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Outsourcing BenefitsAccording to the latest Global IT Outsourcing Study
from DiamondCluster for the year 2006:
Why ?Companies are reducing outsourcing for
three primary reasons: • Mistakenly outsourced a process or
function that is core to their business and are now bringing those back in-house.
• Their provider over-promised and under-delivered.
• The complexity of managing and measuring outsourcing projects and relationships overshadowed the benefits.
Cost MetricsFinancial costs. Hard costs associated with
activities that must be undertaken to assess, launch, and maintain a Business Process Outsource (BPO) project.
Strategic costs: loss of organizational learning in the outsourced activity.
Analysis Phase Costinternal staff that will be enlisted to
conduct the assessmentthird-party professional support: BPO
consultants, market research specialists, and change-management consultants
fear-induced performance declines
Implementation Phase Cost• hire a third-party intermediary, or• time spent in crafting an Request For
Proposals, distributing it to vendors, managing and responding to queries, and evaluating proposals (meetings with the leadership teams of the top two or three candidates, including site visits to their facilities)
• work with an legal team when developing the contract
Transition Phase Cost• Depth of relationship: costs associated with developing
and maintaining a strategic relationship with the vendor
• Breadth of the relationship: range of processes that are outsourced. Working with a single provider for multiple processes may reduce costs as familiarity and trust increase, but the potential costs associated with vendor failure increase as dependence on the vendor increases.
• third parties: to assist in the integration of both the vendor’s and the initiating organization’s systems
• process adaptation: Employees may experience a period of adjustment as the process is transitioned and they need to interface with new people and unfamiliar systems
Operational Phase Cost• Impact on Productivity: Most BPO initiatives result in some
job displacement or layoffs. Remaining employees will be concerned about whether their unit is a future BPO: drop-off in productivity. Productivity measures: Output per employee, Overhead cost per unit of output, Output per capital expenditure, Output per asset
• Customer satisfaction levels during BPO implementation. Variations beyond the norm must be carefully analyzed
• Competition: Competitors will respond to new moves.• Reactions of shareholders and other major organizational
stakeholders: extensive reengineering or restructuring that includes a technology component may meet with anxiety and doubt
Provider Risk MetricsProvider’s financial stabilityProvider’s track record for quality, on-time
delivery, and serviceMaturity level of the provider’s processesMaturity of the provider’s service or
productClarity and effectiveness of communication
with the provider
Provider’s financial stabilityDun & Bradstreet rating/reportCash Flow and Banking RelationshipsAccounting SystemsNet worth of the businessAccounts Receivable/Payable Status
Provider’s History
Customer referencesProduct or service performance metrics :
field fault history, percent on-time delivery, average response time for customer calls.
Maturity level of the provider’s processesProof of certifications to industry standards
such as TQM, ISO 9001 and SEI CMMiManagement experienceTechnical capabilityQuality assurance program
Service/Product Maturitylength of time the provider has been
providing the service to similar projects total number of production months for the
productcustomer defect reporting history on the
productexpected product life
CommunicationTime zone differences: Overtime costCulture differences. Approach and
management style fits our strategy & culture ?
Travel cost Onsite present cost
Integration Risk MetricsLevel of customization—How much new
development specifically done for our project is needed?
Level of integration/dependence—How tightly coupled is the provider’s work to ours?
Current System Metrics• Capture specifications on workload• Average size of each transaction (consider both
inputs and outputs)• Largest historical size of a transaction, and largest
forecast future size of a transaction• Largest historical number of transactions at peak
times• Largest forecast number of transactions at peak
times• Total current storage capacity requirements for data• Total forecast storage capacity requirements for
future data• Peak utilization of the central processing unit at
particular times during the 24-hour day
ProgressAre all schedule commitments on track to be
met? percent of effort completedpercent of modules completed and/or
inspected, and unit or multiunittesting progress (percent test cases
executed and passed).
QualityAre quality targets going to be met? Have
they been met? technical performance measures:
transaction throughput or user response time
number of open defectsmean time to failurelevel of fault on fix.
ResponsivenessAre delivery of on-demand services and fixes
to problems being handled in accordance with your project’s needs?
Time (average, maximum) to restoration (getting us moving forward even if it is with a temporary work around)
Time to permanent fix delivery.
References
• Laird, Linda M., Software Measurement and Estimation A Practical Approach
• Schniederjans, Marc, Outsourcing management information systems
• Duening,Thomas N., Essentials of business process outsourcing
• DiamondCluster International, “2006 Global IT Outsourcing Study.” Available from www.diamondcluster.com.