Statement of work (SOW) is a procurement process used to project manage tasks and activities and to clearly define and control a project’s key deliverables and deadlines. An SOW states work that will be done and who’s responsible for doing it. It also clearly outlines objective and measurable project outcomes, and how and when payment will be made.
A statement of work can be used to procure an external supplier for a single project, contingent resource to tackle complex requirements, or to accommodate other service procurement demands. A common theme is that this approach will bring better transparency, quality control, and costs measured against clear project outcomes.
Let’s look at the different types of statement of work and services procurement that this could apply to.
3 Types of statement of work defined
There are three main types of statement of work: basic (also known as standard), detailed, and performance-based. Each type provides a different level of detail about how the work should be completed.
Let’s quickly define each project type before we look at the key benefits that all of these can provide.
Basic (or standard) statement of work
A basic statement of work states the amount of time that should be spent on the project and the costs that will be expected to deliver the required outcome. It does not specify how individual tasks should be completed, but it may use milestone payments measured against basic desired outcomes.
Detailed statement of work
A detailed statement of work defines a specific outcome for completing each task. The organisation that is buying the service prescribes project outcomes, which are measured and controlled by both time and cost. A detailed project specification is agreed between the customer and supplier and this defines the outputs and supplier payment process.
Performance-based statement of work
A performance-based statement of work specifies detailed project outcomes, which are always defined in a project specification. This is the most popular and commonly used form of SOW since it defines project objectives and milestone goals based on time, cost and quality.
So, those are the options. But what are the main benefits of using a statement of work?
Statement of work benefits explained
Using a statement of work eliminates the confusion, ambiguity and grey areas that so often undermine the intrinsic value of a buyer-supplier relationship. With an SOW, both sides know exactly what is expected, by when and to what standard within the confines of a given cost.
SOWs can significantly reduce the amount of time and associated costs that are wasted on a project, so cost control is seen as one of the key statement of work benefits. But the benefits of SOW go beyond cost savings, to also include:
- Improved visibility - increase transparency and visibility across the project for easy assessment.
- Better quality control - achieve sharper focus on qualitative and measurable outputs with designated levels of approval and authorisation.
- More timescale confidence - give your contingent workforce and other service procurement suppliers clear objectives and milestones for project completion.
- Category Management - easily classify all suppliers by category of supply, and compliment permanent skill sets and resources wherever possible.
- Compliance and Governance - create uniformity in supplier engagement to replicate the internal policies that may need to apply.
- Reduced risk and liability - shore up your regulatory and compliance requirements and ensure these are understood and formally accepted by all external suppliers.
So, that’s why you should use SOWs. But how do you actually create an SOW requirement?
Here’s what to include in a project specification for SOW.
How to create a statement of work
People right across your organisation are probably creating statement of work specifications with a lack of consistency and uniformity. Standardising the approach from project inception to completion must be top of any organisation’s procurement agenda.
Whichever type of SOW you use, you should always include the following when creating a statement of work for external suppliers.
Purpose and definition
What will the project achieve, and why are you doing it? Write this down as one or two simple sentences so that everybody involved in the project can refer back to it at any time, to get a clear idea of whether they’re on track.
Mutual understanding of, and collective agreement to, a project specification must be supported by a clear authorisation and approval process.
Scope of project
List the expected tasks and responsibilities, as well as what isn’t expected. This is often done in a separate document. Setting clear expectations upfront avoids unnecessary work being done (known as project ‘scope creep’).
Location of work
Where will the work be done? At multiple sites, or just one? Discussing and detailing this information early on means that travel, health and safety and access considerations can be handled before work is due to begin - avoiding any potential delays.
Tasks and responsibilities
What will each task involve and how will the supplier carry these out to achieve the desired outcomes? This information is best recorded as a simple spreadsheet, with task descriptions matched to the supplier’s responsibilities. If you’re using a performance-based SOW, you may not need this level of detail.
Deadlines and payment
What are the project’s key milestones? When will they be reached? Will payment be made as a lump sum at the end of the project, or incrementally as key milestones are met? Set this out clearly here to avoid any misunderstandings during the course of the project.
Using a standardised statement of work template across the business can help to reduce inconsistencies and improve your SOW processes. But centralising all SOW spend within a vendor management system (VMS) is the only way to achieve real value.
Here’s how Comensura can help.
Using our own statement of work technology platform
Centralising all of your SOW projects in a technology platform allows you to collect, manage and control projects across all categories of supply from across the business. This means you can take a holistic, evidence-based approach to all of your contingent resource projects and other categories of services procurement.
As you populate the SOW tech platform with information, you gain more accurate and meaningful insight into spending trends, service categories and supplier engagement data. This allows you to make smarter, more strategic procurement decisions based on real-time data and historical supplier information.
C.net5 is our purpose-built VMS. The SOW module in c.net5 allows you to manage every aspect of statement of work in one place, bringing you lower costs, greater control, and increased efficiency.
Find out more about managing statement of work in c.net5.