has an annual budget and most likely your project exists as a line item somewhere in that budget. Even if it was an unplanned project, the company is pulling money from somewhere to fund your project. Do your prospective vendors a favor and share the budget numbers with them early in the process or right upfront. The cat-and-mouse game of dancing around the real budget is counter-productive for all parties. It is better to be transparent about money from the get-go. It sets the tone for honesty and transparency throughout the relationship and, in the end, will be appreciated on all sides.
If you’re in the early exploratory stages and simply want to learn what digital projects cost, any vendor can give you a general idea of their price ranges and common budgets for typical projects during an early discussion. Just keep in mind two important things:
- Prices vary widely across our industry and depend on many factors, like size of company, years of experience, overhead costs/expenses, technology, size of team, process, timelines, and so on.
- Features drive pricing. What you think you know in the beginning will change. See the “Wasted Time” section above.
Similarly, if you’re a nonprofit applying for a grant to cover the costs of a digital project, it is likely that some financial information will be required in the application process. We offer project scoping and grant planning workshops to help with this process. In this scenario, if you land the grant you’re better off running the project itself using a fixed bid-managed scope process. This will help you achieve the best possible outcomes within a fixed price scenario.
Regardless, if both parties agree to shared goals early on and use a target budget and timeline as their guiding light, discussions about what to do if parameters or timelines shift throughout the project’s life cycle become much easier. If possible, talk about contingency plans up front as well. Being transparent about these things often short circuits uncomfortable conversations down the line and helps foster a relationship of mutual trust from the start. As a B Corp, transparency and honesty in business are high priorities for us.
Lowest cost is widely recognized as the poorest criterion for service selection when quality and professional creativity are sought…Nobody willingly chooses a surgeon based upon a doctor’s willingness to perform an operation most cheaply.— Wikipedia entry for Qualifications-Based Selection (see below)
Many RFPs—especially those from government agencies and sometimes nonprofits—state outright that the lowest bidder will win the contract. This is problematic, considering the number of unknowns that still exist even as a contract is being signed. Compounding this, vendor companies, each with different pricing models based on parameters mentioned above, must typically bid high in order to cover the wild card of unknowns. This trap is called the cone of uncertainty. Experienced vendors are often underbid by inexperienced competitors, which could potentially lead to a significant reduction in deliverables quality and higher costs in the long run. We have seen this happen time after time where clients chose a lower cost vendor and then ultimately paid us to rework some part of the project.
As we mentioned above, the process of knowledge transfer is ongoing, so embrace it as part of your project from the start. Defining success based solely on lowest price sets up a race to the bottom, and who wants that?
So what’s the solution? In qualifications-based selection (QBS), which was established by the U.S. Congress as part of the Brooks Act in 1972, cost is not a factor when assessing vendor hiring decisions. Rather, vendors are chosen based on their qualifications and ability to prove they have tackled similar challenges. This of course does not mean that service fee negotiation is removed from the process, it just means that it happens after the vendor is selected and before final contracts are drawn up.
According to the QBS Canada website, this process “has proven that buyers get better outcomes and greater value by excluding price as an evaluation criteria when hiring a professional services firm…”
A typical QBS process goes like this:
- RFQ: A project owner issues a request for qualifications (RFQ), which explicitly describes the selection criteria.
- Submission: Service firms are invited to submit their qualifications by a selection committee, typically comprised of experts in the field or with key project knowledge.
- Ranking: Firms are rank-ordered by the selection committee and several leading candidates are chosen to provide more information and possibly participate in an in-person interview.
- Selection: The project owner then chooses a final candidate from the short list.
- Negotiation: The chosen firm is invited to enter into negotiations over compensation and contractual terms.
Qualifications-based selection is not without its issues. It could be difficult, for example, for new businesses without a lot of experience to get a much needed foothold into the selection process. And some organizations fold an RFP process into the steps above, typically after step 3, which negates the advantage of taking this approach in the first place.
LimeRed’s Emily Lonigro says that QBS is problematic because it still relies on the age-old process of having agencies prove themselves in a features-and-benefits type of selling document.
QBS allows agencies to be chameleons and change their expertise based on who they are qualifying for. Agencies need to do a better job at communicating their unique specialization rather than being generalist firms and saying yes to everything. Clients need to do a better job defining the criteria by which they will select an agency, then doing their own legwork to find firms that fit their criteria, thereby narrowing the pool of agencies at the outset.
While not a perfect answer, by making the selection criteria based on qualifications and ability to execute versus budget and timeline, all parties can get to a decision quicker and begin the process of discovery.
Your Next Project
This may sound like a blog post of questionable motivation, considering that Mightybytes is a service-based digital agency that has historically relied on RFPs, but here’s the thing: all that time we used to spend on RFPs we are now using to generate and nurture more valuable client relationships. Turns out, RFPs were a crutch we relied on to shield us from the hard work of pounding pavement for the right clients and developing mutually beneficial, long-term relationships.
I can’t say we’ll never respond to another RFP again. Every now and again a project comes along that seems like just the perfect fit. To that end, we’ll decide whether or not to respond on a case-by-case basis. I do know that recouping all our lost time previously spent on RFPs directly improves Mightybytes’ bottom line. It also allows us to focus on other areas of the business that need attention, which helps us become a better company.
So when considering options for your next project, here are some things to think about:
Advice to Vendors
If your company relies on RFPs for a large percentage of your work, consider supplementing your RFP-based work with other avenues for business development. Diversifying income sources is key to a company’s success. It will only be a matter of time before the ebb and flow of RFP responses becomes more ebb than flow. At that time you should be prepared.
If you respond to an RFP, ask about budget and timeline right up front. I can’t stress the importance of this enough. If the prospect is unwilling to offer even broad budget guidelines, consider politely declining the opportunity. If you decide to move forward, be clear about the project’s unknowns and that your process is meant to address them. Make sure they understand that your estimates are just that…estimates. Then, if you win the project, make sure to have regular, ongoing conversations about budget, timing, and deliverables (but that’s a whole other blog post).
Advice to Clients
Thinking about going down the RFP path? Consider hiring vendors based on their experience and qualifications instead of asking for extensive project and cost details up front. Be sure the people you talk to are committed to collaboration, have a longstanding track record of successful projects, and can execute jobs similar to yours. If you have a desired budget, be upfront about that. If both parties are working toward shared goals with a common understanding, haggling over features and functions becomes far less critical. Better yet, if you’re uncertain about which road to take or how to reach your goals, hire a consultant to help you with estimating costs and defining a project’s digital strategy before you even begin executing your project. Just be sure not to over-plan because learning is continuous, so things will always change. Knowing that going in will result in a much more successful project.
The RFP process has been around a long time. Many industries have been slow to move away from using them, despite their significant inefficiencies. We can and should find better and more sustainable solutions. Those solutions start with honesty and transparency up front. Good luck!