EVALUATING EQUIPMENT AND SERVICES

Evaluating equipment and services is usually within the context of feasibility assessment, or project planning. Risk is minimal and limited to the amount of time and perhaps travel expense invested in this type of activity. As projects grow and commitments are made, risk grows. What we are concerned about is risking capital, and if the opportunity is real, risking the loss of not just the invested capital, but also some or all of the promised return. The worst of all possible nightmares is a scenario where the project causes a problem outside the scope of the project as envisioned, requiring an unplanned, unbudgeted expenditure.

Not only should equipment and services be evaluated, but their source of supply as well. Conducting due diligence on one or more suppliers varies by level of effort depending on several factors such as how long the prospective supplier has been in business, their size, and their capability to produce and deliver the products and services required by the project at hand. A new supplier that’s been actively supplying products or services in the marketplace for several years will require less effort than a start-up. A start-up with an innovative, new product may require more effort; certainly it’s likely the effort will be different. Well-known or start-up, any situation involving claims of significant new technology should be taken with a grain of salt until all potential material risks have been uncovered, examined, evaluated, and quantified.

Due diligence is most effective and efficient when it is conducted in a way that it becomes a benchmark for acceptance of equipment and services. Conducted properly, there should be no surprises for buyer and seller. If function, form, and performance are not as expected, then there has been a misunderstanding in the past, or something about the hardware, software, or services needs troubleshooting and fixing. Ideally, the due diligence process takes into account the requirements and specifications, and compares capabilities and performance of equipment, facilities, and services of one or more sources of supply. The process should begin with a simple paper-based evaluation. Once everything looks okay on paper, more extensive evaluation can be undertaken.

There are two basic approaches to conducting evaluations. A general evaluation can be undertaken whereby the supplier provides a set of information about the capabilities and performance characteristics of the equipment. The evaluator takes that information and proceeds to determine if the equipment or services are capable of performing as claimed in the information provided. This may or may not determine if the equipment and services meet the business requirements of the buyer. The other approach to evaluating equipment and services takes a specific requirement or set of requirements and then proceeds to determine if the equipment and services meet some or all the details in the requirements established by the buyer.

Once a direction is established, then the process can be sequenced into three or fewer logical steps. Step one can be what’s referred to as a paper-based exercise. Simple expert analysis of the information provided by potential suppliers can be analyzed to determine if it meets or exceeds the requirements established by the potential buyer. The next step after paper evaluation requires examination and testing of one or more working samples. Depending on the size and complexity of the project and the potential risks/returns at stake, scalability may be an issue. If scalability is a concern, then the structure of the initial working samples and their evaluation criteria should be staged and structured so as to be extensible to greater scale. Another way to view this issue is to structure the paper evaluation and the initial working sample evaluation so it is representative of the full scope of the network or system as known at a given time.