OUTSOURCING

The process and the risks involved

Dilbert outsourced

OUTSOURCING The basic definition

The definition what

Outsourcing is the movement of computerbased functions from within an organization to an external environment
by Chapman & Andrade (1998)

Transferring occurs for

responsibility of the support maintenance of an application portfolio(s) employees consultants supporting that portfolio(s).
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Outsourcing- some statistics

350 300 250 200 150 100 50 0 1980 1998 2002 2003 2004
78 180 320

120

Number of companies

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Reasons to outsource - strategic

Reduce and control operating costs Make capital funds available Resources are not available internally Accelerate re-engineering benefits Shared risks Access to world class capabilities

Reasons to outsource - Tactical

Resources not available internally Improve company focus

Function difficult to manage or out of control

Probability of success
Generally successful outsourcing

a. b. c.

Data processing operations

Recruitment 40 %

Network management
Administrative modules 88 %

Help desk functions

Training and professional development 29%

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Probability of success
Situationally successful outsourcing

a. b. c.

Payroll systems
Payroll 23%

Personnel systems
pension administration 57 %

Benefits systems

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Probability of success
(almost) assured failure

Online reservation systems for travel industries Deposit systems for banks Loan/Sales systems for financial companies MRP systems for manufacturers
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While deciding the vendor

1.Commitment to quality 2. Price

3. References/reputation
4. Flexible contract terms

5. Scope of resources
6. Additional value-added capability

7. Existing relationship
8. Location

Location of the vendor

Reference : http://www.telecomsintelligence.com/Outsourcing%20Infopack.pdf

Politics and time difference is major factor.

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OUTSOURCING
Writing the contract

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What is a contract ?
The deal structure The legal basis of the outsourcing agreement, and as such is of fundamental importance.

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Different Types of contracts

Fixed price for fixed requirements

Static portfolio Fixed price

Re-negotiation needed often

CMM companies
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Different Types of contracts

Time and material billing

Easiest to implement No motivation for process changes

Risk

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Different Types of contracts

Price per output delivered

Criteria for output not clear Not suitable for third party vendors

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OUTSOURCING
The Risk Management

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Risks in outsourcing
Cost and Time over-runs for the project Selection of wrong offshore outsourcing vendor Cultural mismatch with outsourcing partner Political or other instability in outsourced country. Data privacy Intellectual property rights Legal Standing and Access to Arbitration
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Some statistics

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Managing the Outsourcing Risks 1. Understand the project. 2. Divide and conquer subcontracting.

3. Align incentives.
"You'll never have all the information you need to make a decision if you did, it would be a foregone conclusion, not a decision"
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Planning for risks management

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OUTSOURCING
The Conclusion

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How to outsource successfully

1. Specify requirements in detail

2. Make an explicit decision to outsource

3. Obtain resources 4. Select a vendor 5. Write the contract 6. Build an in-house management team to monitor the project to completion.
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Any questions ??

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The references
The notes and articles given by Mrs. K. Wilson.
http://www.outsourcing.com http://techupdate.zdnet.com/techupdate/stories/main/Top_10_Risks_Offs hore_Outsourcing_print.html http://www.outsourcing-toolkit.com/contract.htm http://www.ovitztaylorgates.com/TheITOutsourcingEssentialsGuide.html

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Thanks a lot !!!!!

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