There are many reasons to pursue business process outsourcing and

project procurement, including fexibility, improving methodologies,

and increasing productivity. Taking into consideration budget, scope,
schedule, and risk, what are some of the other reasons to contract part
or all of a project or business process? What are some of the drawbacks
to outsourcing? gain, consider this !uestion from the budget, scope,
schedule, and risk standpoint. "lease remember to answer all
components of the !uestion.
Apart from considerations e.g. budget, scope, schedule, and risk, there are other
reasons why would companies like to contract part or all of a project or business
process and these are:
- Overhead costs are dramatically cut since the company no longer has to
internally maintain the contracted services.
- A high level of expertise and technology can be brought into the project. A
company no longer has to keep up with technological advances. nstead, it can
focus on developing its core competencies and hire !rms with the know-how to
work on relevant segments of the project.
- t provides "exibility to the organi#ation. Organi#ations are no longer
constrained by their own resources but can pursue a segments of the project.
$mall companies can instantly go global by working with foreign partners.
%ut, there are few disadvantages also of outsourcing project:
- &oordination of professionals from di'erent organi#ations can be challenging,
especially if the project work re(uires close collaboration and mutual adjustment.
- )here is potential loss of control over the project. )he core team depends on
other organi#ations that they have no direct authority over.
- *rojects are more prone to interpersonal con"ict since the di'erent participants
do not share the same values, priorities, and culture.
- +mployee morale is likely to su'er when project work that has normally been
done in-house is being transferred to other companies.
)he company is able to hire labor cheaper and not have to worry about overtime
overhead, medical insurance for any additional employees needed, etc. A
contracted entity usually speciali#es in the area contracted for and is set up to
provide the services. )his saves the *roject ,anager from creating an in-house
unit to provide a service he or she may need only once.
$ome of the other reasons to contract part or all of a project or business process
are to
- ,aintain all aspects of the project
- -egal
- )o ensure that ful!llment of all contractual obligations are being met.
$ome of the drawbacks to outsourcing are
- -oss Of ,anagerial &ontrol
- .idden &osts
- /uality *roblems
)here are many reasons to outsource a particular process. ,any of those
reasons revolve around bottom line pro!t. Other business reasons that can be
the need to build e0ciency into the company, %y using outsourcing it can free up
resources to concentrate on other areas of the business. t is also a way to share
risk in certain processes that cannot be easily predicted by making the vendor
responsible for these processes. t may also be necessary to outsource when a
particular expertise is not available within the customers current structure. As an
example a new type of software may need to be developed to address a
particular area of the business. t would be more e0cient and less risky to
employ a vendor who already has the knowledge to complete the project to try
and develop that talent in house.
On the disadvantage side outsourcing can cause employee issues in the way of
trust or involuntary attrition if employee1s become disgruntled and leave the
company believing they may become a casualty of the work being outsourced.
)he customer may also lose "exibility and control of the process and bringing
that process back in house if needed can di0cult.
What is #usiness "rocess $utsourcing?

%*O is hiring another company to take care of the business end for you - such as
the !nances, payroll, hiring, .2, etc. %*O is the practice of contracting with an
outside !rm to handle what are normally in-house operations. ) is a common
one and .uman resources is a growing !eld. many companies use )emp
agencies to handle the initial hiring of employees and vetting them. %usiness
process outsourcing 3%*O4 is the contracting of a speci!c business task, such as
payroll, to a third-party service provider. 5sually, %*O is implemented as a cost-
saving measure for tasks that a company re(uires but does not depend upon to
maintain their position in the marketplace. %*O is often divided into two
categories: back o0ce outsourcing which includes internal business functions
such as billing or purchasing, and front o0ce outsourcing which includes
customer-related services such as marketing or tech support.
www.techtarget.com
%*O is the process of hiring an outside !rm or contractor to perform a certain
business task. )here are many areas of business that this applies to such as
payroll or accounting. )he business must !rst determine which process they
need to outsource and how it will a'ect their business. +0ciency and cost are
two of the things that must be considered. 6ou must also consider how it will
e'ect your current employees and that it is the long term solution for the
business.
%usiness process outsourcing 3%*O4 is a form of outsourcing that involves the
contracting of the operations and responsibilities. )his process inculdes speci!c
business functions to a third-party service provider. di'erent ideas of this would
be application management and application development, data center
operations, or testing and (uality assurance.
What are the common areas that business process would outsource to
other companies or organi%ations?
)here are various advantageous to outsourcing di'erent aspects of overall
business operation, many of which allows companies to enhance productivity
and drive down costs. )he concept backing outsourcing is saving, basically
companies can obtain su0cient service and a cheaper rate than it would cost to
complete the same function in house.
)he common areas that business process would be outsourced are:
.Administration
.Asset and *roperty ,anagement
.7inance8Accounting
..uman 2esources
.*rocurement8-ogistics
&ompanies outsource such business processes as human resources, !nance and
accounting, customer services, learning services and training, and information
technology. &9A is the fourth largest insurance company in the 5nited $tates,
providing such services as risk management, information services, underwriting,
and claims administration. 2ather than develop training programs for their
employees, &9A outsourced this business process to another company. $imilarly,
many universities outsource a number of operations they used to perform
themselves:for example, landscaping, food services, or janitorial services:so
that they can focus on core functions more directly related to educating
students.
According to the text, the common areas that business process would outsource
to other companies would be:
-7inance and accounting
-nvestment and asset management
-.2
-*rocurement
--ogistics
-2eal estate management
7rom our text learned that some of the common areas of %*O are:
7inance and accounting
nvestment and asset management
.uman resources
*rocurement
-ogistics
2eal estate management
And of course depending on your company1s setup will determine what fall under
what heading or heading may be di'erent. also learned that companies are
starting to review others areas to outsource that are consider to be noncore
areas of management.
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What are the common reasons for outsourcing business processes?
One of the most common reasons for outsourcing business processes is cost. )he
processes that are outsourced typically donEt fall under the scope of services that
the outsourcing company provides. )hus, they outsource them to a company that
has more expertise and experience handling these processes. And by having
this %*O company handle these processes more e'ectively and e0ciently than
you would in-house, the company is able to save money.
Another common reason might be improved e0ciency. As stated above, the
%*O company typically is experienced with the processes such as human
resources or !nances in which they have been contracted to handle. $ince these
functions are core competencies of their organi#ation, they tend to put resources
into ensuring they have the latest technology, re(uired training, and sta0ng
necessary to be very e0cient at these processes. )hus, these functions are
performed in a very e0cient manner by the outsourced %*O company whereas
that might not be the case if they were done in-house.
)he common reasons for outsourcing business processes are:
.)ransferring a business function to a third party
.mproving methodologies
.)o bene!t from industry knowledge8experience
.$tandardi#ation of processes
.)o share resources8technology
.,inimi#e initial investment
.7lexibility
.ncreased productivity
.)o (uantify bene!ts or savings more easily
.)o track customer satisfaction
.+nhance shareholder value
What are the bene&ts of outsourcing processes?
A few of the bene!ts of outsourcing are:
&ost $avings
Freater ability for companies to concentrate on core business while non-core
businesses are outsourced
mplementation of bigger initiatives
$elling assets to remove those assets o' books and capital infusion
$killed expertise
ncrease productivity
the bene!ts of outsourcing business processes are:
.&ost savings
.Freater ability to concentrate on core business
.mplementation of wide initiatives
.$ale of assets
.Freater utili#ation of resources
.,ore8varied skills and resources
.%etter access to new methodologies8technologies
.)raining expense reduction
.Freater "exibility
What are key components in the project procurement management
process?
)he key components in the project procurement management process includes:
.$elect sellers8buyers
.*lan contracting
.*lan purchases and ac(uisitions
do you feel that the ade!uate selection of a contract structure, based
on the circumstances in place at the time, can help you limit your risk?
$electing the type of contract structure is a very important factor. f you chose
the wrong contract, especially in a project that is most likely have many changes
before it is all said and done, you could de!nitely open your project up to many
risks that can lead to failure or incompletion of a project.
Agreed, the contract structure is very important. 6ou must be able to cover all
aspects of potential risk. ,ost of the time contract structure is, in the beginning,
the cause of most issues. )hough, throughout time, the structure will be updated
over and over and eventually a structure that works well for your company will
emerge.
$rgani%ations want everything for less' (s this because they have to
make a pro&t? We)ve talked about !uali&cations, fees, price, !uality,
etc. What about pro&t? What role does it play? (s it always good for the
company to pay least price for contract job or product procurement?


At one end of the contract pricing is the cost-plus, a !xed-fee type of contract
where the company1s pro!t is !xed and the company1s responsibility is minimal.
At the other end, we have the lump sum or turnkey contract under which the
company assumes full responsibility. n my opinion, it is not always good for
payng least price or choosing the least priced vendor. Organi#ation should be
more concerned about getting the (uality vendor even if it has to negotiate a
higher price during the vendor selection. *rice of non-conformance or bad (uality
usually runs into millions especially for the mid to large si#ed companies in
addition to the precious time lost. f the company has some strategic project or
product in pipeline which gets delayed due to project non- performance due to
incompetent vendor selection8performance, it would mean huge loss for the
company.
don1t think least price is always the best thing. )he price is part of the whole
package. )he cheapest priced contract may wind up costing more in the long
run if the delivered product or services are sub-standard or inade(uate. t may
be better for the )otal cost of the project if a contract that is higher priced is used
initially since the (uality may also be higher
t has been my experience that the lowest bidder in contracts typically canEt
handle the work associated with it, these failure could be experienced for many
reasons. witnessed this numerous times while working for as a federal
contractor, there were several occasions where contract companies bid far too
law to a'ord the proper manning8speci!cs. )ypically those contracts they are
!xed priced or based upon realistic bids are the best option, going with the
cheapest possible price could greatly a'ect the success of a contract.
s a private entity, do you feel government regulations are good in
promoting fairness and the selection of the best vendor, or are they an
overkill *or simply inade!uate+?
do feel that government regulations can be good in promoting fairness
especially when working with companies overseas. .owever, there are times
when the can do more harm than good. 7or example, if they re(uire you to go
through a long process before being approved, this would interfere with
scheduling for your company.
feel that government regulation is a good thing. )he problem is that with every
set of rules, it is also good business to push your e'orts to the breaking point of
the regulations in order to turn the most pro!t. )hat is the mindset of every
business owner and needs to be remembered when dealing with those
regulations.
%ecause government regulations are re(uired rules that must be complied with,
private entity in some instances are at a disadvantage when it comes to fairness.
n order to abide by all the regulations private businesses must have the revenue
to be in compliance, which is cost. 6es, there are some regulations that do help
small or private businesses but will say most of the regulations are truly
overkill. )he fairness in selecting vendors is mainly in the interest of the vendors
who must be given e(ual opportunity as the others even though their credentials
are not as good.
What is ,ake-or-#uy nalysis? .an you give an example of ,ake-or-
#uy nalysis?
,ake-or-buy Analysis is when a company will analy#e whether or not they should
use there own resources or buy the resources from the vendor. 7or example, if a
company where making jeans they could decided if they were going to process
the cotton themselves or have the vendor process the cotton.
.ere is a link that found that explains the ,ake-or-%uy Analysis:
http:88www.youtube.com8watchGvHgIkDJOrb>@
)he project management techni(ue of deciding whether certain work should be
performed in-house or whether it should be purchased is called ,ake-or-%uy
Analysis. ,ake-or-%uy Analysis is listed as a techni(ue for the fourth edition
*,%OKLEs *lan *rocurements process. A project manager may have a
*rocurement ,anagement *lan for the project that o'ers guidance in making
these decisions. )here are many considerations to take into account when
deciding whether or not to purchase, and these considerations will vary across
organi#ations and projects, and over time. $ellerEs price will typically be a key
consideration. Mhether there is currently the level of in-house expertise for the
work that needs to be done and the time project team members have available
are also important to consider. An example ,ake-or-%uy Analysis (uestion is:
should you mow your own lawn or hire a lawn service company to do itG 6ou may
consider whether you currently own a mower, how much time you have to
devote to lawn mowing, if allergies or other health issues would make mowing
di0cult for you, and how much youEre willing to pay a lawn service. )he decisions
on whether to make or buy something are called ,ake-or-%uy Jecisions. )hese
,ake-or-%uy Jecisions are an output to the *,%OKLEs *lan *rocurements
process and then used as an input to the &onduct *rocurements process.
What are the advantages of making products in house and outsourcing
product manufacturing to another company?
Outsourcing nformation:
Advantages:
N &ost savings8bene!ts
N Freater ability to concentrate on core business
N mplementation of wide initiatives
N $ale of assets 3moving assets o' books, capital infusion4
N Freater resources to move to new environment8systems in a faster time frame
N ,ore8varied skills and resources
N %etter access to new methodologies8technology
N )raining expense reduction
N Freater "exibility
.alvey, Iohn K.. %usiness *rocess Outsourcing: *rocess, $trategies and &ontracts,
Dnd +dition. Iohn Miley O $ons 3*O)4.
n-.ouse Advantages:
&ontrol of (uality and reputation
&ontaining of intellectual property
What is plan procurement process?
*rocurement *lanning is the process used by companies or institutions to plan
purchasing activity for a speci!c period of time. )his is commonly completed
during the budgeting process. +ach year, departments are re(uired to re(uest
budget for sta', expenses, and purchases. )his is the !rst step in the
procurement planning process.
$ome of the other reasons to contract part or all of a project or business process
areP &ommitting less up-front investment to new methodologies or technologies,
$haring resources or technologies, /uantifying savings or bene!ts, )ransferring
the entire function 3not just the ) component4 to a (uali!ed supplier, +nhancing
shareholder value, Obtaining "exibility with respect to the roll-out of
methodologies or technologies, $treamlining or standardi#ing processes across
the organi#ation, %ene!ting from industry knowledge or experience. %usiness
*rocess Outsource: *rocess, $trategies, and contracts: pg<.
$ome of the drawbacks to outsourcing are: failure to hire an experienced and
reliable service provider can lead to signi!cant down time, unproductive
employees, dissatis!ed customers and !nally the loss of business.QAnd
Outsource the %uildings )oo,R Flobal $ervices 3April D@@S4: BD.
*lan *rocurements is one of the BD project management processes described in
the fourth edition *,%OKL. tEs one of the four *rocurement knowledge area
processes, and one of the twenty *lanning processes. )he purpose of this
process is to document the purchasing decisions and approach as well as identify
potential sellers. )here is much information needed beforehand to accomplish
this, which is represented by eleven inputs to this process. )he $cope %aseline
and 2e(uirements Jocumentation are important inputs used to describe the
project work to be performed. )he speci!c work that is to be performed in a
contract is called the *rocurement $tatements of Mork.
t must !rst be decided whether certain work is best done in-house or whether it
should be purchased. )his is called ,ake-or-%uy Analysis, and its outcome is
,ake-or-%uy Jecisions. )here are advantages and disadvantages of the di'erent
types of contracts that need to be considered as well. )he types of contracts that
should be used, in addition to much other information, is written in the
*rocurement ,anagement *lan that provides guidance for performing the
procurement processes. *rocurement Jocuments describing what work is needed
are made available to sellers in order to elicit their o'ers. $ource $election
&riteria are the criteria developed in this process that will be used to choose
among sellersE responses. 7or example, sellers representing larger or local
organi#ations might be preferred.
*roject *rocurement ,anagement 3**,4 is part of the project management
process in which products or services are ac(uired or purchased from outside the
existing employee base 3which would work on the project4 in order to complete
the task or project. )here are essentially two di'erent types of procurements,
one in which the company is responsible for the particular product or service
under a legal contract, this **, includes contract management responsibilities
that issue speci!c tasks to various team members. %oth of these project
management processes are imperative to a companyEs success.
*roject *rocurement ,anagement can also include responsibility of the contracts
in which the buyer that is hired for this particular project is performing the task
for a certain seller, this contract is placed between the one providing a service
and the particular team that was responsible for completion of this project.
**, includes a variety of tasks including the planning process where one decides
what to ac(uire or purchase and how they will do so. 9ext, they plan the contract
which provides a legal document of the exchange. After the legal documents are
drafted, the seller can respond with variety in(uiries such as a bid or proposal.
After these answers are fed back to them, they will review the various o'ers and
choose whom will be awarded the project. )he most important process of *roject
*rocurement ,anagement includes project management relations between both
the buyer and seller via the contract. )he closure of the contractor sets the
project in motion.