Outsourcing Vendor Best Practices: 5 Tips for a Successful Relationship

Nonprofits looking to implement outsourcing vendor best practices are focusing on ways to augment and extend their own internal resources. Fundraising, marketing, government relations, accounting and IT management are all examples of business activities that are commonly outsourced by nonprofits.

This makes sense given the need to navigate continuously changing federal and state policies, position and compete for various forms of funding, and comply with a growing number of financial and other regulatory requirements such as the OMB’s Uniform Guidance.

Working with the right outsourced vendor can provide scalability, needed skills, subject matter expertise and, in some cases, lower costs. But outsourcing requires a solid strategy, combined with the continued oversight of vendors, to ensure you optimize the value of the relationship. Here are five tips to set yourself up for success.

1. Determine if Your Business Activity is Right for Outsourcing

Outsourcing is a business strategy –not a panacea. When considering whether or not to outsource, you need to be clear about your objectives and realistic about the potential costs and benefits. If you have an area of operations that is really broken, simply giving that problem to a vendor won’t fix it. Spend time to engage internal stakeholders to clarify your outsourcing goals and objectives, and identity what changes will be required internally to make the process work.

2. Develop a Detailed Scope of Work

Define responsibilities – for both you and your vendor – by establishing a clear scope of work for the outsourced business activity. Many requests for proposals (RFPs) and contractual documents are way too vague or open ended, making it difficult to set clear expectations and assign responsibility to the proper party. Make sure you are clear about not only the functional requirements of the outsourcing relationship, but also the roles and responsibilities of both you and your vendor.

3. Agree on the Level of Service

Since you’ll be outsourcing important aspects of your operations it’s important to document the level of service you expect in terms of operational delivery, problem resolution and regular communication. Service Level Agreements (SLAs) hold you and your vendor accountable for delivering results. In some cases you may suffer an economic loss if an SLA is not met, so penalties should be discussed with the vendor. Build these into the contract, and establish periodic SLA reviews to ensure they are consistently being met.

4. Identify and Approve Your Relationship Manager

One of the benefits of outsourcing is access to a broader range of skills and expertise, which may involve working with several people from the same vendor. This brings value to the relationship, but when the stuff hits the fan you’ll want a single person to be accountable for getting the problem fixed. Your relationship manager will be critical to your success. Be sure to approve this person as part of your contracting process, and that the vendor is required to not only notify you of a change (if it should happen), but also get your approval for the new relationship manager, too.

5. Establish and Own a Vendor Oversight Plan

Hiring an outsourced vendor is no different than hiring an employee – you need to establish a plan for success. Creating an Oversight Plan and a Vendor Scorecard as part of your onboarding is critical to the process. It identifies key measures you’ll want to manage relating to the outsourced operations, finances, compliance and risk. It should also clarify the periodic process you’ll follow to track, review and improve upon results.

Outsourcing is a big business decision, and carries with it a lot of challenges and risk. But with the implementation of outsourcing vendor best practices, you can bring tremendous value to your organization.