From Blind Spots to Bright Spots: Reinforcing Strategic Governance

Strategic governance is a critical framework for organizations to effectively steer through complex operational terrain. It ensures a disciplined approach to defining strategic objectives, mitigating risks, and judiciously managing resources.

This case study delves into a scenario where a multi-million-dollar contract was executed and being managed without adequate sourcing governance, leaving the client’s sourcing team blind to the considerable scope and spend of the project. The lack of cross-departmental transparency in financial management and resource allocation led to unmanaged transitions of resources and an increased risk of supplier wrongfully and/or overly invoicing for the services being provided.

The study explores the consequences of this oversight and the subsequent initiatives undertaken to bolster strategic governance. These measures were aimed at restoring transparency, accountability, and the integrity of financial, operational, and sourcing practices, thereby reaffirming the client’s dedication to excellence. This narrative serves as a cautionary tale and a guide on the imperative of strategic governance in maintaining control over complex contracts and commitments.

The Contract

The contract in question was established during a period of significant transition for the client and was intended as a three-year agreement to facilitate rapid staff augmentation. Initially, it was designed as an umbrella contract to outline a basic scope of work and rates for the projects to be executed under it.

However, there was a critical oversight, as no individual project documentation was ever produced to track the number and type of resources allocated to each project. Consequently, stakeholders would simply issue a purchase order (PO) for the number of resources they deemed necessary. The finance department would then approve these expenditures without the requisite documentation.

This absence of documentation meant that there was nothing available for the sourcing department to track these projects, resulting in them flying under the radar. Since sourcing was unaware of these projects, none of the standard sourcing reviews were conducted. This led to a lack of strategic resource allocation with some stakeholders even reallocating resources at will across different POs based on spending needs. This situation presented significant risks to the client, as it undermined the governance and transparency expected in such contracts.

The Risks

1. 1. Lack of Oversight: Without proper documentation, there’s no way to ensure that resources are being allocated efficiently or effectively. This can lead to wasteful spending and a failure to meet project objectives.
   2. Governance Issues: The absence of governance and due diligence in the contract’s execution means that there’s little to no accountability for the resources spent or the outcomes achieved. This can result in financial discrepancies and potential legal liabilities.
   3. Sourcing Blindness: Since the sourcing department was unaware of the projects, they couldn’t perform their usual reviews or apply strategic resource allocation. This could lead to suboptimal contracting, missed opportunities for savings, and a failure to leverage the company’s buying power.
   4. Operational Inefficiency: Without clear documentation, it becomes challenging to measure project performance or identify areas for improvement, leading to operational inefficiencies and a potential decline in service quality.
   5. Risk of Inaccurate Invoicing: Despite having agreed rates, the lack of resource count and scope documentation increases the risk of inaccurate invoicing, which could lead to financial discrepancies.

The Solution

In addressing the challenge at hand, our initial step was to restore project visibility for the sourcing team. We meticulously gathered financial data pertaining to various purchase orders under the master document, delving into each to identify the underlying issues. Subsequently, we presented our findings to our client sourcing leads, engaging in a collaborative dialogue to formulate a strategic action plan.

Our approach was rooted in partnership; we not only highlighted the problems but also elucidated our investigative process and proposed a clear path forward. Through a series of consultations with finance, operations, and sourcing leaders, we achieved two pivotal objectives: We compiled comprehensive background information on the contract’s operations and crafted a forward-moving process.

We determined that individual documentation for each project was essential to delineate the scope and pricing of services, ensuring that purchase orders were explicitly linked to specific documents for clarity on charges. This necessitated discussions with the supplier to amend the documentation and enhance transparency regarding the resources utilized and their corresponding rates.

The culmination of our efforts was the implementation of a strategic governance plan, which realigned the contract and projects with the sourcing due diligence standards. This systematic approach not only resolved the immediate concerns but also established a framework for sustained operational integrity and transparency.

The Checklist: How to Avoid Problems

1. 1. Establish Clear Contract Guidelines: Define specific criteria for contracts that align with sourcing due diligence standards. This includes clear terms of service, pricing models, and deliverable timelines.
   2. Regular Contract Reviews: Schedule periodic reviews of contracts to ensure they are up-to-date and in compliance with sourcing policies. This helps in identifying any potential issues early on.
   3. Enhanced Visibility and Tracking: Utilize project management tools to track the progress and status of each contract, ensuring that all projects remain visible to the sourcing team and other relevant stakeholders.
   4. Training and Awareness: Conduct regular training sessions for the sourcing team and other involved parties to stay informed about due diligence processes and contract management best practices.
   5. Stakeholder Engagement: Keep all stakeholders, including finance, operations, and sourcing leaders, engaged in the contract management process to foster a collaborative approach.

The Final Takeaway

To conclude, the implementation of strategic governance measures not only resolved the immediate issues but also established a robust framework for sustained operational integrity and transparency. This case study underscores the critical importance of strategic governance in maintaining control over complex contracts and commitments, ensuring that organizations can navigate operational challenges with confidence and precision.

By Victoria Hallwachs, Associate Consultant