Definition: A Statement of Work (SOW) is a formal document that defines the scope of the project work, outlining deliverables, costs, and timelines. The Statement of Work also defines the liabilities, responsibilities, and work agreements between two parties.
This document is mainly required for external projects or dealing with vendors. Statement of Work is part of the bid documents (Request for Proposal) or contract process.
An SOW includes success criteria, so all stakeholders must have a common understanding of this contract document. This document is useful in avoiding disputes related to deliverables, schedules, and costs.
Examples of Statement of Work
A home loan web application for a customer’s journey is planned to be completed by Jun 2023. Milestones for this project are customer login, interest certificate download, and interest rate movements checks.
This is a Time and Materials Contract. Once acceptance criteria are met, the client will pay the contractor.
Importance of the Statement of Work
A well-defined Statement of Work reduces misunderstandings and miscommunication. This document is a starting point that will help the bidder evaluate and enter a formal, legally binding agreement with the bidding organization.
A Statement of Work includes all information about the project, such as scope, schedule, and costs.
The Statement of Work unites all stakeholders that may not work together directly. This document provides transparency into methods and processes for the project stakeholders and thus reduces any confusion that may arise during the project.
Who Should Provide a Statement of Work?
The project manager develops a Statement of Work in collaboration with key stakeholders. It will be reviewed and signed off by the Project Management Office (for internal projects) or by the project sponsors (for external projects).
A Statement of Work is usually written for external projects.
The project starts after this document is ready. Any changes to the scope of work will require a change request.
How to Create a Statement of Work
The following steps are required to create a statement of work:
- Introduce the project and its purpose
- Develop the scope of work
- Create a work breakdown structure and WBS dictionary
- Define key project milestones
- Define the project delivery and end product
- Defines assumptions and constraints
- Define resource requirements
- Define Key Performance Indicators
- Define the success and acceptance criteria
- Define payment terms and conditions
A sound Statement of Work reduces the risk and provides all stakeholders with a common understanding.
Contents of a Statement of Work
The Statement of Work can include:
- All deliverables and due dates
- Individual tasks that lead to the deliverable
- Resources needed for the project
- Governance process for the project
- Type of procurement contract/payment schedule
- Acceptance criteria
The Statement of Work provides a general work description. It can refer to supplementary documentation for any specific requirements.
Statement of Work defines the scope, and Key Performance Indicators (KPIs) are used to determine if the contractor has met the expectations.
Statement of Work Template
An example of a template for the statement of work is given below.
Types of Statement of Work
- Design or Detailed Statement of Work: This SOW defines the exact requirements needed to complete the project. This Statement of Work explains how to do the work and the processes to follow.
- Level of Effort: This category details work hours and any materials needed to complete the service over a given period.
- Performance-based Statement of Work: This Statement of Work explains the purpose, provided resources, and the deliverables to be accomplished but doesn’t explain how to carry out the work. This is a performance-based SOW and emphasizes the results.
Tips on Writing an Effective Statement of Work
- Use short and concise sentences.
- Include a glossary in the background section explaining acronyms and terms
- Avoid industry jargon
- Provide enough details to make the expectations clear
- Be specific to make it very clear and not confusing. For example, instead of saying “a task will take a reasonable amount of time,” say “task must be finished in 8 hours.”
- Create milestones to define when cumulative achievements occur. Payments can be tied to milestones.
- Include visuals, such as charts, graphs, and videos, which will provide a good and easy understanding
- Define success criteria
Scope of Work Vs Statement of Work
Statement of Work and Scope of Work are different.
A Scope of Work is part of the Statement of Work. A statement of Work is an authorized document that shows what needs to be done to complete the project, whereas a Scope of Work document shows how project goals will be achieved.
A Scope of Work document helps all parties to agree on requirements and identify potential risks that could impact the timelines and costs.
In case of risks, if timelines are important and depending on the type of contract, either schedule compression techniques are applied, or the scope of work is adjusted. If costs are important, the scope of work is adjusted.
Sometimes a project only requires the scope of work to outline how the goals will be achieved. However, for external projects, a Statement of Work is required.
A Statement of Work is built on the Scope of Work. This project document is created in the initial stage of the project and includes all details such as scope, schedule, and cost. This document is the first reference to avoid disputes, misunderstandings, and confusion.
Statement of Work Vs Project Charter
The Statement of Work and project charter are often confused because both are signed during the kickoff phase. The Statement of Work does not appoint the project manager, but the project charter does.
A Statement of Work is a detailed document, while a project charter is a brief document comprising one or two pages.
Statement of Work Vs Contract
Statement of Work is an integral part of the contract and covers the work management aspects of the project. A Statement of Work can be sent to the client for approval and is flexible and negotiable. On the other hand, a contract is a final step in the negotiation process and is a legally binding document, and includes all terms and conditions of the partnership.
Statement of Work is a foundational document, as it provides details of what will be done. The absence of a statement of work document can lead to scope creep, and this will impact the schedule and cost baselines. Project managers refer to this document to monitor the project scope and control scope.
A Statement of Work removes assumptions, ambiguity, miscommunication, and confusion.