Keeping tabs on IT buying

With financial firms investing millions or billions of dollars annually on network services, software development and other IT projects, spending can easily get out of control.

Costs escalate as departments spend away, leaving procurement managers in the dark until an unexpectedly high stack of bills arrives. Keeping up with contractors, consultants and service providers can be elusive when information is shared through phone conversations or fax. So prominent firms such as Merrill Lynch, Lehman Brothers and John Hancock are turning to the Web to manage IT resources in order to get up-to-the-minute accounts in a fast-paced purchasing environment.

"IT services are the most difficult to get your hands around," says Roy Anderson, director of procurement at John Hancock Financial Services, who tracks how 5,000 employees purchase office supplies, furniture, travel and IT-related goods and services. "Right now, a $5,000 IT project can easily grow into more than a $250,000 project."

Part of the reason spending rises unexpectedly is employees in a decentralized environment can begin contracting processes outside normal channels without relying on prenegotiated contracts or volume pricing. Keeping track of manpower costs for pricey programming talent or network services is difficult when purchasing arrangements are handled across the globe. And making a consistent comparison of vendor offers is a challenge.

To bring everyone into the fold, John Hancock is putting its requests for proposal and contract awards process online and building a "Personalized Purchasing Portal" for employees.

The portal is based on Frictionless Commerce software for receiving bids on a range of IT needs, including customer relationship management software.

John Hancock employees and IT service providers are going to have to start using the contracting portal this spring for bidding on RFPs and contract awards, and for monitoring contract progress.

"Contract managers are going to be better aware of activity, and we're going to make the value analysis consistent among our suppliers," Anderson says. "The CFO is going to be able to see the activity going on through trend analysis and see where the money is being spent."

The portal will initially be hosted by Frictionless Commerce, though John Hancock expects to host the Web server software itself down the road.

Separately, Lehman Brothers is turning to a hosted contract management application from a start-up called Chimes to centralize its IT buying process.

"We were looking for the ability to centralize the [buying] process because everyone would go to their vendor of choice," says Karen Krieger, first vice president in the IT division at Lehman. "We wanted to outsource the application for the automated acquisition system for multiple vendor contracts."

Use of the Chimes application is mandatory at Lehman for employees buying IT services and for those providing services.

Merrill Lynch is also betting on a hosted application from Business Engine for bidding and contract management to better track IT expenses. Merrill Lynch plans to rely more on IT contractors than internal staff in the future.

"We want to get out of the architecture and infrastructure business," says Kenneth Brzozowski, a vice president in Merrill Lynch's technology group, which has 3,300 employees around the world. "We think using the Business Engine hosted application will help us get a handle on our technology information base, on how projects are initiated and how money is being spent."

Until now, Merrill Lynch has generally evaluated bids from IT contractors by accepting Excel spreadsheets all over the world via e-mail and then comparing them to try to get the best deal. From now on, Merrill Lynch expects IT contractors to post responses to RFPs at the Business Engine portal, which makes use of XML formatting. Vendors will have to report timesheets online, so costs can instantly be calculated.

"This is going to be a requirement for vendors, especially for tracking them as resources," Brzozowski says. Eventually, Merrill Lynch wants to automate bidding and contract management by enabling a direct link over the Internet to its back-end systems.

Business Engine typically charges $80 to $120 per month, per seat for contract managers and $20 to $40 per user. Sometimes price is based on a percentage of the dollar value of the business that flows through the Business Engine portal, according to John O'Neil, the software maker's CEO. This could range from 0.75% to 2%.

Merrill Lynch comparison-shopped before choosing Business Engine, which best met the financial firm's requirements for everything from project planning tools to the technology needed to bring the project to fruition.

The company reviewed products from ABT, Artemis, Oracle, Niku, Primavera and others.

Brzozowski says moving to this kind of contract management "got a lot of legal attention" at Merrill Lynch.

This involved signing agreements with Business Engine on sensitive issues such as prohibiting the sharing of contract data stored at the Business Engine hosted application site.

Keeping tabs on IT buying

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