I was helping a bank in New York with an RFP process for a new foreign exchange system. It rapidly became clear that the total bid price was not going to be sufficient as a basis to compare the cost to the bank of the potential bids. The vendors had to choose the right mix of bespoke and product software. The solution would generate a mix of development costs, maintenance costs, licence fees and maintenance fees; all with different timings. The bidders needed a clear basis on which to optimise their solutions.
To resolve the issue, we split the price element of the AHP into two elements, each with an agreed weighting. The first element was the formal total bid price; the second element was a (non-contractual) discounted cash flow model.
We developed the spread sheet model to represent the lifetime spend including implementation, rollout and maintenance. The spreadsheet was loaded with the bank’s discount figure and created a NPV DCF value based on the cash flows input by each vendor. The file was issued as part of the RFP document and a completed model was required as part of the tender.
The completed models gave great insight into the cost of ownership of the solution. Also, a fair comparison between the bids could be made because the bank had provided a common model.
Ian Richmond
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