#evaluate: The Quality- Infused Price Methodology

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2 #evaluate: The Quality- Infused Price Methodology Breakout Session #B01 Daniel J. Finkenstadt, Capt, USAF Force Development Action Officer, SAF/AQCX Timothy G. Hawkins, PhD, Lt Col USAF (Retired) Assistant Professor, Western Kentucky University Date: December 12, 2016 Time: 2:45-4:00 PM

3 Overview Unique Attributes of Services The Problem Performance Management Source Selection Methods The QIP Explained Similar Case Studies Areas for Further Research Price is what you pay; value is what you get. - Warren Buffett 3

4 Attributes of Services Services are 4

5 Performance Management SPE: the process of evaluating, measuring, and monitoring supplier performance and suppliers business processes and practices for the purposes of reducing costs, mitigating risk, and driving continuous improvement (Gordon, 2008, p. 4). CPARS: 2 purposes: 1. Inform source selection decisions of the likelihood that a prospective supplier will successfully perform the contract (FASA, 1994) Future 2. Motivate performance (OFPP, 2000) Present 5

6 Performance Management Problems Late Inaccurate Inflated Scant Inconsistent Stale Not Used Compromised Purposes Inform source selection decisions Motivate Contractors Transaction Costs Supplier Ranking Validity? 6

7 Point-of-service 7

8 Source Selection Methods 8

9 Source Selection Problems The following issues have been identified by researchers and source selection practitioners: Full tradeoff evaluations are too complex for the limited workforce experience levels Speed of acquisition (PALT) is a driving factor (LPTA takes less time than TO) Evaluation criteria needs to be better defined to industry What is the relative weight of cost/price to trade factors? What level of performance should industry offer? What are the competitive effects of a higher offer? Avoid protest risks (higher eval complexity=higher protest risk) Create meaningful eval discriminators Industry stigma with LPTA (only the low gets a real look from the eval team) What are the USG s priorities? LPTA= Low Cost/Low Quality Cost risk does not = proposal risk If all offers meet LPTA tech requirements then requirements were not challenging enough Raise the Bar! (Watson, 2015) 9

10 QIP Explained Quality-Infused Price (QIP ) (Finkenstadt & Hawkins, 2016): QIP is a best-value proposal evaluation methodology that takes subjective service quality measures and calculates a monetized value/price trade off. See FAR (c)(2) QIP is derived by applying a composite Quality Adjustment Factor (cqaf) to an offeror s proposed price to establish the value/price tradeoff. cqaf is a price multiplication factor that may be greater to, equal to or less than 1. The cqaf is derived from two primary factors that are weighted by the agency. Weights must be established during the solicitation planning stage and should be listed in the RFP. 1) Composite Service Value Indices (csvi) 2) Composite Proposal Quality Rating (cpqr) 10

11 QIP Explained csvi (Finkenstadt & Hawkins, 2016) Derived from past performance survey data Elements remain to be codified but research suggests that many services should consider (Hawkins et.al., 2011) 1) Reliability 2) Assurance 3) Responsiveness to Requirements Scaling must be supported by market research into customer value and price variance in a given service category Would act as a FICO score for a companies PP and reputation management; could replace CPARS or work in tandem Captured in point-of-service fashion 11

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14 QIP Explained cpqr (Finkenstadt & Hawkins, 2016) Particular to a specific source selection Offered personnel qualifications Technical process excellence Program management capability Offered solution attractiveness 14

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18 QIP Evaluation Process 1. Proposal Conformance 2. Pass/Fail Criteria (Security, OCI etc.) 3. Offered Price Fair/Reasonable 6. Award to Lowest-QIP Offeror 5. Application of cqaf to Offered Prices 4. cqaf Computation 18

19 Characteristic VATEP QIP QIP vs. VATEP Tradeoff Type Subjective [sic] Subjective Focus Products (Systems) Services or Products Monetized Value Method Objective vs. Threshold Requirements Past performance and perceived service value offered Factor Development Effort High Initially Med-High and Low thereafter PALT High Initially Med-High and Low thereafter Connection between past performance and future price evaluations None Direct Past performance currency Low (assume as-is CPARS) High (assume csvi use) Past performance assessment Separate step/process (assume asis CPARS) Embedded in quality and price evaluation (assume csvi use) 19

20 Similar Case Studies NRO cpqr application only (post hoc) Higher priced offerors became more competitive Faster PALT than Full TO; equal to LPTA Eval method easy to understand (Govt and Industry) Knorr-Bremse Asia Pacific Ltd. Quality rating system that raises evaluated price for poor performance (1.0 to 1.96) Clarified proposal evaluations Vendors adjusted prices to account for service deficiencies Reduced costs, improved services received, and emphasized continuous process improvements GSA (OASIS POOL 3) Positive industry feedback to date Use of confidence scales vs. satisfaction 20

21 Contact Information Capt. Daniel J. Finkenstadt, Ph: or Dr. Timothy G. Hawkins, Ph:

22 BACKUP 22

23 References Finkenstadt, D.J. & Hawkins, T. (2016). #evaluate: Monetizing Service Acquisition Trade-offs Using the Quality-Infused Price Methodology. Defense Acquisition Research Journal. 23(2), Government Accountability Office. (2010) Enhanced Training Could Strengthen DODs Best Value Tradeoff Decisions (GAO-11-8). Washington, DC: Government Accountability Office. Government Accountability Office. (2014). Factors DOD Considers When Choosing Best Value Processes are Consistent with Guidance for Selected Acquisitions (GAO ). Washington, DC: Government Accountability Office. Hawkins, T., Muir, W., & Hildebrandt, G. (2011). Determinants of services sourcing performance. Proceedings of the 8th Annual Acquisition Research Symposium(Vol. 1, Report No. NPS-AM , pp ), Naval Postgraduate School, Monterey, CA, May Kendall, F. (2015) Implementation Directive for Better Buying Power 3.0-Achieving dominant capabilities through technical excellence and innovation. [Memorandum] Parasuraman, A., Zeithaml, V. A., & Berry, L. L. (1985). A conceptual model of service quality and its implications for future research. Journal of Marketing, 49(1), Watson, K. (2015) LPTA Versus Tradeoff: How Procurement Methods Can Impact Contract Performance. Monterey, CA: Naval Postgraduate School Joint Applied Project 23

24 Areas for Further Research Use of QIP for products/systems Explore the customization of dimensions of the business-to-business service quality measurement scale Explore the standardization of monetary tradeoff increments for factor scaling Study QIP effectivity across service types 24