During Transition and Beyond

During
Transition
and Beyond
The Outsourcing Business Case
Is Essential to Value Realization
kpmg.com

1
During Transition and Beyond
The Outsourcing Business Case Is Essential to Value Realization
Simply put, a business case is a decision-making tool. This tool
weighs in on the potential profitability a particular decision or
scenario will have. A well-structured business case should
demonstrate how the decision will alter both economic and
noneconomic aspects of the services over time.
By its very definition, the business case implies the problem
companies often face when outsourcing contracts are
executed. Once the decision is made to contract with a
particular provider or providers and such contract is signed
and executed, all too often the business case is filed away. It is
assumed at this point that the business case has done its part
and can retire. People often joke that the contract is put on a
shelf to collect dust. If this is true, the business case is sent to
the archives. Unfortunately, if you have ever taken part in any
long-term project, you know the gears in the business continue
to grind upon execution. New milestones are brought into the
picture, financial data once relied upon is manipulated, and the
very assumptions that were the structure for the business case
may change altogether.
Introduction
Not tracking benefits
realization for key vendor
agreements often results
in value leakage—
not achieving planned
benefits—such as:
• Consumption higher
than planned
• Planned headcount
reduction not achieved
• Business changes not
factored into an updated
business case.
One of the
biggest issues
is not being able
to validate that
the business
case objectives
were or were
not achieved—
and if they were
not, what the
causes were
for variances.
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 273448

2
Consider the baseline financial data elements collected during
the assessment phase. Arguably 80 percent of data in the
scenarios modeled are based on assumptions. Typically, these
assumptions are at a very high level and range from the number
of resources in scope in each business unit to the time lines for
transition. Interestingly enough, much of the time spent in terms
of modeling the business case is spent in the assessment phase
because less is known. As an organization moves through the
process from assessment to transaction, the data requirements
become more finite, granularity increases, and the confidence
in the business case grows. The business case may be more
solidified and contract terms may be set, but the outsourcing
agreement is still built on assumptions and most of these are
uncovered during the transition period—after contract signing.
It is imperative to start validating the assumptions and changing
the business case as needed immediately after signing, through
transition and into the ongoing contract. The point being—the
assumptions are always changing and the business case must
be treated as an ongoing tool—not an ongoing concern revisited
each year or in some cases, never.
Data Requirements
Over Time
Granularity
Built on Assumptions
Typical Assumptions That Should
Be Validated Continuously Through
the Contract Life
• Transition timing
• In-Scope resources
• Volume differences
• Service scope differences
• Hardware and software needs
• Differences in expected service levels

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4
Most assumptions that are invalid will become visible as time
progresses. If the business case has been put on the shelf,
these assumptions are solidified and stand little chance of being
critiqued and corrected.
In a recent case study, a FORTUNE 500 company shut down
its business case as soon as transition started for its
outsourced technology contract. During the first year, many
of the assumptions changed drastically, but the team never
revisited the business case to determine the financial impacts.
They operated under the assumption that the savings outlined
in the initial business case would be achieved. The business
case was no longer a tool that could be used to forecast the
financials proactively, and in turn, perhaps drive different
decisions. At a minimum, complicated conversations with
leadership could have been avoided had insight and greater
transparency through a current business case aided planning
and forecasting.
A third party was engaged to assess the impact of the
business case due to the changes and incorrect assumptions
that were known but not quantified. After transition delays,
carrying unexpected retained third-party costs, and mistakes in
occupancy assumptions, realized savings were nearly 60 percent
lower than expected. The end result of not keeping the business
case tuned on a regular basis cost this particular company nearly
$10 million a year in expected savings.

5
Getting through transition and into service delivery is the first
major milestone. However, the road to maintaining value does
not end there. Contract durations are anywhere from three to
seven years. During this time, organization realignments can
occur, leadership can change, new services can be offered,
company strategy can change—the dynamics of a firm do not
change simply due to somewhat static sourcing contracts.
The individuals responsible for the contract as well as the
contract itself must be able to flex with the changing dynamics
of the company.
Continuing Value Realization

6
“Net” Value Gained
from the Sourcing
Relationship
Total Potential Value
Gained from the Sourcing
Relationship
Operational
Challenges
Performance
Challenges Portfolio
Management
Challenges
Efforts
Duplicated Resources
Wasted
Changes
Not
Managed
Performance
Not at
Expected
Levels Service
Providers/
Deployed against
Conflicting or
Wrong Goal Opportunities
Untapped
Potential
Loss of
Value
Efforts
Duplicated
Resources
Wasted
Changes Not
Managed
Performance
Not at Expected
Levels
Service
Providers/
Deployed against
Conflicting or
Wrong Goal
Opportunities
Untapped
• Business units fund
shadow organizations
vs. understanding
scope and applying a
more pragmatic
approach to solving a
service gap. Business
units also hire other
third parties to do
in-scope work.
• Resources can be
wasted because too
many resources are
kept in their current
roles. These roles are
often not redefined
well enough to now be
based on outcome and
performance.
• Organizations also don't
do a good job defining
the new engagement
model—how to work
with the Service
Provider—and
resources are wasted.
• If there is not a
well-defined process for
issue management and
problem resolution,
costs will increase.
• Retained organization
changes attributable to
provider performance
not contemplated in
original business case
(both ways).
• Providers spend effort
on initiatives not
aligned with
department and
company goals due to
lack of visibility or
direct linkage to
strategy.
• Change controls not
captured as baseline
vs. savings—the value
is lost.
• Assumptions made in
the business case are
not aligned to the
budget process.
• Soft costs not
considered in the
business case are not
tested and captured
(e.g., HR budgets, other
overhead budgets).
• Transition delays.
• Changes in volume
are not isolated and
business case is often
deemed obsolete.
• Transformation delays.
• Resource unit variance
from original baselines
from incorrect due
diligence (both ways).
• SLA penalties may
drive requirement to
increase retained
organization to
cover gap.
• Acquisitions and
Divestitures—visibility
into cost that was
not considered.

7
In summary, it is imperative to have a business case that is
consistent through all stages of the service delivery life cycle.
Steps you can take to help ensure this are:
• Procure the governance Finance and Contract resources
before transition starts. That way, they are up-to-speed and
ready to go in a time that is the most volatile.
• Invest in a targeted governance organization with dotted
line responsibility to the business units. The governance
organization comprises the structures, capabilities,
and processes that enable the decisions and actions
that are in alignment with the desired outcomes of the
relationship. Governance is needed for management of
complex, multiparty, internal and external relationships
to achieve specific goals or to ensure desired behavior.
This organization should have its finger on the pulse of all
the business units and functions the outsourcing contract
touches. Make sure this organization understands not only
the contract terms but the assumptions the business unit
made around expectations, savings and requirements.
Conclusion

The Outsourcing Business Case Is Essential to Value Realization 8
• Maintain the business case tool; don’t put it on a shelf.
Perhaps invest in a tool that can be leveraged by the
provider and the business units to ensure live updates
of forecasts and scope changes and be willing to
update both the assumptions and the business case
throughout the life of the agreement to help maximize your
benefits realization.
• Understand the financial assumptions going in—focus on
hard-dollar cost savings and memo those that are not.
• Implement rigorous scope and contract change control
procedures. Each scope or contract change should have
an accompanying business case that should augment the
existing case. Reasonable flexibility should be built into
the contract to address foreseeable and unforeseeable
changes. Variable pricing mechanisms and a flexible service
commencement date allow the business case to be updated
more fluidly. This forces the focus of the practitioner to be
forward-looking with a predictive analysis mind-set versus
being mired in administrative contract churn, and be willing
to update both the assumptions and the business case
throughout the life of the agreement to help maximize your
benefits realization.
• Meet contractual obligations
• Ensure effective management
• Rapid resolution of issues
• Ensure management control
• Provide consistent direction to provider
• Ensure delivery of expected savings
• Ensure market pricing
• Manage demand
• Create optimization through standardization
• Leverage and focus provider capabilities
• Institutionalize process improvement
Risk Mitigation Value Realization

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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity.
Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date
it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional
advice after a thorough examination of the particular situation.
KPMG LLP does not provide legal services.
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. The KPMG
name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. NDPPS 273448
kpmg.com
Tracy Newton
Director, Advisory Services
T: 770-335-7830
E: tnewton@kpmg.com
Tracy is a director in KPMG’s Shared Services and Outsourcing
Advisory practice and has almost 20 years of advisory and
industry experience in the sourcing marketplace. Her background
in finance, consulting, and strategy helps clients navigate the
financial decisions related to IT, F&A, or HR outsourcing and those
inherent in complex transformation journeys.
Paul R. Buckles
Senior Associate
T: 313-999-0057
E: pbuckles@kpmg.com
Paul has nearly five years of financial analysis and project
leadership experience. In his role, he is responsible for providing
financial modeling and project management for shared services
and outsourcing assessments and transactions across all
functions – F&A, HR, Procurement, IT and Supply Chain.

During Transition and Beyond

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