Sourcing
Issues in outsourcing.
Analysis of Alternatives
Indicate alternatives approaches
Include “do nothing” option
Consider purchased products and outsourcing
Descriptive name
Narrative model
Essential data and process changes from
the current system
Costs and benefits
Feasibility: TELOSS
Technical: how can we do it?
Economic: is it cost justifiable?
Legal: are there legal issues?
Operational: does this fit the way we
want to do business?
Schedule: can we get it done on time?
Security: what are the risks?
Costs and Benefits
Costs are easier to identify than
benefits
Include intangible and tangible costs
Business benefits include reduced costs
and increased revenue
Include competitive positioning
Consider business focus: low cost,
differentiation, focus
Costs and Benefits (cont.)
Differentiate ongoing from one-time
costs
Separate development cost from
operating cost.
Costs and benefits should be detailed for
each alternative.
There should be a separate summary
table to compare alternatives.
Recommendation
Choose the best option or options.
Consider business as well as technical
arguments.
You may leave some options or a choice
between equivalent systems
Provide a statement of work
Do make a recommendation and support it.
Request for Authorization
Ask permission to continue to next stage
Estimate cost and schedule for next stage,
as well as total project costs.
Proceed
Hold
Cancel
Frequently a pre-written memo of
authorization.
Is this a reengineering
project?
Reengineering requires a mandate to change
the way you do business, and requires a
major commitment from all participants.
Most information systems are written to
support existing processes.
Determinants of
Outsourcing Success
Core vs. commodity
Partner vs. vendor
Tight vs. loose contract
Success: Economic, Technical,
Strategic, Overall Satisfaction with
Contract
Primary Reasons for
Outsourcing
Technological considerations
Cost Savings
Strategic considerations (infrastructure
building - quickly)
Human resource considerations
Mandated by central office/Acquired by
another company
Consolidate Data Centers
Efficiency
Cash Infusion
What happens in
purchased systems
Lease arrangements and components
Customization (total cost often 10 times
purchase price)
Data conversion
Installation and cutover
Purchased System
Advantages
Allows internal resources to be allocated
to more critical applications
Developed and debugged code
Standard practice
Shorter time to delivery (but don’t forget
setup and training)
Available support
Purchased Systems
Disadvantages
Loss of flexibility and customization
Loss of ownership
Requirement to adapt practice to
someone else’s system
Version control
Reliance on a third party
Outsourcing
What happens in outsourcing?
What the reasons for outsourcing?
How do you manage an outsourcing
agreement?
Outsourcing
The purchase of a good or service that
was previously provided internally
Farm out data center operations
(facilities management)
Farm out tasks and services
Farm out systems development
May transfer IS function to vendor
Aha!
Need tight contracts
May be successful for core
functions… especially if linked to tight
contract
Can have successful partnerships
Outsourcing
Disadvantages
Reliance on vendor/partner
Loss of control
Considerations about
security/confidentiality
Evaporation of cost savings
Loss of competitive advantage
Slight of hand with employees
Outsourcing strategies
DECISION
CRITERIA
Core
Competency
“MAKE”
PRESSURE
Often core*
“BUY”
PRESSURE
Often
support*
Security/
Very
Confidentiality confidential
Not highly
confidential
Software
Availability
Software
available for
common
problem
Unique
application
Outsourcing strategies
DECISION
CRITERIA
Partners
Time Frame
IT
Professionals
“MAKE”
STRATEGY
“BUY”
STRATEGY
No reliable,
competent,
motivated, or
financially stable
partners
Time available for
development
Suitable partners
available
Available inhouse
Not available inhouse
Available time
too limited