What is Statement of Work (SOW)?

A statement of work (SOW) is a document that provides a description of a given project's requirements. It defines the scope of work being provided, project deliverables, timelines, work location, and payment terms and conditions.

Statement of work management is simply the process for ensuring the agreed-upon scope of services within the SOW are being completed on time and on budget. 

Whomever is responsible for SOW management is responsible for creating efficiencies, risk mitigation, any special requirements, and supplier management and negotiations. Ultimately, finding savings opportunities and reporting on a project's overall success.

SOWs are commonly used along with a:

Request for Proposal (RFP)
Organisations typically use this document to request pricing, provide requirements, and define a period of performance. Enough information that a service provider can respond back with an accurate bid for a project. 

Master Services Agreement (MSA)
This is the governing document that outlines two parties’ terms and conditions for an entire relationship. The statement of work document usually only covers details belonging to a single project or scope of work.

How are SOWs created?

There are many SOW templates available to help get managers started. However, to write a statement of work can be somewhat complex. Getting everything included to ensure the scope of services is detailed enough is critical. 

Elements of an SOW can include:

  • Purpose of the project
  • Scope of work being performed
  • Location of the project, project length, and any work requirements
  • Expected deadlines and deliverables
  • Acceptance criteria
  • Any hardware and software required
  • Performance-based standards to be met
Creating a thorough SOW can eliminate the risk that can come if there are any misunderstandings or disputes between parties on any of the elements above. 

A concise and well written SOW, mitigates the risk of overspend by ensuring both supplier and organisation have a clear understanding of, and accountability for, the work involved.  Bolstering the upfront agreement, lessens the opportunity for misunderstandings resulting in contract extensions and associated costs.
 

What are the different types of SOWs?

There are three standard SOW categories that companies use for defining scope and procuring services. Some are more popular than others within certain industries, but they all have similar components that define its success. 
 
  1. Design or detail statement of work
  2. This category of SOW defines the exact requirements needed to complete a project. It tells the supplier exactly how to do the work and what processes to follow.

    Additionally, it defines all requirements and any specific industry-related regulations that must be followed by the contractors. Typically, the organisation using design SOWs assumes most of the risk for the project.

  3. Level of effort
  4. This SOW is used for any kind of service. In a very general way, it details work hours and any material needed to perform the service over a given time.

  5. Performance-based statement of work
  6. A performance-based SOW clearly lays out the project’s purpose, resources that will be provided, and deliverables that will be accomplished. But it does not provide details about how the work needs to be performed.

    This is the preferred SOW for most companies. This SOW offers the most flexibility, focuses on project outcomes, and shares risk between parties.

What are the benefits of managing SOWs?

  • Benefits can include:
  • Increased cost savings opportunities
  • Supplier performance and risk mitigation
  • Greater process efficiencies
  • Detailed reporting 
  • Project performance management
  • Visibility into all outsourced projects within a single purview
  • Improved workforce management
  • Organisational compliance and risk mitigation
Providing successful SOW management gives hiring managers the tools necessary to make informed buying decisions and maximises productivity throughout an organisation. 

Additionally, unexpected circumstances, scope creep, and post-contract changes can require amendments to the original SOW. Strong SOW management offers the tracking and reporting necessary to enable business leaders to make such changes. 

It also provides confidence that the project will be delivered on time and within budget. 
 

Can SOWs be managed through an MSP/VMS?

The short answer is, yes - and they should be. It is important to have one central technology platform that can house SOWs and a service to provide SOW management, like those offered by an MSP. This ensures:

  • Visibility, analysis, and reporting for strategic decision-making
  • Competitive sourcing, where relevant, to capture cost savings and improve controls around compliance and budget
  • Management of deliverables and payments for spend transparency
  • Supplier performance management, optimisation, and accountability
  • Organisational efficiencies and project management
  • Processing rigor and consistent application of an organisation’s policies and procedures
  • Total talent management

What is the difference between SOW and Services Procurement? 

Services Procurement is the process for requisitioning people-based services at an enterprise-level with an agreed-upon scope and deliverables.

As we have just discovered, the scope of services and deliverables is what is included in a statement of work. This is used to monitor and deliver agreed-upon Service Level Agreements (SLAs).

Some organisations use services procurement and statement of work terminology interchangeably because this category of spend is almost always detailed within an SOW. 

Simply put, the SOW is a governing document, and services procurement is the category of spend being managed within it. There can (and should be) be multiple SOW’s managed as part of a services procurement programme.

 

Read our report on how to achieve greater ROI with SOW as part of a Services Procurement programme