Yuval D. Bar-Or

April 17, 2008

Selection of a credit risk solution requires a number of activities and considerations, which include:

• Appointing a group or committee within the acquiring institution that is charged with managing the selection process and making final recommendations. To the extent possible, all relevant units should be amply and actively represented. While including all units with similar or related needs can lead to a bigger project, it reduces disruptions at a later date by ensuring the upfront involvement, and buy-in, of all relevant parties.

• Requiring the committee to become educated about the needed solution before the selection process begins. This often means undertaking an internal assessment in order to better understand need(s). It may also call for participation in educational courses, ideally those not offered by product vendors (see point below to understand why).

• Avoiding use of the selection process as the only learning opportunity for the selection team. There’s nothing wrong with learning from any experience, but doing so from a vendor, who naturally has a particular agenda, can create distortions. In particular, a highly eloquent or charismatic vendor may exert greater influence during the education process. This can be a problem when the more eloquent happens to not represent the best solution. Ideally, education should take place in an objective environment—not one in which the teacher has a motive to push a particular product.

• Determining the selection criteria and obtaining agreement by all interested parties and stakeholders, including senior management, and in particular those who hold the purse-strings.

• Coming up with a justifiable and defensible process and sticking to it. This allows consistent messaging to all stakeholders, as well as establishing a disciplined process. Discipline and consistency help everyone to understand what has been completed and what remains to be accomplished.

• Ensuring the process is fair to all potential bidders, and strictly maintaining its integrity. This is important for ensuring that all participants have an equal opportunity to show their wares, but also because perceived unfairness could lead to recriminations and even legal action by disappointed parties.

• Leveling the playing field for smaller players. The obvious reason to give an equal platform to the smaller brands is that they may well put forward a very good solution. Another reason is that the smaller firms, which often come up with useful innovations, are important to the long-term health of the industry. Allowing big brand names to dominate, especially undeservedly, reduces competition and constrains progress.

• Encouraging vendor responses rather than discouraging them. The objective is to find the best solution, so unnecessary bureaucracy and paperwork is self-defeating. Common mistakes are to make Request For Proposal (RFP) documents very difficult to digest, and to impose unrealistic deadlines for responses. When vendors are forced to rush through responses to an RFP, there is greater likelihood of errors and misunderstandings. Neither of these is helpful.

• Creating a short list of providers and negotiating with more than one vendor to ensure competitive bidding.

• Reaping the benefits of the disciplined approach. In some cases organizations go through a well-thought out search, only to make the final decision in impulsive, one dimensional fashion. The single dimension is often price. While price is an important factor, it is only one of several considerations.

• Reaching a fair agreement. Tough negotiation is a legitimate and even necessary element of a competitive market. Beating a vendor into too many concessions, however, may mean a fleeting victory. If the vendor feels mistreated or taken advantage of, it’s more likely to withdraw from the project, which defeats the purpose of a long-term partnership. Furthermore, if many clients force unfavorable deals on a vendor, the vendor’s status as a going concern may be threatened. This represents an even greater problem for the client base, as a bankrupt provider means trouble and additional expenses for everyone. The point is that forcing a bad deal on a vendor usually turns out to be damaging to both sides.

Given the complexities of an acquisition decision, it’s sometimes useful to seek external advice. When electing to do so, it’s important to ensure that the advisor doesn’t have a vested interest in any particular vendor.

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