FREE Due Diligence Checklist
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Computer Weekly recently published a CIO survey and one of the questions was “are you happy with the performance of your software suppliers?”
Angry and frustrated?
Apparently, 90% agreed with this statement with only 10% disagreeing. I have to say this is not a response I would have expected when you take into account the currently stratospheric IT project failure rates (70% to 92% per annum). First hand experience has always shown (after auditing 50 + projects & programmes of work during my career) that the inappropriate selection and engagement of third party suppliers is one of the key aggravating factors behind many IT project /programme failures. For example, Computerweekly has been running a big campaign to try and stamp out the well-known and growing practice of “stiffing”.
“Stiffing” for those unfamiliar with the term is where software suppliers wait for a customer to do something that the supplier can argue takes it outside its original licensing terms: for example upgrading the hardware, restructuring the company or extending the software to new users. The supplier then demands a huge price for a new licence to cover the changed circumstances – or offers to drop the demand if the user signs up to a long-term contract under worse terms and conditions.
This is really common and growing problem, which can be a big hit to the balance sheet.
However, it must be stressed that “stiffing” is only one of the many ways in which inappropriately engaged third party IT suppliers (software, hardware, consultancy, outsourcers, offshore partnerships etc) can damage your organisation.
The key to making sure that dealing with third party suppliers is not like smoking (great in the short term, addictive in the long run and kills you in the end) is to carry out proper Due Diligence prior to signing anything.
So what do we mean by the term Due Diligence?
Due diligence could be likened to digging a hole in the ground and seeing if there’s oil, instead of taking someone’s word on it.
If you do not subject prospective third party IT suppliers to thorough Due Diligence, you aren’t looking deeply enough into the key aspects of a potential deal in order to minimise and contain the potential risks to you and your organisation to an acceptable level.
“To the average man on the Clapham Omnibus” this might seem the common sense thing to do. However, as anyone can tell you who has been in IT Management for more than 10 Nano seconds, there is a great deal of difference between common sense and what actually happens in the real world. It’s therefore no surprise that “fit for purpose” Due Diligence in the IT industry is, from personal experience, a rare occurrence. In fact, Hens Teeth comes to mind.
Many of the disastrous third party software supplier deals I have come across over the last few years were initiated without even a contract, with the supplier identification and selection, based on nothing more complicated than a number of key personal relationships (please see my post - FREE Hobbling Checklist) for further details on where this kind of selection process can get you. Furthermore, many of these types of deals on closer inspection, seem to attract from suppliers higher than usual levels of corporate entertainment i.e frequent drink-fuelled parties held in boxes at venues like Wimbledon /Twickenham /Lords etc. No wonder great companies such as Masterfoods (makers of the Mars bar) refuse to allow their business executives to accept gifts, meals, and entertainment provided by their suppliers.
When I have been asked to conduct discovery-based investigations of failed /failing third party deals, I have had a variety of excuses offered up to me by the key players as to why things went wrong. However, one, which seems to crop up more and more these days is the excuse that “AGILE says it’s OK to have slack arrangements with suppliers”. “The AGILE manifesto states its the way to go with respect to the running of so called “collaborative” IT ventures” (please see post - Agile Fees Feeding Frenzy). To shore up this failed approach, it is often explained at length how AGILE suggests that to deliver rapidly, trusting your suppliers is key.
You just have to shake your head when this kind of balderdash is trotted out.
Personally, I have never believed AGILE is to blame for poor Due Diligence. It is simply a symptom of poorly trained /inept, and sometimes corrupt, management. For example, an essential skill in running a due diligence exercise is a thorough understanding of the law and what a high quality due diligence assessment actually entails.
As of yet, I have not seen any of the mainstream professional Project Management institutes emphasise the studying of Due Diligence process combined with the practical application of the laws of Torte, Contract, Common and finally general Commercial Law.
In order to help IT managers with these typical skill deficits, I have published my Due Diligence checklist (please click for download).
This checklist was not designed to cover every kind of third party IT supplier /engagement scenario. Therefore, I have picked one of the more difficult due diligence assessments to undertake, namely the selection and engagement of a bespoke software supplier. The document does not cover the fine legal detail involved in contract assessments, which is an area worthy of a book rather than a checklist. However, it does cover the key aspects of a fit- for-purpose due diligence exercise successfully used by myself over the last 20 years.
From experience, the mere presentation of this checklist at meetings with prospective software houses and/or management consultancies has caused the “vapourware, wide-boys” to run a mile without a need for further meetings and wasting time. Great way of getting your short list reduced.
Try it out at your next meeting. IT can be quite fun 
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