1. Utilizing ROI in Contract Management Research Triangle Park (RTP) Chapter of the National Contracts Management Association June 16, 2016

2. Agenda 1.Objective 2.What is ROI 3.Benefits of ROI Methodology in Contract Management 4.Instances when ROI Principles can be Applied to Contract Management 5.ROI vs Other Methodologies: The Differences 6.The Challenges 7.Converting Productivity to Monetary Value 8.Case Study Example 9.Steps in Converting Hard Data to Monetary Value 10.ROI Formula

3. Objective To show, how ROI can be used as a methodology in determining the translation and measurement of monetary value during Post- Award contracting.

4. What is ROI Definition(s): Several... - The evaluation of the earning performance of a business. (Garrett, p.84) - Private Sector – the annual financial benefit after an investment minus the cost of the investment (CPCM, p.161) - Public Sector – the cost reduction or cost avoidance obtained after an improvement in processes or systems, minus the cost of the improvement (CPCM, p.161) - The benefit to an investor from an investment of some resource (Wikipedia) History: In 1912, Accountant Exec Donaldson Brown, introduced a efficiency report that incorporated ROI, while employed with DuPont.

5. Benefits of ROI Methodology in Contract Management Enhances contractual stewardship Fosters partnership with key execs and stakeholders. Ties contract management with strategic decision making Helpful tool when rationale for a procurement decisions is required

6. Instances when ROI Principles can be Applied to Contract Management R&D Projects Information Technology or IT System Implementation Highly Specialized or High-Dollar Acquisitions Construction, Structural Upgrades or A&E Projects Customer Satisfaction resulting from a Service Contract Mitigating Risk

7. ROI vs Other Methodologies: The Differences PurposeResponsibility CBA – Cost Benefit Analysis Evaluation and compare costUnbiased analysis of plausible alternatives The Facts for to you make a decision or determine your course of action. ROIValuation of cost of projects, programs, processes, and people What is it that will bring value to our organization? Will the means outweigh the cost of this defined requirement? Was this worth the money we put in it? LCC – Life Cycle Costing Economic analysis of A&E projectsIdentify design alternatives that impact energy use for a twenty year period. Price AnalysisPrice comparison of 2 proposalEvaluates analyzing any separate cost elements. Cost AnalysisAnalyze separate cost elementDetermine if they are allowable and directly related to the requirement.

8. Challenges Collecting Post-Award Contract Data Digesting and Isolating the effects of the data; prioritizing Lack of Information about ROI Methodology Tying the ROI Methodology used in Contract Management, as a valued addition to existing business intelligence Converting to Monetary Value

9. Converting Productivity to Monetary Value Note: Don’t reinvent the wheel! Hard Data: Objective and easy to measure or quantify Soft Data: Subjective and difficult to measure directly Productivity, Quality and Time

10. Case Study Example The Supreme Homeland Intervention, Enforcement and Logistics Division (S.H.I.E.L.D.) was contacted to provide superheroes to assist, as contract administrators for the Department of Veteran Affairs (VA) in contract closeout efforts. This procurement was developed and implemented after an needs assessment revealed the lack of available and skilled government Contract Specialist. The objective is to decrease the number contracts ready for closeout by 50 as an impact measure over 12 months.

11. Steps in Converting Hard Data to Monetary Value Step 1Define the Unit of Measure: Unit of Measure = 50 less contract closeout in order to reach the impact measure. Step 2Determine the value of each unit 1 SHIELD Agent Team X $300 per hour X 5 hours per day = $1,500 Value (V)= $1,500 Step 3Calculate the change in output 6 months in the period of performance, the total number of contracts closed out had decreased by 35. The Contracting Officer isolated the effects of the contract requirement and determined that only 35 of the required 50 contracts had all the necessary evidence for contract closeout. Change in output (∆)= 35/6months or 6 (rounded) Step 4Determine the amount of change during the period of performance Using the change in output of 6 per month yields an annual improvement of 72 (6 x 12 month) ∆P=72 Step 5Calculate the Value of Improvement Annual value = ∆P X V = 72 X $1,500 = $108,000

12. ROI Formula ROI = Value of Improvement (Benefit) - Contract Cost = Net Value = Net Value / Contract Cost ROI = $108,000 - $400,000 = -$292,000 / $400,000 =.73 or 73%

13. Questions??? FAR References: 39.102 – Management of Risk in IT Contracting 16.103 – Negotiating Contracting Types (a) Negotiating cost type contracts (b) Firm Fixed Price type contracts 32.503-16 – Post-Award Matters / Risk of loss associated with Progress Payment 31 – Contract Cost Principles and Procedures Research Reference: - Certified Professional Contract Manager Study Guide, 2 nd Edition (2011) - Cost Estimating and Contract Pricing, Tools Techniques and Best Practices, Gregory A. Garrett (CCH®) - ROI Fundamentals, Series 1, Patricia and Jack Phillips (Pfeiffer Pub.) - Data Conversion, Series 4, Patricia and Jack Philips (Pfeiffer Pub. - Show Me The Money, Patricia and Jack Philips (BK®) - Wikipedia ROI Definition: https://en.wikipedia.org/wiki/Return_on_investmenthttps://en.wikipedia.org/wiki/Return_on_investment Olin D. Newsome Jr., MBA, CPCM olin.newsome@gmail.comolin.newsome@gmail.com / 910-797-1201

14. Say ROI again! I dare you!