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Vendor Management Best Practices For Successful IT and BPO for Insurance

This paper was developed to provide general background to assist insurance industry clients in decisions related to implementing vendor management best practices.

By Gary S. Venner, SVP & Director of Outsourcing, TBI, and Marianne Bays, Ph.D., VP & Measurement Services Director, TBI

This installment covers:
-- The Vendor Management Organization
-- Communication and Relationship Management
-- Issue Resolution.

The Vendor Management Organization

In TBI's experience, many insurance companies find it beneficial to centralize vendor management either as a function within a Program Office (to be covered in more detail in a later installment) or as a separate entity, depending on the company's specific organization structure and culture. Whatever the specific circumstances, the centralized Vendor Management model allows for more effective contract control, cost tracking, and resource/asset management and performance measurement across all vendor-related projects/programs. This is particularly true if the vendor environment is complex (multiple vendors, vendors crossing lines of business, few vendors with many contracts, etc.).

The position descriptions below are general in nature but all of the functions must be performed in some fashion to ensure success. The insurance company vendor management organization needs to understand and exercise the appropriate level of control over the vendor—the major change being that you are managing what the vendor does not how they do it.

Contract Executive
The Contract Executive is a member of Senior Management who would be responsible for the executive oversight of the vendor contract and would be ultimately responsible for the program's success. The Contract Executive would interact with the vendor's Program Executive and the vendor's Account Executive periodically to review contract status and issues.

Vendor Manager
A full-time Vendor Manager, under the direction of the Contract Executive, works closely with the vendor, having day-to-day responsibility for the quality and cost effectiveness of the vendor's services. Depending on the complexity of the particular program or contract, there would be one Vendor Manager assigned to a single contract or to a group of contracts.

Financial Analyst
Provides financial analysis and audit work in support of one or more service contracts. The Financial Analyst would identify, catalogue and monitor a contract's financial requirements and commitments.

Performance Analyst
Monitors and analyzes vendor performance in order to assure compliance with service level agreements and continuous improvement of the services. The Performance Analyst would identify, catalogue and monitor an agreement's performance standards, reporting requirements and any financial "penalties" for poor performance on the part of one or more vendors.

Administrative Support
Performs Contract Administration procedures to ensure that all changes to the contract are made in accordance with the base agreement and the interests of the company, and that an audit trail is maintained. The Administrative Support person would be responsible for identifying, cataloging and monitoring requirements for reports, meetings, decisions, analyses, etc. throughout the year; and maintaining a calendar of contract activities.

Communication and Relationship Management

The Communications and Relationship Management process ensures that issues of mutual interest and importance are communicated to the appropriate persons on a regular basis.

Key players in the communication process would include:

-- Contract Executive
-- Vendor Manager
-- Line of Business management
-- Program Management Office
-- Change Management Committees
-- Technology Architecture Committees
-- Other technology groups that may have a key role in the implementation of the contract
-- Key vendor personnel.

Company/Vendor Communications
Communication with the vendor will be both written and verbal (meetings). Formal meetings should be scheduled in advance for the transition activities as well as for the ongoing arrangement. In addition, the vendor will be required to submit formal, written reports on key dates throughout the contract term.

Meetings should be structured to make the most constructive use of time. At a minimum, the following administrative meetings should be scheduled into the services contract:
-- Weekly Contract Operational Review
-- Monthly Management Meeting and Invoice Review
-- Quarterly Steering Committee Meeting
-- Semi-Annual Contract Meeting.

At a minimum, the following reports should be scheduled into the services contract:
-- Weekly Internal Status
-- Monthly Management
-- Customer Satisfaction.

Issue Resolution

Effective issue resolution and dispute resolution procedures ensure that problems and disputes are handled as quickly as possible and are solved at the lowest possible management levels.

The vendor staff and the company staff person responsible for delivery of the particular program component would identify each issue. Issues should be documented in an electronic Program Issues Log that is readily accessible to the Vendor Manager, vendor Program Manager, and IT/Business Process staff. The Program Issues Log includes a description of the problem, the person the issue is assigned to for resolution, the resolution description, the escalation and escalation date.

For each issue, the IT/Business Process staff and the vendor staff should jointly determine the persons responsible for resolving the issue and the expected resolution date. The lowest most appropriate level of management should resolve issues depending on the nature of the issue. Unresolved or open issues that are past the due date should be escalated to the company's Vendor Manager and the vendor's Program Manager during regularly scheduled status meetings. If the Vendor Manager and vendor's Program Manager cannot agree, these issues should be escalated to the Contract Executive and the vendor's Program Executive and Account Executive.

This paper was developed to provide general background to assist insurance industry clients in decisions related to implementing vendor management best practices.

This is the second installment to be published on the Insurance & Technology Web site, The first installment covered Critical Success Factors and Key Inhibiting Factors in managing vendor relationships.

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