Effective Vendor Management will help ensure that you know the answers to questions that ensure that you are managing the Vendor appropriately to secure a positive outcome.

1. Vendor Management
Ensuring Value for Money and Managing Risk
At least 15% of the total outsourcing contract value is at risk if the deal is not
well managed.
Furthermore, the majority of both buyers and providers believe that 80% or
more of the contract value is at risk*.
*From a 2006 study by US-based consultancy Vantage Partners working in conjunction with Cutter Consortium, BT’s Vital
Vision Program and EquaTerra.
Research indicates that many clients are not fully satisfied with the outcomes of their outsourced
arrangements. This does not necessarily mean that they intend to terminate, but there may be
questions around:
 Is the contract meeting my original business case outcomes?
 Am I paying more than I expected due to “additional costs”?
 Am I managing risk appropriately?
 Is my Vendor focussing on the contract rather than the relationship?
 Am I managing my multi vendors appropriately?
 Is the contract still matched to my needs?
 How well am I managing my contracts at all stages of their lifecycle
 Are people receiving the quality of service I expected?
Effective Vendor Management will help ensure that you know the answers to all of the above, and
ensure that you are managing the Vendor appropriately to secure a positive outcome.
Cherub Consulting Group Pty Ltd
enquiries@cherubconsulting.com.au
cherubconsulting.com.au

2. Value for Money
Ensuring consistent Value for Money is an ongoing challenge for organisations with external
Vendors.
Effective Vendor management can help you manage challenges such as:
 Vendors seeking additional costs for out of scope work
 Do you know that the costs are outside the terms of the contract?
 Do you know how to contain costs whilst at the same time ensuring maximum service
delivery?
 Are you getting everything you paid for in the contract?
 Do you know all the services to be provided under the contract, and are they all being
delivered?
 Do you have internal staff supporting, or delivering entirely, services you expected the
Vendor to deliver?
 Are you getting value for money?
 Is your contract the mechanism to achieve maximum value for money for the services?
 Can the Vendor change the way services are provided to improve your value for money?
 How do you ensure that you are consistently getting value for money during the life of
the contract?
Risk
Of the ‘at risk’ component CHERUB’s experience tells us that:
 20% - 30% is due to a poorly constructed contract that makes it difficult for either party to be
effective.
 20% - 30% is due to under-performance of the service provider.
 40% - 60% is due to ineffective Vendor management – on either one or both sides of the
agreement .
Vendor Management, carried out effectively, can have a significant influence in managing and
mitigating risk with external Vendors.
Vendor Management will ensure ongoing monitoring and evaluation of Vendor service delivery to
the organisation. Failure in service delivery is a key risk to any organisation, but this does not need
to be catastrophic. It could be such issues as:
 Repeated operational service failures of a minor nature, that ultimately have a major impact
on users.
 A break down in communication resulting in mis-understandings (by both parties) on emerging
problems or issues.
 User perceptions (real or otherwise) of poor service delivery from the Vendor.
 Vendor not delivering all requirements of the contract. This is not always a deliberate act by
the Vendor. Sometimes requirements can be overlooked, by both parties.
These issues, and others, if not managed, can become a risk to the contract. They can often be
readily addressed, and solved through effective Vendor Management.
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3. Vendor Management
CLG Vendor Management Model
The CHERUB Vendor Management
Model recognises two distinct
Service
functions: Performance
Management
 Governance; and
Championing
Relationship
Service
 Service Management Governance Innovation
Management
Function
Service Management
Function
Together, these two functions deliver Contract
Service Financial
a comprehensive Vendor Management Administration &
Risk Management
Management
capability.
Governance is 'Build the framework and Guidelines', Service Management is ‘conducting Vendor
Management against Governance’.
Vendor Management is complex in a single Client:Vendor relationship. It is highly complex in a
Client:Multi Vendor relationship. Multi Vendor relationships are increasingly common, and
effective Vendor Management has a major role in ensuring that Value for Money and Risk are
managed in this environment.
Governance
In our model, the Governance Function addresses the delineation of decision rights and
accountabilities in respect of contracted services. Excellent sourcing Governance provides and
ensures ongoing:
 Accountability
 Transparency
 Fairness and balance
 Legality
 Probity and adherence to ethical standards of practice
Governance
The Governance Function is comprised of: Function
 Governance committee structures
 Roles and responsibilities
 Policies and procedures
 Decision authorities
 Controls and checkpoints
These elements are the engine of Governance excellence.
Good Governance ensures that legal and ethical standards are maintained in respect of contracted
services and that the decisions made in respect of the services are transparent, auditable, fair, and
in the best interests of the organisation.
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4. Poor Governance opens the door to inappropriate contractual arrangements.
At its worst, poor Governance can enable fraud and corruption to take place. This can place the
reputation of an organisation at risk; result in breaches of directors duties; and may even lead to
expensive civil or criminal prosecutions.
Service Management Performance
Management
In our model, the Service Management Function is
comprised of five primary capabilities:
 Service Performance Management Championing
Relationship
Service
Management
 Relationship Management Innovation
 Service Financial Management
 Contract Administration & Risk Management
Contract
 Championing Service Innovation Administration Financial
& Risk Management
Management
These five capabilities are the engine of Service
Management excellence.
Service Performance Management
 Process of actively monitoring, measuring, reporting and providing feedback on the quality,
timeliness and levels of the contracted services.
Relationship Management
 Actively working to foster and maintain a harmonious, collaborative and cooperative working
culture between your people and those of the service provider.
 Actively working to bring the two parties together and encourage the participants to work as a
single team.
Service Financial Management
 Ensuring the smooth and timely flow of quotations, statements, invoices, payments and
remittance advices for services rendered by the provider.
 If you recharge the business units for services they consume, the financial management
function of sourcing management may also be responsible for supervision of that recharge
process.
Contract Administration & Risk Management
 Controlling and supervising the maintenance and execution of the agreement in accordance
with the contract terms and conditions; including compliance monitoring and reporting.
 Managing operational and contractual risk.
 The function also embraces negotiating, documenting and communicating any changes to
contract sections such as statements of works, agreed service levels, financial arrangements,
contract party responsibilities and general contract terms and conditions that may be required
during the life of the agreement.
Championing Service Innovation
 Recognising and seizing opportunities for enhancing the efficiency and effectiveness of
contracted services that changing circumstances may throw forth.
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5.  Encouraging and facilitating others, be they persons in your enterprise or persons from your
service provider, to be continually on the lookout for such opportunities and to bring ideas to
the table.
The five capabilities of Service Management enable you to mitigate the risk, and when combined
with effective Governance function, realise your objectives whilst ensuring standards of probity
and ethics are maintained.
Business
Objectives
Sourcing
Objectives
Deal-specific
Governance Objectives
Function
Multi Vendor Management
A major challenge facing clients is
“how to ensure that your multiple MVI
vendors will co-operate effectively
and efficiently with each other when
delivering service to your users”. An Vendor 2
important approach to managing
multiple, inter-related vendors is to Vendor 1 Vendor 3
Service Delivery
implement a Multi Vendor Interface
model. This model must recognise
that whilst the external vendors dont
have contracts with each other
regarding the provision of services to Client
you, the client, they do have a
contract directly with you.
The Multi Vendor Interface (MVI) acts like an umbrella over multiple Vendors, providing them with
a common framework within which to operate when providing services to the client.
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6. Contract Life Cycle
The role of Vendor Management, and indeed other stakeholders in the organisation supporting
Vendor Management, will change during the various contract lifecycle stages. It is crucial to
understand the stage of the contract lifecycle your contracts are in.
Contract expiry point
Renewal
Requirement Procurement Execution
Revision
Rectification
Potential contract termination point
Potential contract termination point
Contracts can be considered to have three primary stages (Requirements, Procurement and
Execution), plus three status conditions as an extension of the Execution stage (Renewal, Revision
and Rectification).
Vendor Management, and other stakeholders, play differing roles at the various contract lifecycle
stages. If these roles are not carried out properly, the ultimate effect can lead to user
dissatisfaction, or worse still, contract failure.
CHERUB has a robust, proven approach to help clients manage
Value for Money and Risk with external Vendors.
We know that Vendor Management is a crucial discipline that
organisations must embed to ensure they are achieving maximum
benefit from external Vendor relationships.
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7. CHERUB is a specialist advisory and consulting firm that brings together
a rich heritage of experience and expertise in business and ICT
management.
 Our clients rely on us to deliver solutions that address their
complex and challenging issues.
 We are about practical solutions – combining specialist skills in
Governance, strategy, performance management, sourcing and
organisational change to make a real difference for our clients.
 Success for us is measured by our clients’ success. We pride
ourselves on delivering real world outcomes and value-for-money.
We have significant capability and experience in helping clients with:
 Sourcing and Selection, including advice and support through the
entire sourcing lifecycle of Strategy, Go-to-market, Evaluation &
Selection, Negotiation support.
 Vendor Management, including Governance and Service
Management.
 Sourcing Price Benchmarking
 Strategic Planning, including Business Strategy, IT Strategy, Sourcing
Strategy.
 Program and Portfolio Management, including complete lifecycle
program and portfolio management support.
Our name stands out......
but its our people you will remember
For further information please contact us on
enquiries@cherubconsulting.com.au
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