More than ever before, businesses are relying on outside providers to get work done. The Statement of Work (SOW) is the critical first step in managing these relationships. Master the skill of drafting a thorough SOW, and you’ll win.
Welcome to the New Era of Business
Today the rapid speed and complexity of business require tapping external service providers as a core component of your workforce. External providers allow you to access the right skills and resources at the right moment, without investments associated with recruiting, training, and managing resources internally.
Data reinforces this reality — according to a 2016 study by Intuit, 40 percent of the American workforce will consist of contractors, service providers, and freelancers by 2020.
To get ahead, you will need to master managing these relationships.
The first step, which is often overlooked, is to develop a Statement of Work (SOW). The SOW is more than a document, it’s a critical process that allows both parties to gain agreement and clarity from the beginning. A well executed SOW provides guidance over the course of the relationship. When you think about the myriad external vendors who will supplement your business, these documents truly become a glue holding everything together.
Unfortunately, many companies lack the processes to utilize outside talent effectively. After thirty years in the services industry, I’ve signed thousands of SOWs. Here is what I’ve identified as the essential elements and nuts and bolts of a successful SOW.
Elements of a Solid SOW
Who is involved and what is your project about?
Begin by describing the entire project background. The client should discuss their current business state and specific objectives needed to complete the project. Vendors and clients need to also cover all project history.
Define all objectives. Be specific, and focus on the intended results of this project. Do not include objectives that the project isn’t able to impact.
Scope & Responsibilities
Define all activities expected from the vendor, as well as the client. Specify whose responsibility each activity is, as well as if the vendor or client is primarily or jointly responsible.
Deliverables & Timeline
Define all deliverables that result from this project and their delivery timelines. Specify who (e.g., Vendor, Client) contributes to each deliverable and to what extent (e.g., primarily, jointly). Outline approval processes on both sides. Detail what the completion of the project entails for clarity on project closure. Specify project completion dates.
Approach, Organization, & Staffing
Describe the roles, quantity, and time commitments of both vendor and client personnel. Identify the client project manager (point of contact) who has ultimate responsibility, and who’s required to obtain approvals.
Assumptions & Change Requests
Identify factors that must be true for the provider to deliver the project and specify these assumptions (or dependencies). If these become invalid, it might be necessary to change the fee or timeframe.
Fees & Expenses
Outline expected fees, due dates, and late fees. Explain the frequency by which the client will be charged. The type may be time and material (T&M), fixed fee, value billing, deferred billing, benefits based, a combination, or other. Specify chargeable units, when each is due, and when late fees apply.
Standard Business Practices
Specify all terms and conditions related to your SOW agreement. If this is a standalone SOW, meaning you have no master Customer Service Agreement (CSA), you’ll want to be specific and comprehensive. If this SOW includes an appendixed CSA, use this section to add terms specific to this project.
A Practical Conclusion
Use the conclusion to close on a positive tone. The provider should not make broad commitments here, such as “We will do whatever it takes to X, Y, and Z” or “We look forward to making this project a success.”
It is critical to treat each SOW uniquely, as each client and project is different. Therefore, keep in mind that it is routine for both parties to revisit and reset expectations even in the midst of a major project.
Above all else, dedicate time necessary to thoroughly engage in the SOW process. This will set you up for the best project outcome, and will instill deeply rooted trust between both parties.