RFP meaning: A definitive guide to the request for proposal

The request for proposal (RFP) is a common business tool used to find the best vendor while maximizing value and minimizing risk. Despite its importance and wide usage, many professionals have lingering questions about the process. Luckily, we’re here to explore the RFP meaning and process as well as RFP tips and tools.

In this blog, we’ll outline everything you need to know about requests for proposals. First, we’ll start by answering basic questions. For example: What does RFP stand for? What does RFP mean? And, what is an RFP? Then, we’ll define related terms and explore how RFPs work, who uses them and when they should be used. Finally, we’ll explore how technology like an improves and complements the traditional RFP process.

For an in-depth exploration of the RFP process, download The RFP process guide ebook.

RFP definition

RFP meaning: What does RFP stand for?

So, what is the meaning of RFP? RFP is an acronym that stands for request for proposal. In business, an RFP is defined as a formal document that outlines an organization’s intent to purchase a good or service. The buyer issues the RFP to provide background information to potential vendors and invite them to submit a proposal to meet the need.

Techopedia offers a simple explanation of the RFP meaning. They define an RFP as “a document issued by a business or an organization to request vendor bids for products, solutions and services.”

Proposal meaning

To fully understand what an RFP is, you’ll need to know the proposal definition as well. A proposal is sent in response to an RFP and documents an offer while attempting to persuade the RFP issuer to buy a product or service from a particular vendor. Consequently, the proposal should detail how the vendor meets the needs of the buyer. In addition, the proposal answers any questions outlined in the RFP to help the buyer compare vendors side by side.

When simplified, the RFP process includes three steps: issuing the RFP, collecting proposals and selecting a winner. Ultimately, RFPs enable businesses to determine which vendors are best qualified to help overcome a challenge or achieve a strategic objective.

RFP-related terms

To better understand the process and RFP meaning, it’s important to know other common terms you might encounter.

For even more procurement and proposal vocabulary, download the full RFx glossary to explore additional terms and RFP definitions.

RFx and other document definitions

• RFx — The term RFx is a stand-in abbreviation that refers collectively to any of the common ‘request-for ____’ documents. For example, requests for information, requests for quotation, requests for qualifications, requests for proposals and so on.
• RFI — A request for information (RFI) is a document that solicits general information about the solutions and/or services vendors provide. Organizations generally issue an RFI prior to the RFP process.
• RFQ — Request for qualifications, abbreviated as the acronym RFQ, is a procurement tool often used in construction that focuses on experience and expertise.
• RFQ — A request for quotation (RFQ) is a document that solicits pricing and payment information. Organizations often use this type of request when they know what type of solution they want and are only evaluating vendors based on price. Note: Some industries, like architecture, engineering and constructions (AEC) define RFQ as a Request of Qualifications. This is entirely different and pricing cannot be included.
• BRD — A business requirements document (BRD) is a formal document that outlines the goals and expectations an organization hopes to achieve by partnering with a vendor to complete a specific project.
• FRD — A functional requirements document (FRD) is a formal document that outlines how an organization expects their vendor to help them achieve a strategic business goal.

Procurement process terms

• Procurement — Procurement is a term that refers to the process organizations undergo when making a purchase. The RFP process falls under the procurement umbrella.
• Vetting — Vetting is the process of evaluating vendors to determine which one to purchase from and/or partner with.
• Weighted scoring — RFP weighted scoring is an approach to proposal scoring that enables objective vendor evaluation. It allows buyers to compare vendors by awarding points based on their responses to a questionnaire.
• Spreadsheeting — Spreadsheeting is often used to describe the RFP process when the issuing organization manually manages and scores vendor responses using spreadsheets.
• Projects — Projects refer to executable plans organizations create to achieve key business goals, often with the help of vendors.
• Vendor due diligence — Vendor due diligence, also known as buy-side due diligence, is the process of evaluating the risks involved in a partnership with a potential vendor. Due diligence questionnaires help organizations avoid or mitigate threats.
• Sourcing — Sourcing is the process in which organizations identify and select vendors. Often, RFPs are a standard part of the sourcing process.
• Vendor management — Vendor management is the practice of optimizing relationships with vendors and suppliers to receive better products, services and support, while reducing costs. It’s also known as supplier relationship management.
• Vendor selection — Vendor selection is the process that determines which vendor to purchase from and/or partner with.

Guide to the RFP process

The goal of the RFP process is to define a challenge and then find the right vendor to meet that need. Finding the right vendor means focusing on more than just price. RFPs allow buyers to create a complex side-by-side vendor comparison of important factors. For instance, the RFP may ask about reliability, experience, quality, policies and security.

9 steps of how RFPs work

Understandably, taking each of these elements into consideration can be overwhelming. However, when broken down into its basic components, the RFP process consists of nine simple steps:

1. Brainstorm your needs

First, the RFP team, led by the procurement manager, must come together to decide exactly what they’re looking for. Indeed, stakeholders, end-users, IT, finance, and any other teams who will be impacted by the procurement decision are involved in the initial requirements gathering process.

Together, they should define the RFP, meaning the challenge they want to overcome or goal they want to achieve, as well as what success will look like. In addition, they must help create RFP questions, establish scope and prioritize selection criteria.

2. Create a meaningful RFP

Next, it’s time to write the RFP. If possible, it is helpful to start with an RFP template and customize it. Don’t forget to follow best practices and include questions that speak to your specific needs and situation. For example, these questions can be adapted to almost any procurement project.

• Who are your competitors? Asking this question can help issuers determine a vendor’s integrity. It lets issuers know whether the vendors are honest about who their competitors are and why they lose to them. It can also help issuers determine if there are other options they should explore.
• What is your implementation process like? When purchasing software, including customer success questions is key. RFP issuers should determine how long the onboarding process will take. In addition, explore available support and self-service options.
• What kind of training do you offer? The more complex the solution, the more important this question is. If you don’t understand how to use all the solution’s features and functionality, you may miss out on key benefits. RFP issuers should inquire about the scope of training vendors offer, as well as available formats.
• Can you provide references, reviews or case studies? Certainly, there’s no better way to determine the effectiveness of a solution than by learning about the experiences of those who already use it.

Asking the right questions gives your RFP meaning and ensures you’ll have the information you need to make a confident decision.

For more suggestions on how to write insightful RFP questions, check out this blog: The best RFP questions to ask your vendors.

3. Invite vendors to respond

Now that you have your RFP written, it’s time to gather vendor proposals. In most cases, you’ll develop a list of vendors and ask them for responses directly, but some organizations also use bid services that post their RFPs publicly. This option can increase your responses, but it will likely lead to several irrelevant responses. Consequently, you’ll invest more time in scoring.

4. Evaluate the proposals

Once you’ve gathered vendor responses, you’ll want to score their answers. We recommend taking a weighted scoring approach to help prioritize your decision factors. Weighted scoring establishes point values for sections and individual questions in the RFP based on their importance. This allows you to objectively determine which vendor truly best fits your needs.

5. Select your shortlist

Based on your initial proposal evaluation, you can create a vendor shortlist — a list of five or so vendors who you will move on to the final stages of the RFP process. All the vendors in your shortlist should be serious contenders that you can picture your organization partnering with. Ask these RFP finalists clarifying questions or request an RFP presentation to help you make your final decision..

6. Negotiate

This is the stage where you ensure your organization is getting the best deal possible. Is there a vendor on your shortlist that would be well ahead of the rest of the pack if they just came down on price? Let them know. Most vendors will be happy to negotiate a bit — especially if they know how close you are to a purchasing decision. Remember, be as transparent as possible with your expectations and let the vendor know what potentially winning the RFP means for them.

7. Make your final selection

Now to the fun part: Making your actual selection. Make sure to inform the vendor you’ve selected, as well as the vendors you didn’t. Remember to be respectful and consider offering feedback. Just because you didn’t select a vendor today doesn’t mean they won’t be a viable option for your organization in the future.

8. Sign the contract

It’s time to make it official. Be sure to have a lawyer review all contract language before you sign anything. You want to make sure everything is set up according to your expectations.

9. Ongoing review

Finally, you’ll want to establish your ongoing vendor evaluation process. We recommend using a supplier scorecard to ensure vendors meet your needs. This approach ensures vendors deliver the return on investment (ROI) and results you want to achieve. Make sure to let the vendor know about any areas where you feel they’re falling short so they have an opportunity to correct and meet your expectations.

To explore the RFP process in more detail, download the ebook: The RFP process guide.

Who is involved in the RFP process?

The RFP process involves several key stakeholders, including:

• Consultant — The RFP consultant is responsible for understanding the needs of their client and properly explaining those needs within the RFP. They are also responsible for finding vendors to submit proposals and helping assess their qualifications.
• Procurement professional — The procurement professional may be either a procurement manager or strategic sourcing manager. They coordinate the creation of the RFP. They must work with several internal team members to determine exactly what the organizational pain is and what solutions they’re most open to.
• CFO or CPO — The chief financial officer or chief procurement officer will evaluate costs and return on investment (ROI) to determine whether a solution is financially viable.
• Vendors — The vendors are the organizations who respond to the RFP. These are the businesses that the buyer ultimately purchases from or partners with.

When do you use an RFP?

One of the biggest mistakes we see with RFPs is that organizations often use them at the wrong time. Generally, this is due to a misunderstanding of the RFP meaning and purpose. Unfortunately, using the wrong RFx document can cause frustration for both stakeholders and vendors. That’s why it’s critical to understand when you should issue an RFP versus an RFI or an RFQ.

We’ve created this handy RFx selection flowchart infographic to help you pick the right document for your project. But below you’ll find a brief description of when you should use an RFP, RFI or RFQ.

The difference between common RFx documents

Request for proposal (RFP)

Use an RFP when:

• You’re certain you want to make a purchase
• You have specific questions you want to address
• You have a good idea what you want, but you need more details

Tip: Remember, issuing an RFP is a formal process and it requires a great deal of effort for vendors to create their proposals in response. You should know what you’re trying to solve and be close to making a purchase but still open to suggestions from potential vendors.

Request for information (RFI)

Use an RFI when:

• You’re seeking general information
• You only have broad questions
• You’re not sure what you’re look for

Tip: The RFI process is much less formal than issuing an RFP. If you have a challenge you want to overcome or a goal you want to achieve, but you’re not 100 percent sure you’re going to make a purchase, this is a much better option. It helps you quickly get the information you’re looking for without asking for a major commitment from potential vendors.

Request for quotation (RFQ)

Use an RFQ when:

• You know exactly what you want
• All available solutions are extremely similar
• You only want to compare vendors based on price

Tip: Because RFQs focus solely on pricing and payment terms, you only want to use this option when you don’t need additional information. If you’re open to suggestions on how to achieve your goals or overcome your challenges, you’re better off issuing an RFI or RFP.

What does RFP software do?

The RFP process involves a lot of moving parts and can easily become very cumbersome and time-consuming. That’s why organizations often use technology to streamline the process. Unfortunately, many organizations turn to manual tools like Excel, Outlook and Word to manage their RFPs — which can be risky.

“There’s a lot of workarounds for not having RFP management software, but they’re just not the right tool for the job,” explained Brandon Fyffe, business development associate at CareHere.

Fortunately, Brandon and his team now use RFP360’s RFP management software to manage their RFPs.

Benefits of RFP software

Create faster RFPs

If you issue RFPs regularly, you’ll quickly notice that you include a lot of the same information and ask a lot of the same questions. RFP software helps by storing and organizing RFP templates, sections and questions. Therefore, subsequent RFPs are easier and faster to create.

This helps organizations like Lockton — which issues RFPs on behalf of its clients to help them identify property and casualty, employee benefits and retirement solutions providers — deliver an improved procurement experience for everyone involved.

“We had templates in Excel, but we’d always have to add customizations. Then, we’d send multiple copies of those spreadsheets via email, and we’d have to track those emails individually,” said Eric Hollenbach, HR technology consultant at Lockton. “RFP360 helped us streamline our templates so we don’t have to add as much. We’re a billable-hour practice, so that reduction in time is great for clients. Additionally, we now have time to ensure our vendors understand the questions.”

Track and gather vendor responses

RFP management technology also delivers enhanced visibility into the vendor response process so you can keep everything on schedule. Vendor proposal progress is tracked in real time. This capability helps users at NFP — a leading insurance brokerage and consulting firm — save time and avoid unnecessary follow up and reminder emails.

“Now, we know exactly when they open their RFP invite and if they’re working on their response,” said Mark Rieder, SVP of HR technologies and benefits administration at NFP. “It doesn’t take six emails to see their completion status.”

Score proposals side by side

Finally, RFP360 makes it easy to score RFP responses so you can find and select the right vendor — which is, after all, the entire point of the RFP process in the first place.

At ihouse — a consulting firm specializing in HRIS analysis and system selection, project management and systems consulting — users find this feature particularly helpful.

“What’s been most helpful about using RFP360 is the automated scoring,” said Ronni Beckwith, principal, HR technology consulting practice leader. “Before, when using an Excel template, we would have to go through each category to ensure there were no errors from all the copy and pasting. The Excel formulas would often break in the process. It took a lot of time to reconcile.”

To learn more and discover how RFP360 can improve your RPF process, request a personalized demo.

Originally published on July 12, 2019 — Updated on December 17, 2020

Originally published at https://rfp360.com on December 17, 2020.