Outsourcing is the movement of computer-based functions from within an organization to an external environment

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OUTSOURCING
The process and the
risks involved

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• Definition of outsourcing - what, why and
where
• Different types of contracts
• Different Risks involved in outsourcing
• Risk management plan for outsourcing
Outline for the presentation

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Dilbert outsourced

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OUTSOURCING
The basic definition

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• “Outsourcing is the movement of computer-
based 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).
The definition – what

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Outsourcing- some statistics
0
50
100
150
200
250
300
350
1980 1998 2002 2003 2004
Number of
companies
Source : Gartner Inc.
78
120
180
320

7. 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

8. Reasons to outsource - Tactical
•Resources not available internally
• Improve company focus
• Function difficult to manage or out of control

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Generally successful outsourcing
a. Data processing operations
» Recruitment – 40 %
b. Network management
» Administrative modules– 88 %
c. Help desk functions
» Training and professional development – 29%
Probability of success

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Situationally successful outsourcing
a. Payroll systems
» Payroll – 23%
b. Personnel systems
» pension administration – 57 %
c. Benefits systems
Probability of success

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(almost) assured failure
• Online reservation systems for travel
industries
• Deposit systems for banks
• Loan/Sales systems for financial
companies
• MRP systems for manufacturers
Probability of success

12. 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
*Survey of current and potential outsourcing users done
by outsourcing institute

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

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• Fixed price for fixed requirements
• Static portfolio
• Fixed price
• Re-negotiation needed often
• CMM companies
Different Types of contracts

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• Time and material billing
• Easiest to implement
• No motivation for process changes
• Risk
Different Types of contracts

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• Price per output delivered
• Criteria for output not clear
• Not suitable for third party vendors
Different Types of contracts

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OUTSOURCING
The Risk Management

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• 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
Risks in outsourcing

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Some statistics

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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"
Managing the Outsourcing Risks

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Planning for risks management

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OUTSOURCING
The Conclusion

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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.
How to outsource successfully

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Any questions ??

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• 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
The references

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Thanks a lot !!!!!