OUTSOURCING

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OUTSOURCING

• The process and the risks involved

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Outline for the presentation

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

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Dilbert outsourced
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OUTSOURCING

• The basic definition

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The definition what

• 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).

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Outsourcing- some statistics
320
In millions
180
120
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Source Gartner Inc.
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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

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Reasons to outsource - Tactical

• Resources not available internally
• Improve company focus
• Function difficult to manage or out of control

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Probability of success

• Generally successful outsourcing
• a.       Data processing operations
• Recruitment 40
• b.      Network management
• Administrative modules 88
• c.       Help desk functions
• Training and professional development 29

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Probability of success

• Situationally successful outsourcing
• a.      Payroll systems
• Payroll 23
• b.      Personnel systems
• pension administration 57
• c.       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

• Commitment to quality
• Price
• References/reputation
• Flexible contract terms
• Scope of resources
• Additional value-added capability
• Existing relationship
• 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/Outsourcing20
Infopack.pdf

Politics and time difference is major factor.
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OUTSOURCING

• Writing the contract

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(No Transcript)
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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/mai
  n/Top_10_Risks_Offshore_Outsourcing_print.html
• http//www.outsourcing-toolkit.com/contract.htm
• http//www.ovitztaylorgates.com/TheITOutsourcingEs
  sentialsGuide.html

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Thanks a lot !!!!!