WS2_FINAL_MITOS_T03_v20151102

Workshop WS2: IT Outsourcing Approach
SE-MITOS/WS2-Team-3 © 2015 NUS. All rights reserved
Workshop WS2:
IT Outsourcing Approach
Submission-2
Team Name: MITOS-TEAM-03
Team Members:
NAME STUDENT ID
SAVDEEP SINGH GANDHI A0134541N
NIU YIMING A0135952B
ZHANG ZHENZHEN A0134433N
LU ANGXIAO A0136021Y
LIM WEI KEONG A0135899H
ARUN V SANKAR A0134606L

Table of Contents
Introduction ..........................................................................................................3
Outsourcing Objectives .........................................................................................4
5 Key Evaluation Criteria for Service Provider Selection:.......................................4
Evaluation of Vendors based on the criteria ......................................................5
Advantages and Disadvantages of Vendor Proposals ............................................6
The FutureTech Proposal ...................................................................................6
The VBS Proposal..............................................................................................7
Total Project Cost Estimation ................................................................................8
Assumptions ......................................................................................................8
Other Potential Issues .........................................................................................10
Security and Confidentiality Issues:..................................................................10
Termination of Contract...................................................................................10
Technical Refresh.............................................................................................10
Ownership of Hardware/Software (being utilized by the Data Centre)............10

Introduction
Pacific Petroleum, a Singapore based oil company is looking for a good IT service provider
whom they can rely on for taking care of its IT development and maintenance. IT applications
are their integral part for running the business which they were running within. The
management is not satisfied with the current IT department working as applications starts
getting numerous complaints and no major software development work was going around which
made them decide to look for outsourcing all major IT applications which includes ERP
packages, Warehouse management system, Asset Management, Project Planning etc.
The firm has shortlisted the below two service provider from several computing firms
1. Future Tech
2. VBS
Future Tech and VBS have submitted their proposal and Pacific Petroleum wants to select the
best out of two.

Outsourcing Objectives
The Executive Management of Pacific Petroleum have decided to outsource most of the IT
Development and Operations to one or more appointed vendor. This is to reduce the reliance on
the in-house IT department, as it’s facing a shortage of experience staff. As there have been
numerous complaints concerning the work of the programmers, outsourcing allows access to
professional, expert and high quality services. This will be a major criteria for service provider
selection. For the Data Centre team, no retrenchment benefit will be paid (cost-saving) as they
will be transferred to the outsourcing service provider.
5 Key Evaluation Criteria for Service Provider Selection:
1. Experience, Track Record and Effective Resources: Pacific Petroleum is outsourcing
almost all its integral IT development and maintenance, thus it should ensure that the
vendor should have good experience in handling these applications and need to see
whether it has skilled available manpower and other relevant resource to deliver best.
2. Innovative and Latest Software Development Methodology: IT is always evolving
and effective software development methodologies are evolving. Pacific Petroleum
needs to ensure that their application is build in latest technologies available which will
improve product performance and high returns.
3. Cost Effective Pricing Model: Vendor need to quote lesser pricing in the market.
4. Quality Control, Data Security and Disaster Recovery Framework: Vendor need to
have well defined framework for defect free and high quality deliverables. They should
also see that Pacific Petroleum data should be kept secured. There should be a backup
framework in case of data loss or any unprecedented issues that can ruin the whole
product development and maintenance.
5. Communication Channel Effectiveness: Pacific Petroleum believes that effective
communication between vendor and customer is an important factor for the success of
software development. There should be a clear defined framework where user
involvement in all phases of product development is desirable.

Evaluation of Vendors based on the criteria
We have assigned different weights to five evaluation criteria based on its impact on the overall
outcome from the project. Score for each vendor is calculated as product of rating assigned and
weights as follows:
Criterion Weightage Rating
( 1-5)
Score
Future Tech VBS FutureTech VBS
Experience, track record,
effective resources
10% 4 3 .4 .3
Innovative and latest
software development
methodology
20% 2 4 .4 .8
Cost effective pricing
model
30% 4 3 1.2 .9
Quality control, data
security, disaster
recovery framework
20% 4 4 .8 .8
Communication channel
effectiveness
20% 3 4 .6 .8
Sum of Score 3.4 3.6
Based on the above score and trend of the latest new upcoming technology, we have decided to
select VBS as preferred vendor.

Advantages and Disadvantages of Vendor Proposals
The FutureTech Proposal
Advantages 1. FutureTech is a reputable software house based in Singapore and has
good client base in Singapore. Pacific Petroleum has previously
worked with FutureTech before.
2. Handover is proposed to be done in 3 months though it is desirable to
take 2 months; FutureTech has all the hands on experience and trained
staff to complete the handover in a much faster manner.
3. ISO practices with formal review and rigorous acceptance testing add
to the quality of deliverables.
4. Help-desk service to answer user queries caters to post development
support and maintenance as well as monitoring the performance of the
Data Centre during the period.
5. There are a set of agreed Service level agreement and performance of
data center would be reviewed against these SLA’s at all weekly and
monthly progress meetings.
Disadvantages 1. As all the employees in the Data Centre except the three team leaders
are not offered jobs in FutureTech, Pacific Petroleum need to pay
$25,000*12 = $300,000 retrenchment package to its employees (10
programmer analysts + 2 admin clerks).
2. Proposal specifies buying all the equipment from Pacific Petroleum
but it is not specified whether they are willing to sell back the
equipment’s after 2-years of contract is over. This clause need to be
clearly conveyed to the management as buying new equipment after
the contract gets over adds to the total project cost.

The VBS Proposal
Advantages 1. The project manager assigned by VBS, i.e., Peter Henderson is a
senior project manager who has spent his entire career (more than 20
years) in the IT industry and possesses 10-year experience in
managing project delivery.
2. Object oriented analysis, design and coding techniques proposed are
among the best software development methodologies available in the
market which can be a sure bet for user satisfaction.
3. VBS is certified to ISO and CMMI as well as they are practicing Peer
Reviews which ensures high quality deliverables.
4. All the current Data Center staff of Pacific Petroleum (except for the
manager who is retiring soon) in the team will be offered employment
by VBS, which saves client the retrenchment cost.
5. VBS working from Pacific Petroleum building seems good for better
communication between business users and vendor. VBS has also
proposed a well-structured points of contact.
Disadvantages 1. VBS is a recent established company in Singapore and does not have
much presence and experience in the local market.
2. VBS require the current systems to run parallel until 2015 Q2, which
is below the expectation (3 months) of management from Pacific
Petroleum and brings additional cost.
3. VBS will be working from Pacific Petroleum data center building
which could otherwise be leased or rented out, thus adding to the cost
of project budget. All other expenses like electricity, water, building
maintenance cost etc. need to be added to it.
4. Project risk is higher as more development and customization will be
needed with the VBS proposal.

Total Project Cost Estimation
Assumptions
FutureTech
1. The moving charges for the Data Centre is taken to be 1% of the total cost of the project
proposed in the proposal.
2. As they are committing to hand over within 3 months, so 1 month cost of the Data
Centre building is considered to be taken in the project cost.
3. Cost of the 13 remaining employees of the Pacific Petroleum who are needed to be
retrenched will be considered as the cost to project.
VBS
1. The company will be using the Pacific Petroleum Data Centre building so the rent will
be shared within the two companies i.e. 50% every Year.

Cost (S$’000)
Quarter Activities FutureTech VBS
year 1/Q1 Handover and parallel running 460 1134
year 1/Q2 Handover complete & initial operation of Data
Centre
292 274
year 1/Q3 Operation of Data Centre and additional tasks
specified in SOW
258 238
specified in SOW
557 457
specified in SOW
289 238
specified in SOW
650 541
specified in SOW
289 238
specified in SOW
289 238
year 1/Q1 Moving Data Centre Charges (1%) 25.84 -
year 1 Data Centre Building Charges 54.583 325
year 2 Data Centre Building Charges - 325
year 1/Q1 Retrenchment Charges 325 -
year 1/Q1 Sale of old Hardware and Software (500) (600)
TOTAL 2989.423 3408
Based on the above estimated budget, FutureTech is found to be more cost effective to the
Pacific Petroleum.

Other Potential Issues
Security and Confidentiality Issues:
Security and confidentiality issue wasn’t being mentioned in both of the submitted proposal.
Some are the possible causes to be included in the Contract as follows:
1. The appointed vendor shall fully comply with any written instructions on information
security matters (including IT Security Best Practices) that may be issued by Pacific
Petroleum.
2. The appointed vendor is required to maintain strict confidentiality and ensure that all
information pertaining to Pacific Petroleum's work environment must not be disclosed to
any party except the representative and the appointed vendor’s employees directly
involved with this contract. The appointed vendor is to ensure that information is not to
be published or communicated to any other person in any form whatsoever except on a
strictly “need‐to‐know” basis. Failure to comply with this confidentiality requirement
shall be a ground for termination of this Contract.  
Termination of Contract
Both proposal did not mention in which cases the Contract will be terminated. Some are the
possible causes to be included in the Contract as follows:
1. Either party can terminate this Contract if the other party commits a breach of its terms
and does not remedy the breach within two weeks of being asked to do so.  
2. Pacific Petroleum can terminate this Contract forthwith by written notice to the
appointed vendor if:
a. the appointed vendor becomes insolvent;
b. legal proceedings alleging insolvency are brought against the appointed vendor;
or  
c. the appointed vendor enters into a composition or similar arrangement with its
creditors.
Technical Refresh
Software are constantly being rewritten to replace older versions (or patch a bug). The proposed
software/version shall be supported for the total duration of the Contract. The appointed vendor
will advise Pacific Petroleum on the cost of upgrades and it will be up to the discretion of
Pacific Petroleum whether to opt for it or not.
Ownership of Hardware/Software (being utilized by the Data Centre)
Existing hardware/software (currently owned by Pacific Petroleum) would be bought by the
appointed vendor. In the event where Pacific Petroleum appoints a new vendor after the
Contract ends, the ownership of all necessary hardware/software will be handed over to Pacific
Petroleum at the purchase value.

WS2_FINAL_MITOS_T03_v20151102

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